Happy Labor Day. I pray this finds you gainfully employed and able to celebrate this holiday. Unfortunately many Americans are not employed. The question is, is the lack of jobs the cause or an effect of America's economic problems. As a history nut I can see a pattern in America's periodic recession's and depression's. They always follow a time of prosperity. The level of the national debt has nothing to do with the problem. I can prove this by looking at the past and seeing proof. So what does cause the economy to slide into a negative position? Hopefully I can show it in a simplistic way. A way that will open people's eyes to the problem. Seeing what the problem is gives us a path to fix it. Most of us already know what the answer is. We need to create jobs. The question is why are jobs not being created. Let me prove one thing before I go to the second.
When the Great Depression started the total debt of the United States equaled about 38% of GDP. Yet the market collapsed and unemployment went up to 25% nationally. Some cities and groups hit over 50% unemployment. This did not really get much better till the start of World War II. It was trying to get better in the mid to late 30's but kept hitting bumps and sliding back. Yet when World War II ended the national debt equaled 122% of GDP. The economy did not collapse even with all that debt. By the logic going around today America should have fallen right back into depression. It did not. The economy took off and went mostly upward till the late 70's. It was simply a matter of supply and demand.
When there is demand the economy grows, but when demand stops so does the economy. It is really simple. As long as you, or the government, can make enough money to pay your bills you keep spending.
Even if it is on borrowed money. However, when your spending exceeds both your income and your ability to pay your debt something has to give. When you start loosing ground you tend to tighten the belt if you are smart.
Who tightens their belt first? Those with the least amount of resources. So recessions and depressions start from the bottom up, not the top down. As a perpetual dieter I can tell you that when you start dieting the first place you usually feel it is in the belt. Your pants get lose, so you tighten the belt. Your shirts and coats still fit fine but the pants start getting loose fitting. Eventually everything else starts getting loose fitting also. That is when others start seeing the difference in you. If you do not want to lose weight you resume eating the way you were. However if it is because of a lack of money you start shifting your priorities and food comes first. You may not mind loosing a little, but you have no desire to starve to death.
As you adjust to the reality of your situation your spending habits change. When you quit buying things you can live without. The businesses who were supplying you start feeling the pinch in their wallet and they start tightening their belt. It is like a chain reaction. The last one to feel it, or get it is the one with the most money. That would be the government, but even they get it sooner or later. People who have no income pay no taxes and the government starts feeling the problem. Of course they do not want to tighten their belt. They want you to give them more. If those running the government are smart, sooner or later, they wake up and see that there is a problem.
The problem comes from the fact that the little guy is not going to let go of what little he has as long as he feels threatened. You want to make him spend money, give him a job, or at least show him that the ability to get a job exists. Until you do show him there is a light at the end of the tunnel he is not loosening his belt. So what happened to all the jobs. Well actually it is pretty simple. Especially when you look at the long term.
America had a Depression in the 1870's, then again in the 1890's and the 1920's with a few minor bumps between them. What caused them though. Each followed a period of boom. New jobs created by new technology eliminated old jobs. For awhile there was a transition from creative boom, but eventually many people were displaced by the downturn. This is oversimplified, but it went something like this.
In the 1860's great steps were made to support the war effort of the Civil War and there was not enough labor because so many went to fight the war. Slowly the war spending and demand tapered off and it reached it's peak in the Depression of the 1870's, slowly things started getting better as America started recovering from the war and moving west. The railroads exploded creating demand for steel and to support the movement and expansion. As steel technology advanced the need for labor was cut and jobs were eliminated which led to the Depression of the 1890's. Slowly things started getting better especially with the advent of the automobile, the airplane and World War I. Demand took off but hit a dive after WWI as the demand dropped and the newly invented tractor and assembly line production eliminated jobs. The dip started in the early twenties, but the upper half of the economy were to busy enjoying their new wealth to see the coming problems. As the little guy tightened his belt again the economy started straining to survive. It collapsed in 1929 and did not hit bottom till 1932. Slowly it tried to take off as the government tried to create work programs. When it seemed to be working they cut back and it all collapsed again and the only thing that pulled it all out of the hole was WWII. The pent up demand and shortages caused by the war stimulated the economy for some time.
In the 1970's America went off the gold standard and we had the oil crisis and the oil embargo all of which bought the economy to a halt by the late 70's. Reagan came into office by promising to fix the problems. Slowly things moved forward till the late 90's and the Dot Com Boom and Bust. Also another round of oil problems hit America. However what many did not see was the movement to robotics and computers in industry and the elimination of jobs. Then after 9/11 the wars kind of kept things moving as they removed many of the unemployed by expansion of the military. So now as the wars come to an end and soldiers return to the streets the job issue starts to grow again.
The one thing I left out and the thing that pushed the debt cycle button was a bipartisan deal between Bill Clinton and Newt Gingrich which set in place the beginnings of the housing bubble and the explosion of the national debt. Both were masked by the events that happened after and because of 9/11. Now however they have come to the front as the economy almost collapsed in 2008. It can not seem to get restarted.
A big part of that is again the little guy is not getting off his wallet and he is not spending, because he does not feel secure.
The only cure is to create jobs. One way to do that is to create infrastructure repair and building jobs. The government is not inclined to do that because it is considered government welfare. What it really is, is a failure of Congress to do the duties given to it by the Constitution of the United States. They have no problem with the creating money and taxing part, or the defend part. The third duty and equal to the first two was and is to provide for the Welfare of America. I do not think they meant by giving away food stamps and unemployment checks. They meant to maintain the country and its standard of living. Later in Section 1, Article 8 of the Constitution they used that very authority to build the Capitol and the White House. They also used it to rebuild after the War of 1812 when the British burnt them down. So they have failed to provide for the care and maintenance which was and is their duty by command of the Constitution. The second thing they can do is remove all government controls and regulations that hinder business from growing and developing. Especially rules that give tax breaks to corporations at the expense of the American citizens.
Finally they need to make the tax code fair across the board and that all get treated fairly and equally. Those who benefit the most should pay the most. It does not matter if it is individuals or corporations they should pay according to the benefits they receive. People living below the poverty line should not even be taxed till they can afford the basics of life. Implementing these few changes will make the economy take off like a rocket. Many jobs that have been eliminated by technology are not coming back, but that does not mean Americans can not create new jobs. They can and will when they know they will have enough to maintain a decent standard of living.
So there is how to fix the problem. Now it is time for Congress to get off their butts and fix it before it is to late. It is not yet, but that time is coming fast.