I’ve talked many times over the past four years about how inflating the economy artificially with stimulus wouldn’t fix things. It has merely delayed the problem.
We need a debt cleansing and an entire reset of the economy. How? Our economy is built around the economy of the 1950s where many workers earned steady paychecks and paid monthly bills. Now however, many more people do not earn ‘steady” paychecks. We have more contract workers and entrepreneurs. Not a majority but enough that the idea of matching spending with income, on a personal level and a national level, is difficult. Many people have tried to define what their image of a reset would look like, including Richard Florida, who’s ideas have appeared on this blog before (click here for previous mentions). His ideas may be right or wrong, but he has the basic idea correct- we need a mental flossing.
This issue, which I would need more time to think through so that I could choose better words to explain it, is a lot to get my head around. Stimulus from government often seems to attempt to keep the “old system” afloat but as we all know, the only constant is change, this attempt to “reflate” the old “ways” is like pouring money into the company that manufactures CD’s when the iPod was tearing up the portable music scene (or choose any prior music metaphor: vinyls to 8 tracks, 8 tracks to cassettes, etc).
Bottom line: stimulus is not getting the “intended” response. Stimulus is making the rich richer. Forget the tax code – the issue is that stimulus is inflating asset prices. All the money needs somewhere to go – and it’s going into stocks, bonds, commodities – and just rotates between them. Some firms invest billions simply front running the Federal Reserve – Fed comes out and says ‘we will buy government bonds to keep rates low” and big investment firms buy the bonds, wait for the Fed to buy and push prices up, then the firms sell for a nice short term, nearly guaranteed return.
What we need is a reset – in thinking, in policy, and in personal behavior. If we keep acting like it’s 1955 or 1985 even, we’ll keep getting what we get now – unsatisfactory results to say the least.