Re: pkt seminar on the economics of the crisis

[Whitalone@xxxxxxx]

William Hummel wrote,

>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.

Agreed, thanks for correcting my unclear statements.

Which only begs the question of what will stimulate demand? I fail to see how
government spending can overcome the current lack of the propensity to spend
by consumers. Perhaps this might be a good thing in normal times when
consumer debt ratios are significantly high, as pointed out in many recent
Levy Org articles. However, the terrorist attacks have bankrupt a major
industrial sector of our economy, i.e., the travel and airline industry. It
has also struck at the heart of entrepreneurial spirits by the now obvious
decline in demand. Why enter into new forward contracts that would stimulate
job growth with so much uncertainty?

Which brings me to this quote from Stephen Block:

>Now that we're mired in a recessionary soup, consumers are being pleaded
>with to get back in. But will they begin to spend just because it is their
>patriotic duty to do so, if they have no money, or will they spend if the
>future seems bright and secure? And what will make that happen, the
>government running a surplus by slashing governmental programs or the
>government stimulating the economy and getting money flowing and getting
>people back to work?

this is a question I have pondered over the last couple of days.  Would
government spending be enough. It seems we have a more psychological issue at
hand as consumers refuse to "be patriotic" by spending themselves into
further debt with so much uncertainty in the job market. It appears the issue
is more of one of stability and a sense of security.

I believe it is Dr. Davidson who has pointed out on many occasions (I was
trying to find a quote from one of his books or papers this evening but could
not find it) that a modern entrepreneurial system is organized around forward
contracts. For these contracts to be useful, a stable and organized legal
system must be present that ensures the fulfilling of these contracts,
remember Russia. Not to suggest that the recent events have undermine the
legal system that shelters and promotes capitalism, but only to suggest that
the recent attacks have had a fundamental effect on the sense of stability
and security that consumers have felt that has fostered the successes of our
economy in recent years. Are we truly protected from another barbaric act of
terrorism? How long will it take to restore this sense of stability so
consumers will consume as they did pre 9/11? To enter a forward contracts
under these circumstances would be "irrational," so much for the debunked
ratex theories.

Government spending: it seems that government spending then should be direct
into intelligence and other security measures that might change the
atmosphere of the consumer's propensity to spend. As William point out,
demand is what we need most. It would also help both consumers and
entrepreneurs confidence in an uncertain future. I doubt patriotic
exhortations will be enough in the long term to stimulate a consistent and
true turn around. Particularly if terrorists act again in the near future on
American soil.

One other point, Dr Davidson wrote:

>(3) if our intelligence agencies were working before September 11, we could
>have had in place an international auditing and accounting scheme that
>could trace not only the flow of funds that supported the actual terrorists
>living in our midst -- but also others living in the G7 countries at the
least.
>And at this point of time we could immediately place such an auditing
>system into operation.

I hope the calls for a IMCU type of program will be seriously revisited. As
Dr. Davidson has continued to insist this week, this type of proposal will
not hinder the flow of good and services if it is implemented to prevent the
types of savage acts that destabilize nations of this world. I might include
the savage acts of capitalist speculation that destabilizes whole economies.
In one case, we have terrorist using the free flow of funds to sponsor
terrorism. In the other, we have devastating economic shocks that only
sponsor the type of hatred toward the so called "imperialist" west that
allows this devastation upon the working people of other nations. While I
have been studying the recent discussions on Muslin hatred, I still cannot
understand the barbaric nature of the response. Hopefully a new economic
coalition will emerge that will address the "secularism" of capitalism and
what has in the past been described as "externalities" to capitalist
production. I think a IMCU would be a great place to start!

Scott Simpson
3344797564