Jeffrey Dorfman explains why six trillion in new federal debt hasn’t stimulated the economy:
emand cannot produce economic growth on its own. At its most fundamental level the economy is the sum of transactions between buyers and sellers, a giant marketplace where people and businesses trade goods and services for money. The key part of this concept is that every buyer requires a seller; you cannot buy a product unless somebody has manufactured it and is ready to sell. If the supply of goods to sell is unchanged, an increase of demand simply results in bidding wars among buyers and higher prices.
It is not the dollar size of an economy that counts, but its real size measured in terms of the amount of goods and services produced and sold. People want more money only to the extent that they can use it to buy more stuff (which can include savings or investments). More demand without more supply does no good, since it does not result in more goods and services being produced.
Exactly. And we have a housing bubble, its related credit bubble, ObamaCare, Dodd-Frank, the EPA, and $16,000,000,000,000 in debt all weighing down on the economy. A rational program back in 2008 or 2009 would have looked more like this:
• Make the depositors whole instead of the big banks.
• Reinstate Glass-Steagall.
• Underwater mortgage relief, combined with letting the housing market find its bottom.
• Complete privatization of Fannie & Freddie.
• Protect the dollar.
• Rein in spending.
• Deregulate the 50 little fiefdoms in the insurance market into one national market — a proper use of the commerce clause.
• Drill, baby, drill.
Instead, we got Obamanomics. Which as I’ve written before, consists of taking an economy when its on its back, putting your boot firmly on its throat, and whacking it in the head over and over again with a big sack full of money while shouting, “WHY WON’T YOU MAKE ANY JOBS?” When that fails, get a bigger sack.
And as a result we have an economy where fulltime work has been essentially outlawed, housing is a bubble ready to pop a second time, we use the insurance market to funnel money from jobless Gen Y to their rich parents, and Washington and Wall Street are Siamese twins with their boots on our throat.
It won’t end well.