The frustrating thing about the recession aside from the great emotional pain it causes individuals and their communities is that it is clear what should be done about it. There is a growing consensus in Europe and with the US Fed that we need to raise revenue and constrain spending to fewer priorities – that it is a structural problem with the US ledger.
Tax the institutions and individuals that have the money and reduce military spending by minimally ending action in Afghanistan and Iraq and looking at strategies like means testing for medicare and medicaid. GDP will grow and deficits will decrease and eventfully debt will follow when the checkbook is balanced. Certainty will calm the markets but also allow the system that is the US civil society to feed the core markets which fuel growth.
There is no panacea or spontaneous moment of growth that is going to fix the economy. It may happen but those are unexpected events that define an era and relying upon them as a hypothetical something is very very close to being a fantasy. It will be the civil institutions that will secure the system that will allow growth to occur.
Other factors do impact the economy like the artificial devaluation of the Yuan which slows the recovery but within the government’s control is the political recognition that the income divide has increased to the point where the burden that has historically been placed on the middle class is now better directed at the wealthy. And the further income disparity widens then the further it will hurt the consumer and financial services which are the core of this economy. 400 wealthy families that have 1/2 of all wealth simply do not have same positive impact on growth than the other 300 million that share the other 1/2.
If the economy is a river than the wealth divide is a dam. Money needs to flow or the markets do not work. The logic that the wealthy, either as corporations or individuals, contribute back to society as whole is clearly not and has not happened for 20 years. Money goes to institutions and individuals and either stays there or leaves the country. What is ironic is that the growth in the middle class that made American the preeminent power is now happening in China with US dollars.
Taxes are not the only solution but they begin to fix a system that is not only unfair and unbalanced but also damaging in the long-term. It is in America’s national interest to secure its checkbook while it remains the most powerful and wealthiest nation on Earth – it needs to do what is in its own best interest.