Recession or Not, the Regression Continues

[Eric Stetson]

by Eric Stetson » Sun Aug 02, 2009 7:55 pm

This is one of the best articles about economics I've read in quite a while:

Recession or Not, the Regression Continues
http://www.dailykos.com/storyonly/2009/8/2/760915/-Recession-or-Not,-the-Regression-Continues

It's a long article, but worth reading the whole thing. The author is writing primarily about the American economy, but also discusses general economic principles a great deal.

Excerpts below:

Much has been said of our conversion from a goods-based economy to a service-based economy (what some economist or another once characterized as "everybody taking in one another's washing"). Little has been said, however, of what this means for us as an economic power. I'll say it: If this keeps up, pretty soon we won't be one. And the reason is, we're falling deeply into economic backwardness. Never mind the recession -- the real danger we face, and have been facing for the last decade, is regression.
...

Places that stop replacing imports with domestic production lose capital, are overtaken technologically, suffer from high unemployment and reduced buying power, and over the long term "sink into hives of rural subsistence" and gradually even lose the knowledge of past innovations, such as craft techniques.

Thus, a decade of exporting our manufacturing facilities and technological knowledge and of hoarding wealth for private gain rather than reinvesting it in job creation and research has amounted to eating our seed corn. We're losing both the capital and the actual, physical production activity necessary to pull our economy out of its tailspin.

But it's even worse than that: We've allowed our economic vitality to be drained by spending that doesn't feed into the import-replacement growth cycle, specifically defense spending and welfare spending. Welfare spending is a moral obligation in our society, but it's one that's better met by creating productive jobs for everyone than by handing out money for nothing. As for defense spending, military bases absorb the products of economic activity but send nothing back out; the research and development that have produced such benefits for consumers, such as the Internet, could have been accomplished just as easily, and with greater economic efficiency, by funding it through universities and private companies. And war is an even bigger drain -- one might as well take all the money that's spent and literally burn it. The $2 trillion spent on the war in Iraq is lost to us forever.

In short, whatever further money and effort are spent on economic recovery, they must be targeted at increasing the amount of productive activity. That means jobs, particularly in manufacturing and technology research.