Economy’s fire needs more kindling

When I was growing up in the Bronx, I didn’t know much about starting campfires.

I learned how to do that at summer camp, where there were a lot more trees, broken limbs and available wood than in the concrete and asphalt neighborhood I lived in.

For those city kids who didn’t go to camp or join the Boy Scouts: You take small, thin pieces of kindling wood and light them. Then you hope the bigger chunks of wood stacked above the kindling eventually catch fire.

Essentially, that’s how an economic stimulus during a recession is supposed to work. The federal government is supposed to create demand since businesses and consumers are not spending. The government is providing the kindling.

Only in this economic mess – given the triple whammy of financial, foreclosure and jobs crises – the wood above the kindling has been too damp to catch fire. Businesses and consumers are paying down debt and unwilling to spend excess cash. That might be the right strategy for them individually, but it means demand will remain weak. And unemployment will remain strong.

What should we do?

There are two choices. The first is to wait for the sun to bake the bigger pieces of wood so they can catch fire. All business cycles eventually end and then start anew. That’s how capitalism works. The private sector – businesses and consumers – will come to the rescue over time.

Many believe that day will come sooner if the government stays out of the way. What’s more, they add, the government’s deficit already is out of control. That means the supply of kindling is dwindling. The more we use now, the less left for our children.

About half the country supports the above approach, according to polls. I’m going to go out on a limb (not really) and say the majority of Georgians do. Certainly, the overwhelming majority of those who comment on the Biz Beat blog are fed up with government.

The second option is for the government to add significantly more kindling, sometime after the November election when it might be more doable.

The first round of stimulus – about $800 billion spread over two years, including tax cuts and credits – was not enough to do the job in a $14 trillion economy. Much of the money went to state and local governments to forestall layoffs. But all that did was continue the status quo – instead of adding new jobs in a struggling economy.

The argument for another stimulus is to reduce the pain being inflicted on real people. Half of the unemployed in Georgia have been without work for at least 27 weeks. I get e-mails and calls from people who cannot find jobs, no matter how hard they try – including from a man who had worked all his life after three tours of duty during the Vietnam War.

Unemployment in Georgia and metro Atlanta is in double digits – even though the recession began 31 months ago. And 31 months from now, the jobless rate will still be over 7 percent, according to Fed Chairman Ben Bernanke.

We’re the richest country in the world. We’re pretty smart and inventive when we want to be, too. We will be able to solve the deficit problem over the long haul.

We need more kindling.

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7 comments Add your comment

Real American

August 3rd, 2010
9:00 am

You people are a bunch of phoney hypocrites,You hate government when it is not convenient for you. Unemployment checks, Va checks,SSI, Medicare checks.

What do you think they are? all those people who hate government are drawing unemployment given by the government, tell them to give it back.

If we went by state rights especially here in Georgia with the Good old boy mentality, we would be back in the 1950’s.

Stimulus!

August 3rd, 2010
9:55 am

the government needs another $700 billion stimulus by giving money to big corporations like AIG, GM and Goldman Sachs! That money will one day trickle down to “boost” the economy, when all those execs start spending their millions in bonus cash on stuff like new granite countertops for the beach homes, travel to europe and a new line of fall fashions at the top designers in New York, California and Miami.

N

August 3rd, 2010
10:56 am

“We will be able to solve the deficit problem over the long haul.”

I hope so. But honestly we cannot without changing the habits. Chances are we will have to take Greece like action someday to fix the problem. Our debt is getting very close to 100% of GDP.

Rochele Hirsch

August 3rd, 2010
2:45 pm

Here’s my stimulus idea that contains tons of leverage for jobs, for small business, and for opening pocketbooks: Have the Fed’s sponsor and promote a broad series of Art Festivals and Contests throughout all the States. Money would go to existing organizers, to advertising and promotion through TV and the Internet, and to support prize money for contests. Small businesses from artists/musicians/actors/dancers to food purveyors to security and clean-up services to EVERYTHING needed for festivals and contest would be engaged. Even large business can be involved through contests and promotion on “how they are using art in their corporation.” We know the $$$ value of art to the community. Let’s support THAT kind of infrastructure, too. We all win.

Nonia

August 3rd, 2010
3:29 pm

The problem is the mentality of our country. The majority lives in a vacuum, taking for granted that our country is a country of consumption. Levels of status and the way each of us is graded on your ability or inability to buy stuff as very little is produced in this country anymore. What are americans buying?……the majority is stuff we don’t need. The house that is unable to be paid for when a job or jobs (if both husband and wife aren’t earning an income)are lost. The car that can’t be paid for when loss of income occurs and the lack of savings for a rainy day. The majority of Americans live like tomorrow is promised meaning that there will always be money coming from somewhere and not think wisely for the what ifs? This looming recession has taught many of us to re-think if we “Really need another one of these”, Do we “Really need something or is it a want”? The job pool has shrunk for most of the stuff we buy even if it’s a need item, isn’t produced here and it’s a domino affect. American company not producing it, so no need to hire an American worker that could earn an income-then the blame game starts with taking a look in the mirror at ourselves-
What did our fore-fathers do during the great depression? If we don’t know, we better find out soon, because this country is almost out of fuel to keep going!

Government Changes

August 3rd, 2010
6:31 pm

The government should order u.s. firms to stop outsourcing jobs and impose high tariffs and taxes on all imports, to help u.s. workers keep their jobs and good benefits. Prices will go way up, but that’s need to help the workers and unions.

[...] What should be done? [...]