The Economy’s Real Confidence Problem   Leave a comment

I haven’t blogged much during the past few months because I’ve been super busy with work. The joys of freelancing are such that you can go for weeks with so little work that you’re unable to pay your bills and have nightmares about being evicted, when, suddenly, several clients want to hire you at once, and of course they all need you to get started yesterday. Since you don’t know when the next paying gig is coming your way, you don’t dare tell any of them that it’ll be a couple of weeks before you can get started on their project lest they hire someone else, so you end up putting in 12 hour days, 7 days a week.

As jobs are increasingly outsourced or replaced with temporary contract work, more Americans will find themselves in our shoes. That’s bad for workers, but it’s also bad for the overall economy. Aside from the lack of pensions, 401Ks, and health care benefits, people who aren’t confident they’ll have much income next month won’t be spending much money this month. They certainly won’t be making any big purchases. You may have had a good month or two, but since you can’t be confident that you’ll continue to get work, you save every dollar you don’t absolutely need to spend.

Of course it’s not just contract workers who lack confidence. With a lousy economy and sky high unemployment figures, those fortunate enough to have a full-time job that pays a living wage realize just how precarious their position is. If you are laid off, it could take a very long time to find a new job. Better save that discretionary income in case your job makes tracks to China or India.

Businesses also lack confidence, but it’s got nothing to do with the deficit. It’s more like they lack confidence that they’ll have customers. This is why short-term stimulus won’t work. Businesses may see demand for their products or services increase, but if they believe these increases are only temporary, they won’t translate into new jobs. Much safer to ask your existing employees to pitch in more than to hire someone new if you have reason to think your customers will be broke again in a few weeks or months.

The only way out of our economic mess is to put more money into the pockets of poor and middle class Americans, and not just temporarily. We have a situation where people with needs have no money to spend, because nearly all productivity gains have been flowing to the richest of the rich. The rich, of course, are too few in number and already have everything they need, so the amount of demand they generate cannot sustain a consumer-oriented economy such as ours. Unless we find a way to reverse the massive redistribution of wealth perpetrated by the richest 2% against the rest of us, we are so screwed.

The solution is obvious. The government needs to put people to work because the private sector won’t. Lord knows, it’s not like there’s a shortage of things that need doing in this country. Whether it’s repairing our crumbling infrastructure, beginning the transition to clean energy (that’s solar and wind, not nuclear), cleaning up the environment, expanding broadband access and increasing connection speeds, or improving education and health care, there’s much to be done if we want to remain competitive. And imagine the effects on the private sector and on communities ravaged by poverty and unemployment if millions of currently unemployed and underemployed people suddenly had jobs that pay a living wage.

Unfortunately this solution is entirely unacceptable to the powers that be. It’s not even up for debate. The millionaires in both congressional parties have zero interest in using the power of government to put people to work. The best we’ll get from them is tax breaks for businesses, but all the tax breaks in the world won’t make a company start hiring if it lacks customers. So we’re screwed. Businesses won’t hire because there isn’t enough demand to justify more employees, and there isn’t more demand because so many people are unemployed, underemployed, or living in fear of being unemployed and underemployed.

Meanwhile, politicians in both major parties are determined to make the problem worse by slashing spending at a time when we desperately need to reinvest in America and Americans. Cutting spending will boost consumer confidence, we are told. Oh sure, that makes a lot of sense. There’s nothing like reducing funding for programs average people rely on to make them reach for the wallet to make those all-important consumer purchases. In reality, of course, austerity measures have exactly the opposite effect on consumer confidence. And I find it difficult to believe that our “representatives” don’t know that.

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