Why Isn’t The Economy Recovering?

Dana Vashon said something interesting on Red Eye a few weeks ago, It’s not a lack of demand, it’s a drought of good ideas, and it’s got me thinking.

Let’s understand where we are. We’re not in a recession. Recessions are a psychological condition where a people hangs onto its money due to uncertainty. In our case though, the recession has lasted too long, and we know that many of our economic loses are permanent. This is a retraction, a permanent change in size.

We’re undergoing an information and technological revolution, and many of the jobs we’ve lost have been replaced by that technology. Much of the consumer demand our economy became accustomed to was fueled by home equity and wildly available credit. But through the housing collapse we lost over $2 Trillion in home equity, which shut off the easy-credit, and that won’t change because the home equity came from a pumped-up housing market. We’re also seeing our overseas competition advancing in all areas, including technology, America’s former monopoly.

During a recession, stimulus can be effective in “shocking” the economy back by filling in the missing demand and alleviating uncertainty. But in our situation, the lost demand is permanent, that’s why stimulus has been so miserably ineffective (and the fact that it wasn’t honest stimulus). The thing we’re trying to shock awake is gone. Washington sprinkling borrowed money into our economy isn’t going to recreate those lost jobs or consumer spending. Many of the unemployed people lack the skills required by the new jobs, and many of the consumer spenders now have under-water mortgages, are paying high rent, have ruined credit, or are trying to pay down expensive debt. Stimulus won’t make those people spend.

Technically, we’ve recovered from the recession, according to growth figures. The trouble is, we’re still missing the jobs we lost. Businesses and investors both have a lot of money safely penned-up. One of the reasons they’re keeping this money safe, besides the high level of uncertainty, is the utter lack of good ideas to put that money in.

To use Dana’s example, Facebook is valued at nearly $50 billion, and what does it do? It reduces productivity… Why are people investing in Facebook? There are no better ideas worth investing in.

Tagged as: change, economy, good, growth, hold, ideas, invest, jobs, loss, money, no, permanent, recession, recovery, retraction, size