- 17 Apr 2009 17:32
#1875857
By Adrien.
Demand and through it production is the basis of a healthy economy, but the failure of capital has had consequences on production, and in turn demand, initiating a vicious cycle that put our societies in a slump. Beyond stagnation, it is cause and consequence of the drastic reduction of the workforce, though the lowest common denominator of economic activity, its only concrete form against the speculation that brought all of this. To prevent a catastrophic failure of our societies and massive unemployment, decisions must be made.
In this explanation we’ll use ‘stimulus plan’ as meaning either a stimulus check for people within a certain category of income, lower or middle classes that is, or an increase of wages, initiated by civil service, and spread to the rest of the economy through laws on the value of minimal wage, or financial packages directed at companies and specifically aimed at the increase of workers’ remuneration.
Direct stimulation through checks or global wage increases :
This is to me the one sensible solution. It will give the majority of people an increase in buying power, allowing them to restart demand and production, even more so on a very large, maybe worldwide scale. It will also curb the mortgage crisis, still going and lingering today, by giving households the extra step with which not to default on their payments, an extra step that the loss of jobs or hours makes unreachable otherwise. It will also be a decisive step against deflation, a terrible risk facing our economies and that can factually only be stopped by a return of demand.
Deflation is looming :
Deflation is when prices keep going down. It might seem like a good thing for a recovering economy, but it is not. In a slow economy, when prices can’t stop decreasing, there is a phenomenon of drop of demand, as people keep waiting for an even better price. Sales drop, and companies, wanting to maintain profits, play along to keep sales coming, while slashing the workforce to save on their costs and keep their margin. But the laid-off employees lose buying power, so they have no choice but to wait for prices to go down, and the cycle restarts, without any end in sight, as seen throughout History. It is a typical short-term suicidary behaviour in a capitalist society.
By stimulating demand, you make people buy right now, not later at an hypothetic better price, which stops the drop of prices and brings back mild and acceptable inflation. Deflation is avoided, and jobs are preserved. And workforce is the most important capital of all, for it is what needs and makes, and once lost cannot be won back all that easily. In addition to stimulus plans, another barrier against deflation is to build strong regulations around the workforce, to curb the capitalist tendency to jettison the employees to save funds, as, unlike dividendes and bonuses, they are necessary to society.
While partisans of loans and gifts to the banks, insurance companies and trading groups see them as the motors of our economies, and try to make us believe that it will trickle down to the rest of the population, we all know it does not happen that way. So far, alla round the world, these institutions have been bailed out, without any condition, in sums far greater than we can imagine. And yet the situation is still spinning out of control on the human scale.
How about, this time, we help the people, the actual workers in our economies ? People who have been taken as hostages of a happy few’s incompetence and greed, which as inherent to the capitalist system, is more than just a little over-enthusiasm?
In the next part of this series, we’ll see what conservatives oppose to stimulus plans, and the shortcomings of their arguments.
Demand and through it production is the basis of a healthy economy, but the failure of capital has had consequences on production, and in turn demand, initiating a vicious cycle that put our societies in a slump. Beyond stagnation, it is cause and consequence of the drastic reduction of the workforce, though the lowest common denominator of economic activity, its only concrete form against the speculation that brought all of this. To prevent a catastrophic failure of our societies and massive unemployment, decisions must be made.
In this explanation we’ll use ‘stimulus plan’ as meaning either a stimulus check for people within a certain category of income, lower or middle classes that is, or an increase of wages, initiated by civil service, and spread to the rest of the economy through laws on the value of minimal wage, or financial packages directed at companies and specifically aimed at the increase of workers’ remuneration.
Direct stimulation through checks or global wage increases :
This is to me the one sensible solution. It will give the majority of people an increase in buying power, allowing them to restart demand and production, even more so on a very large, maybe worldwide scale. It will also curb the mortgage crisis, still going and lingering today, by giving households the extra step with which not to default on their payments, an extra step that the loss of jobs or hours makes unreachable otherwise. It will also be a decisive step against deflation, a terrible risk facing our economies and that can factually only be stopped by a return of demand.
Deflation is looming :
Deflation is when prices keep going down. It might seem like a good thing for a recovering economy, but it is not. In a slow economy, when prices can’t stop decreasing, there is a phenomenon of drop of demand, as people keep waiting for an even better price. Sales drop, and companies, wanting to maintain profits, play along to keep sales coming, while slashing the workforce to save on their costs and keep their margin. But the laid-off employees lose buying power, so they have no choice but to wait for prices to go down, and the cycle restarts, without any end in sight, as seen throughout History. It is a typical short-term suicidary behaviour in a capitalist society.
By stimulating demand, you make people buy right now, not later at an hypothetic better price, which stops the drop of prices and brings back mild and acceptable inflation. Deflation is avoided, and jobs are preserved. And workforce is the most important capital of all, for it is what needs and makes, and once lost cannot be won back all that easily. In addition to stimulus plans, another barrier against deflation is to build strong regulations around the workforce, to curb the capitalist tendency to jettison the employees to save funds, as, unlike dividendes and bonuses, they are necessary to society.
While partisans of loans and gifts to the banks, insurance companies and trading groups see them as the motors of our economies, and try to make us believe that it will trickle down to the rest of the population, we all know it does not happen that way. So far, alla round the world, these institutions have been bailed out, without any condition, in sums far greater than we can imagine. And yet the situation is still spinning out of control on the human scale.
How about, this time, we help the people, the actual workers in our economies ? People who have been taken as hostages of a happy few’s incompetence and greed, which as inherent to the capitalist system, is more than just a little over-enthusiasm?
In the next part of this series, we’ll see what conservatives oppose to stimulus plans, and the shortcomings of their arguments.