Simplified Economics and How We Got Here!

Conservative economists like to think that the economy is driven by wealthy people pumping money into the stock market so that businesses can use it to create more money for them. That is pure BS. The economy is really driven by the hordes of middle income people, provided they are able to make sufficient funds to buy nonessential items. The rich only buy a very limited amount of things and there are too few of them to keep most manufacturers in business. Thus taking more money out of the hands of the middle class means that less spending will take place.

Unless a factory has a market for their products, there is no demand for the product and the factory is forced to either go out of business or make a product that will sell. In this global economy, many factories idled their higher paid workforce in the US and opened up factories in the cheap labor areas over seas and south of our border. The idled workers ended up finding work as best they can, often at a rate that was considerably less than they had been making. The stock value of the company, went up because they were still able to make products cheaply and the wealthy idiots (because they only care about the bottom line and not people), were happy because their money made them more money.

Retail stores bought cheaper foreign made goods and stopped buying locally produced goods. This further decreased the demand and caused more people to be laid off. The reduction in wages, decreases spending, so in order to prod people into buying, credit was extended to them. This temporarily decreased the slide into recession, and the wealthy seized the opportunity to make more money by chasing after banking stocks.

Banks are regulated, so the wealthy do their best to rid them of the checks against overextending credit. Gimmicks are used to lure more people into buying into the newest investment opportunities (AKA Ponzi Schemes). Ever since Reagan, regulations that were put in place to keep the middle class safe from the stupidity and greed of the wealthy, were steadily removed so the market could run free.

The wealthy, kept accumulating more money and less real money was in the hands of the people that actually spend and keep the economy afloat, but due to lots of credit, no spending decrease was noticed. The housing market started feeling problems a long time ago. The reduction in bank regulation enabled a surge of capital into that sector buy making riskier loans called adjustable rate mortgages. The patient was stabilized, but not for long.

What finally burst the bubble, was the price of fuel. The major oil companies and the big three automakers in the US have for a long time been sitting on their asses to keep their profits high. That meant that little money was placed into research for better fuel efficiency or increasing refining capacity. As the price of fuel went up, people were forced to either cut back in some area or stop driving. Everything started to cost more due to fuel price increases being passed along. In order to afford necessities, spending on nonessential items slowed to a trickle. That caused more layoffs and the construction industry was hit hard because few could afford the added burden of paying for the fuel needed to get jobs done.

Now that everything has slowed down, those in the middle class will be looking to hang on to the things they have and won’t be spending very much for a while. People are trying to reduce their debt load. We are in a recession, and really have been in one for some time, fancy accounting tricks enabled our government economists to lie about it.

The way out is clear to me. Money has to get in the hands of the middle class. If the economy is going to recover, well paying jobs here will provide the spending power to do it. Money not spent, regardless of how it is invested does not drive the economy! I hope this puts the final nail into the coffin of Reagonomics and the trickle down theory of economics that accomplished nothing but wetting most of us with piss.

Journal Comments

  • JenLand
  • H Maria Perry