We have Stagflation: so now what?
It seems reasonably clear to virtually everyone now that, at the very best, the American economy has lapsed into a period of "Stagflation", minimal or negative growth combined with the constant threat of serious inflation. As in the 1970's, this has followed a period of growth during an extended and unsuccesful military conflict. While the government and the Fed are frantically patting themselves on the back for having "handled" the situation with a combination of cash bailouts, rebates and tax cuts, it seems reasonably clear that these represent only a drop in the bucket faced with the magnitude of the current economic problems: simlultaneously collapsing real estate, financial, service and manufacturing sectors, combined with an aging population and a deteriorating social infrastructure.
The government points to the recession of 1991-1993, saying that it "managed" it by cutting interest rates by 1% at once. In fact, the downturn lasted until 1993 or 1994, and really ended only with the coming of a fundamentally new technology: the Internet. Economists regularly exaggerate their understanding and control of the economy, arguing for inevitable business cycles as natural, physical laws of nature, when in fact they result from a conjunction of environmental and psychological factors: in particular, the existence of new technologies and markets, and the willingness of people to exploit and develop them.
The two main problems we face currently in the United States are:
1. An extreme disparity of wealth between the rich and the poor, the concentration of wealth in a small number of hands making training and advancement difficult or impossible for the majority of the population, undermining both business and consumer activity.
2. The lack of development of new technologies and markets due to the waste of resources on the failed Iraq War.
The government, bought and paid for by the wealthy in the American plutocratic system, does not wish to resolve the first problem. In all probablility, it does not know exactly how to resolve the problem of developing new technologies and markets. It remains to be seen, how the situation will resolve itself.
It seems reasonably clear to virtually everyone now that, at the very best, the American economy has lapsed into a period of "Stagflation", minimal or negative growth combined with the constant threat of serious inflation. As in the 1970's, this has followed a period of growth during an extended and unsuccesful military conflict. While the government and the Fed are frantically patting themselves on the back for having "handled" the situation with a combination of cash bailouts, rebates and tax cuts, it seems reasonably clear that these represent only a drop in the bucket faced with the magnitude of the current economic problems: simlultaneously collapsing real estate, financial, service and manufacturing sectors, combined with an aging population and a deteriorating social infrastructure.
The government points to the recession of 1991-1993, saying that it "managed" it by cutting interest rates by 1% at once. In fact, the downturn lasted until 1993 or 1994, and really ended only with the coming of a fundamentally new technology: the Internet. Economists regularly exaggerate their understanding and control of the economy, arguing for inevitable business cycles as natural, physical laws of nature, when in fact they result from a conjunction of environmental and psychological factors: in particular, the existence of new technologies and markets, and the willingness of people to exploit and develop them.
The two main problems we face currently in the United States are:
1. An extreme disparity of wealth between the rich and the poor, the concentration of wealth in a small number of hands making training and advancement difficult or impossible for the majority of the population, undermining both business and consumer activity.
2. The lack of development of new technologies and markets due to the waste of resources on the failed Iraq War.
The government, bought and paid for by the wealthy in the American plutocratic system, does not wish to resolve the first problem. In all probablility, it does not know exactly how to resolve the problem of developing new technologies and markets. It remains to be seen, how the situation will resolve itself.
posted by Jerry Kraus at 7:59 AM
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