Re Too Much Investment Class Wealth Chasing Too Few Plausible Investments

Paul Krugman writes about it this morning.

Two observations I've been making for a while––and the financial press has been ignoring.

1. You don't have as many plausible investments when workers'/consumers' incomes are flat for 35 years. (This, combined with a concentration of investment wealth = bubble)

2. Now that the Boomers are living on their portfolios they don't want working incomes to rise either.

I wrote about this fragile combination in 2011

I believe Paul Krugman was there before I was.

Question: why has economic orthodoxy moved so far to the right that it cannot see this dynamic and its dangers?

One explanation I’ve been suggesting more recently is that we have allowed our money to think for us. Money is impatient, greedy and has no human factor in its calculations.

(I think letting our money make its own rapid decisions is similar but more dangerous than this new chimera the press is worried about: AI, artificial intelligence, HAL the computer.)

Far from being coldly rational, the money brain is easily panicked, as we’ve seen over the last four days.

When wealth is distributed more broadly with a framework of practical safeguards, the brain in the economy isn’t as skittish or irrational. Look at how it behaved from 1945-1980. But we were too impatient and greedy to tolerate that kind of economy. Or some of us were: The 1% who now make all the financial decisions.

Google Chairman Favors Federal Stimulus Spending

Good interview via Mother Jones. A corporate leader who seems to understand how a consumer economy actually needs consumers.

Eric Schmidt, Executive Chairman, GOOGLE: "The economy is today stuck behind the power curve. It needs a lot of encouragement. It needs not just something like the jobs bill, but also significant government stimulation in terms of buying power and investment. Otherwise we're set up for years of extraordinarily low growth in the economy and no real solution to the jobless problem."

Christiane Amanpour: But you say significant stimulus. Obviously this is a political environment where the only real conversation is about cutting. Do you see any expectation or possibility of a climate for more stimulus?]

Schmidt: "Well that's a political question. But the current strategy is ludicrous. You have a situtation where the private sector sees essentially no growth in demand. The classic solution is to have the government step in, and with short-term initiatives help stimulate that demand. If they do it right, they'll invest in income and growth producing things, like highways and bridges and schools."

In other words, the radical budget cutting being forced by the Republicans is exactly the wrong thing. The Obama jobs bill is the right thing, if he can get it passed.

This corporate leader understands what most Americans don't: our economy won't recover without another strong jolt of stimulus. Corporations won't spend their money (in some cases OUR money, which they got in rescue packages) unless consumers show the confidence to spend, and consumers won't have that confidence if they don't have money in their pockets and if they're worried their employer is about to lay them off or cut their pay, which is what employers do when they're uncertain.

The consumer/employer/manufacturer cycle is a whirlpool right now, leading us down. Only federal stimulus will do the trick, like it did in 2009 when the entire world economy was on the brink. Then it did work. It will work again if Congress will let it work.

The problem we have is REPUBLICANS DON'T WANT A GOOD ECONOMY. They want Obama to fail, and in order for him to fail we as a nation must fail. Then Republicans can take over again. Do we remember what got us here? The dangerous finances of Bush and his Republican enablers.