Consumers lead, business follows
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| Wed, 09-10-2008 - 8:22am |
Since we became a consumer society, around the turn of the last century, it is consumers who lead the recovery, not business. You can give a business all the tax breaks you want, but if they can't sell their goods or services, they lie there with excess capacity producing nothing. That's why the whole trickle down theory doesn't work. Consumer lead. That is one of the reasons the Great Depression hit as hard as it did. Someone had to figure out that it is the consumer who leads, not business.
Business can be really quick at finding a market and exploiting the niche that consumers create, but they cannot create the market demand. That is created by consumers. A little history lesson might be in order.
At the height of the Great Depression, Ford when to the government and asked them to underwrite a loan to the Ford Corporation. Ford said that he would use the loan to modernize his plants, lower the cost of the cars he produced, consumers would buy them and he could lead the country out of the Great Depression. The government actually gave Ford the loan, and, true to his word, Ford did modernize his factories and lowered the cost of the cars he produced.
But it didn't lead the country out of the Great Depression. Consumers had no money. Business can create any good you want, but it cannot create the demand. Tax breaks to business don't mean a thing unless the consumer will buy the goods the business produces. And if the demand isn't there, you can not only cut business taxes, but do away with them and not much is going to happen.
To have a viable economic system you need at least the minimum:
Capital and raw material. This is the lesson of Adam Smith.
Labor. If you can't transform the raw material into something, capital is worthless and raw material is just fancy dirt. This is the real lesson of Marx and Engles.
A market. Someone has to buy the goods that are produced by the "capitalist" from the raw material the is produced by the labor. This is the lesson of Kaines.
A stable medium of exchange. If I can trade two of my thingees for one of your thingees, I need to know that I can take your pieces of paper that you give me for one of my thingees and buy something that is the equialent of two of your thingees. This is the lesson of Friedman.
Information about your thingee, or your business, that can be compared to other information about other products and other businesses has to be the same. This is the lesson we are still learning from Enron and Worldcom.
The trickle down theory fails because it assumes that if you give the capitalist a break, they will produce goods that the consumer will buy. But, as Ford and the government found out during the 1930s, if the consumer ain't got the money, you still can't help the economy on a broad basis. And we are seeing what happens if the medium of exchange isn't stable, as it has not been the last five years or so. Hence, the housing market melddown.
The Bush administration has failed in two places. One, they assume that tax breaks to business will somehow lead to a market. Not true. Tax breaks to comsumer lead to a market, and the consumer will decide what that market is.
Second, the huge deficets of the Bush years, especially for the war in Iraq, has destablized the medium of exchange.
Regardless of who you vote for, for the U.S. to recover from the recession, consumers have to lead, and the money supply has to stablize.
Think about that as you get ready to vote.

A continuation of the Bush
Since you brought up Marx, I'll toss in one of my old favorite quotes from him along the lines of exactly what you were talking about (I'm paraphrasing, can't find the original):
"Recessions occur because workers are not paid enough to consume the goods and services which they produce."
Ashes where the bodies burning
No more war pigs have the power
Hand of God has sturck the hour
Day of judgement, God is calling
On their knees, the war pigs crawling Begging
"What the bourgeoisie therefore produces, above all, are its own grave-diggers. Its fall and the victory of the proletariat are equally inevitable."
Marx