Robert Reich : "The last thing we need is for the president to go over to the supply side". "Supply-side economics doesn't work. It's been tried for thirty years, to no avail. And now, when our continuing economic crisis is so palpably being driven by inadequate demand, it's more bogus than ever"

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Robert Reich says :

"Businesses don't need more financial incentives. They're already sitting on a vast cash horde estimated to be upwards of $1.6 trillion. Besides, large and middle-sized companies are having no difficulty getting loans at bargain-basement rates, courtesy of the Fed."

Huffington Post
Why the President Must Come Up With Demand-Side Solutions, And Not Go Over to the Supply Side
By Robert Reich
Chancellor's Professor of Public Policy, University of California at Berkeley; Author, 'Aftershock' : The Next Economy and America's Future
June 9, 2011


Why the President Must Come Up With Demand-Side Solutions, And Not Go Over to the Supply Side


Some excerpts

In consequence, businesses are already spending as much as they can justify economically. Almost two-thirds of the measly growth in the economy so far this year has come from businesses rebuilding their inventories. But without more consumer spending, there's they won't spend more. A robust economy can't be built on inventory replacements.

The problem isn't on the supply side. It's on the demand side. Businesses are reluctant to spend more and create more jobs because there aren't enough consumers out there able and willing to buy what businesses have to sell.

The reason consumers aren't buying is because consumers' paychecks are dropping, adjusted for inflation. And job losses are mounting. The 83,000 new private-sector jobs created in May represent a net loss because 125,000 jobs are needed merely to keep up with an expanding labor force. The number of Americans filing new claims for unemployment benefits edged higher last week.

At the same time, many Americans are falling behind in their mortgage payments. And housing prices continue to drop -- making homeowners feel even poorer.

Close to 60 percent of the half-trillion drop in household debt since the depth of recession has been defaults rather than repayments. This makes it harder for people who'd like to enter the housing market to get new mortgage loans, or for anyone to refinance. Other consumer debt burdens are rising. On Tuesday the Fed reported consumer credit outstanding rose in April -- mostly from record-high levels of student-loan debt and an up-tick in credit-card borrowing due to food and gas price increases outpacing wage gains.

All this translates into a continuing crisis on the demand side. Consumers can't and won't buy more. Between January and March, sales grew just .15 percent around the country -- perilously close to no growth at all. May sales look even worse. Chain stores are reporting weaker sales. Consumer confidence has dropped sharply.

How to get jobs back, then? By reigniting demand. Put more money in consumers' pockets and help them renegotiate their mortgage loans.

For example: Enlarge the payroll tax break for workers -- not just for employers. Exempt the first $20,000 of income from payroll taxes for a year. Create a WPA for the long-term unemployed. Allow distressed homeowners to declare bankruptcy on their primary residence, thereby giving them more clout with lenders to reorganize their mortgage loans. Lend federal money to (rather than bail out) states and cities that are now firing platoons of teachers, fire fighters, and other workers because state and local coffers are empty.

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The president's putative embrace of the false notion that businesses need more financial incentives in order to hire also risks giving legitimacy to other Republican supply-side nostrums being pushed by House Republicans and GOP presidential aspirants.

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