Monday, June 06, 2011

Why the economy is sputtering out

Just an economic reminder.

The red bars are the percentage of job losses per month under George W. Bush. Notice that they continued to get worse every month until Obama was sworn in. Obama took three months to get the stimulus passes and then the number of job losses per month started shrinking. There have been net positive job increases since early 2010. Unfortunately, never enough jobs increased to deal with the new workers entering the economy each month (125,000).

Now in 2011 the stimulus money has run out. The result is obvious. The economy is no longer creating very many new jobs.

No business is going to hire more workers if those new workers cannot sell more product or services. If consumers (who make up 70% of the spending in the economy) do not have money to spend then the economy will stagnate - as it is doing right now.

The Republican solution is to provide tax cuts to business, but businesses are not going to invest if there is no increasing market to sell to! Businesses do not create jobs to take advantage of tax cuts if those jobs will not increase revenue and pay for themselves. The top 1000 American firms currently have over $2 trillion is spendable cash on their books and have had that money since Wall Street collapsed in September 2008. Those businesses do not need more cash! They need stronger markets to sell to.

Without more jobs the consumers cannot increase consumption. Businesses will not hire workers without an assurance of increased consumption. Nor will they invest in more plant and equipment without increased markets, no matter what the alleged tax advantage of such investing might be.

Tax cuts will make the job situation worse, not better. So tax cuts will cause the second dip of the Great Recession to be worse.

Of course the Republicans are working hard to tank the economy so they can blame Obama before the 2012 election. Right now the Republican Party is the biggest enemy America faces, much more dangerous to the health of the economy and society than any terrorists.

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