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Economic Collapse

This post is a comment on a FB post. If it seems to start in the middle of a conversation, well, it does. The original FB post referred to the proposed legislation that would provide $2,000 per month to many Americans while economic activity has been halted due to COVID-19. I’ll try to mention what I’m responding to as I go along but I’m not making any promises.

I lied. This is not brief.  You know I wouldn’t be when you said, “shoot!” lol.  Because this isn’t brief, I’m going to post it on my blog with a link to it. For this one, I promise I’m not gonna cuss and I’m not gonna be too political, I hope.

This is gonna sound like a cop-out but you have to let me explain. 

I agree with a bunch of sides to the argument that the $2,000 is too much in that it will harm the economy and that it seems like a disincentive to work. Well, that last argument, maybe I don’t agree with it.  I agree with most of the comments for different reasons though.  It’s complicated.

Not sure where to start but let’s go with this.

The math on the $2,000 monthly payment comes to $12.50 per hour! Sadly, there are millions of people who are trying to live on less.  I’m not one of the people that believe we should have a $15/hr. minimum wage across the board but that is a different discussion for a different day. However, I don’t think that given the crisis we’re in that $12.50/hour is too much, especially since it’s temporary. If you’re single, with a child, there is a high probability that $2,000 per month won’t come close to helping you get from one month to the next, depending on where you live.  I’m cool with the amount and in all honesty, it should be more. I’ll get back to the costs to the economy in a bit.

The best course of action is for this administration to come up with a plan to control the spread of the virus. Because we have incompetent leadership, we don’t know the depth nor the breadth of how the economy is going to suffer.  I hope I’m wrong but we are going to see the devastation that we have only read about in history books. I don’t ever recall seeing 10s of thousands of people in line to get food. The highest I can remember unemployment in my life has been around 15%. We’re at the beginning of a really bad period in American history and there is not a short-term exit strategy.  With the current administration, there is not a long-term recovery strategy either other than a further redistribution of wealth to the already wealthy.  

In my opinion, it’s going to be bad for much longer than anyone realizes or wants to talk about.  I know we’ve had one bank failure. There will be more, many. One of the nation’s largest milk producers filed bankruptcy last year, before the virus.  The liquidated this prior week. There is going to be a cascade of bankruptcies and business failures, even with the Fed and treasury department handing out money like candy at Halloween. 

The recovery is going to take years. The aftermath of the recovery is going to take even longer. Carolyn is kinda right about the “spending” not being good for the economy, long term. I wrote a piece on economic policy and I’ll stick the placeholder here and you can read it, if you’re interested.

The current rescue package, the CARES Act is $2 trillion. For me, that might as well be monopoly money. The number is so big that nobody can relate to it until it’s time to pay it back. This is where taxpayers are getting the $1200, which a lotta people have already received.

I said I was gonna be brief and I’ve already lied so I won’t go into the fact we just don’t print $2 trillion with no consequences. I’ll say something about it later, cause I know that is the point Carolyn is making that I agree with.

Of the $2 trillion, the payments to “people,’ taxpayers will be approximately $292 billion. Corporations, small businesses, and local governments, the same as a corporation, will get $1.7 trillion.  As I said, those numbers are meaningless.  Let’s say it this way, consumers will get 15%: corporations will get 85%.

Does that seem fair to you? So, if we say, ok, and give taxpayers another $2,000 per month for a couple of months we still will not have it as good as corporations got it.  Also, in the CARES Act, rich folks and corporations got additional tax breaks that haven’t been widely discussed in the media. I’ve been on conference calls the last couple of weeks and remember the “tax reforms” that were enacted in 2017, those have been largely undone for the benefit of the wealthy.

Look, our economy is driven by people spending money. It does not matter where the money comes from, as long as it is being spent on goods and services, our economy benefits.  The more money spent, the more we all benefit. The goods and services we buy, creates jobs for people to move the goods and provide the services we buy.

When we have a recession and in this case what’s beginning to look like a depression, the way we dig ourselves out and start economic growth again, is consumers spending money. I know some will argue that giving corporations money so they will build new plants or offices and let them hire people is the way to go. That has never worked, never, ever.  We are a nation of spenders. Not savers. Put money in people’s hands and they will spend it. Middle- and lower-income families drive the economy by spending money.

I mentioned history earlier.  We have been through a depression as well as deep recessions before. Do you know how we got through the market collapse of 1929 and the following depression? We as a country were able to increase spending by converting the economy into a wartime economy to support WWII. Jobs were created to build bombs, airplanes, tanks, ships, etc. President Franklin Roosevelt’s (elected in 1932) New Deal, created jobs with projects that included, public works projects (interstate highways, roads, bridges, school construction), and the Social Security Administration was created which put money in the hands of seniors.  Earlier I said that the economy grows when consumers spend money. Didn’t say where it came from just that it got spent.  Roosevelt “created” jobs and provided income for seniors to get money into the economy.

The last thing, well, next to the last thing and like a Sunday preacher, I’ll be brief

This money that everybody is getting, the $2 trillion, has gotta get paid back. Read my post in Economic Policy.  Who pays it back? Largely, consumers. Before the CARE Act, we had a $1 trillion deficit. Meaning we had spent $1 trillion more than we took in, in taxes. Now, that number is $3 trillion.  Before the virus is contained, that number will probably be $6 trillion.  Trump and Republicans don’t care. They’re trying to make people feel good about them so they can win reelection.  What’s gonna happen, is they’re gonna bankrupt the country and say they had to do it to “save the economy.” The question you have to ask is, save it for whom?

To close the deficit, we only have two choices, 1) raise taxes and 2) cut spending. You already know rich people are pushing to pay fewer taxes so that burden falls on middle- and lower-income families. Where will the spending cuts come from, social security, Medicare, Medicaid, military, and foreign aid to name a few places. That’s already started is being proposed as a platform for Trump’s 2020 reelection campaign. Who will be the beneficiaries of the generosity of middle- and lower-income families sacrifices, corporations and the rich folks that own/run them?

So, I agree, $2,000 is too much if that was all that was happening. But, in light that it is only a small percent of what’s being put on the table, it’s not enough. The timing is curious as well.  Where are we supposed to spend it? From home?  The total amount of money that this administration is willing to “flush” the economy with is going to be as devastating as the depression we are headed into.  There will be no one willing to make the sacrifices needed to right the ship, no one!

This is a really good book that I’m reading about the disparity of wealth in the country. It’s FREE if you get a FREE trial of Audible. You can listen to it via Audible. Listen to a sample on Amazon

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