Re: pkt seminar on the economics of the crisis

[William F Hummel <wfhummel@xxxxxxxxxxxx>]

Scott Simpson wrote in part:

>Now to the major problem.  In ordinary times, if such times truly exist, such
>a stimulus might prove useful over the long term.  In the real short term
>however, the propensity to spend is at a basic level for most Americans. Even
>more important, there is no demand for true investment, meaning investment
>that creates jobs via capital spending. Perhaps defense industries might
>enjoy some outfall from our current situation, but even that is open to
>question given the type of "war" that would be needed to truly control
>terrorism.

I cannot agree that the solution to our current economic problems
lies in more investment at this time.  There is not now and
seldom has been a lack of capital available for investment.
Rather there is a glut of productive capacity throughout the
industrialized world.  What we now lack is effective purchasing
power, not a plan to increase investment.  The problem is one of
demand, not supply.

At least in the US, the private sector has been on a binge that
created unprecedented credit market debt, far in excess of the
its ability to service through current income.  The bubble in
asset prices that developed in the US was bound to burst, just as
the Japanese bubble in real estate prices did in the late 1980s.
One of the things that must be done is to develop intelligent
controls on how we leverage ourselves in the future.  That is a
monetary issue requiring a political solution.  Unfortunately the
grotesque casino that we call the financial industry holds most
of the cards.  In some respects, it IS the problem.

We appear be caught in a downward spiral of unemployment feeding
on itself.  This is basically a crisis of confidence where
self-interest and survival are the dominant motivation.  I offer
no specific solution for breaking this vicious circle, but it is
clear that it cannot be done without the intervention of the
government.  As horrible as the WTC attack is to us all, it
should prove helpful in ending a misguided fiscal policy.  We no
longer hear talk of paying down the debt.  Let's hope however
that our system does not become forever dependent on military
Keynesianism.

William F Hummel