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The problem with our economy today is a lack of consumer demand.
Sales are down because people are not buying stuff anymore. The "credit crunch" is only an issue because people are so overly dependent on credit these days.
We have plenty of supply. We have supply coming over from China by the boatload till it's coming out our ears.
What we lack is demand.
Every economy runs on a balance between the forces of supply and demand. Supply is driven by primarily by productivity. By the ability to make things. Demand is driven primarily by wages. By people having money in their pocket to buy things.
Productivity has been rising consistently for decades, but wages have been stagnant in America for the last 30 years. The real wage has actually been falling for the last 7 years. People make the same amount of money they did ten years ago but costs have gone up so everyone effectively has less money.
As economist Kevin Phillips reported, the real inflation rate, if calculated the way they did just 25 years ago, before the government started fudging the numbers, is actually at 12% right now.
The right wing anti-worker, anti-union, corporatist forces have been trying to drive demand with debt instead of wages since the 1980s.
People stopped buying stuff with cash years ago and now it is to the point that there are actually television commercials for a credit card company that mocks people who use cash.
I grew up in a small blue collar town that had a couple auto plants in the area. 30 years ago, just about everybody who worked at an auto plant had a nice, middle class house, at least two American cars in the driveway, a cottage up north and a boat to go fishing in. The middle class was strong. 30% of the workforce was unionized. Consumer demand was high.
Nowadays, people live on credit. Wages are stagnant and people have to make up for it with something, so they use their house like an ATM and they have an average of $8000 in credit card debt. Most people have long since sold their cottages up north and anyone who does still have a boat couldn't afford to take it out this summer. The average household savings in America is negative for the first time since the great depression. Only 6% of the American workforce is unionized today. Consumer demand is falling because people don't have the cash to pay for things anymore and interest rates on credit are going up even though the prime rate is at 0% for the first time ever.
The corporatists have been trying to fuel demand in the American economy with debt for the last 30 years in order to avoid raising wages. Credit cards were around for decades but their usage didn't explode until the 1980s, when the voodoo economists came to power.
Wages also work on the fulcrum of supply and demand. When there are more people looking for jobs than there are jobs available, it drives down wages because people are willing to work for less in order to compete for those jobs. Conversely, when there are more jobs available than there are people looking for jobs, it drives wages up because employers are willing to pay more as an incentive to lure workers.
Our good jobs have all been outsourced and all we have left is subsistence level wages at retail stores like Wal-Mart or a McJob in the Republican "manufacturing" sector flipping burgers. They are also bringing people over from India by the boatload to compete against Americans for the same shrinking number of good IT jobs available, which is driving down wages even further.
Obama's current plan for tax cuts is a bad one because tax cuts are not going to stimulate the economy. Tax cuts cannot raise anyone's wages significantly because they cannot be very large when the government is already running at a deficit. They will do nothing to help the people who are not working and they will do nothing to raise consumer demand because their effects will be extremely finite and limited. As much as I would love a tax cut I would love to see the American middle class restored even more.
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