The domestic economy wants to expand but can’t.  Rates are at historical lows so even the most risky investment can look good, yet domestic investment languishes still.

The problem is employment.  There’s millions of people unemployed who were previously working.  It’s not an issue of whether they want to work, it’s an issue of there being five or more people (sometimes far, far more people) applying for each position.  This problem is compounded by the low  quality of what jobs there are–most are in low paying service sector jobs.

The political problem is that the Republicans simply can’t agree to hire directly.  Their economic philosophy is that the government can’t effectively hire millions of people because government is always inefficient.  Republicans stick to this belief even when it is obvious the private economy is in a coma and is firing people by the millions, not hiring them.  When the private economy is strong the Republican point of view has some merit, but when the private economy is not healthy this Republican point of view is irrelevant to the point of adding to the damage.

So instead of doing the right thing–hiring millions of unemployed people and paying them well for their work–Republicans dig in their heels, stubbornly refusing to do what is, to most people, obvious.

As long as this Republican disconnect continues the country will remain recessed.  The longer the country remains recessed the greater the damage that will need to be undone.

It’s odd that President Obama, purportedly an admirer of President Franklin Delano Roosevelt, doesn’t follow FDR’s approach to helping the country recuperate from Depression.  FDR precisely described who did us wrong, and guess what, it’s the same crowd who did us wrong this time.   This nugget from one of FDR’s speeches is as good an example as one could wish for that Obama should be telling the American people right now.

For nearly four years you have had an Administration which instead of twirling its thumbs has rolled up its sleeves. We will keep our sleeves rolled up. We had to struggle with the old enemies of peace—business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering. They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob. Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me—and I welcome their hatred. I should like to have it said of my first Administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said of my second Administration that in it these forces met their master.

Beezer here.  Hat tip to economist’s view for highlighting this.  FDR, a wealthy scion from New York, was never intimidated by his enemies in banking and big industry.  He knew many of them personally and he knew they felt one of their own had betrayed them, but he pushed on fearlessly.  As a result FDR was re-elected by the widest margin in American history.

As the pump price of gasoline climbs up towards the $4 per gallon prices reached in the summer of 2008, anxieties increase over the potential negative impact on a still struggling economy.  As more money is spent on fuel, less is spent on other items.  In an economy struggling to close the gap between too little demand and supply, our addiction to cars and light trucks poses a threat to what is still a nascent recovery.

The fleet on the street today averages a higher miles per gallon (mpg) than the fleet of 2008, which helps a little.   Those fleets with lower mpg were hit the hardest during the recession.

Domestic passenger

Daimler-Chrysler: 28.6 mpg (-36% overall sales)

Ford: 29 mpg (-28% overall sales)

General Motors: 29.9 mpg (-18% overall sales)

Toyota: 31.6 mpg (-21% overall sales)

Honda: 33.5 mpg (+1.1% overall sales)

Imported passenger

Daimler-Chrysler: 24.7 mpg (-36% overall sales)

Ford: 29.9 mpg (-28% overall sales)

General Motors: 31.9 mpg (-18% overall sales)

Toyota: 38.5 mpg (-21% overall sales)

Honda: 39.6 mpg (+1.1% overall sales)

Light trucks

Ford: 22.2 mpg (-28% overall sales)

Daimler-Chrysler: 22.6 mpg (-36% overall sales)

General Motors: 22.6 mpg (-18% overall sales)

Toyota: 23.9 mpg (-21% overall sales)

Honda: 25 mpg (+1.1% overall sales)

While lots of people, mostly Republicans, publicly wail about the deficit created by the ‘wasteful’ spending of  Democrats it might be a good idea to see what is causing the deficits.

As it turns out someone named Justin Fox (editorial director of Harvard Business Review) did just that in a very brief article published by Reuters.

Given our current recession it’s probably a fair question to ask how we got here.  I’m going to make a stab at answering the question.  And I’m also going to make a stab at what needs to be done to get out.

First, we as a people didn’t save.  We didn’t save in our personal lives, and we didn’t save in our government lives.  Personally, our collective savings rate literally dropped to zero just prior to the financial collapse that occurred almost three years ago.  And the government went on a similar spending bender at the same time.  We entered a couple wars and we significantly extended Medicare benefits.  In both cases, public and private, we borrowed to pay the bills. 

Never mind who’s to blame for these twin developments, the result doesn’t change: We entered a recession without having much of a financial cushion to fall back on.  We didn’t adequately prepare for unexpected setbacks. 

In recessions governments run up deficits primarily because of increases in various ‘safety nets’ like unemployment insurance and food stamps.  In addition to those bills, government spends money trying to shore up demand and trying to ‘fix’ whatever problem caused the recession. In this recession that spending included a ’stimulus’ program and several other programs aimed at keeping our banks afloat, particularly our largest banks on Wall Street. 

Now bear with me here.  This is economics. Kind of like bookeeping. If we don’t understand this then we are going to make matters worse, not better. Savings plus taxes equals investment plus government spending.  The problem we have is that savings is increasing, but private investment isn’t (the private economy just killed 8 million jobs, not much investment going on there).  It’s important to understand that the savings, and the investment parts of this equation are the big numbers compared to taxes and government spending–on the order of four times bigger. 

Right now investment has declined but savings is going up, to about 6% and it could go higher.  Which brings us to the real problem.  Because this recession was caused by a financial crisis, the mechanism (banking, or more accurately financial and non financial debt) which normally would increase investment when savings increase is broken.  No matter how low the interest rates, no matter how much money is put into the economy, it just sits there.  We have a full gas tank, but our transmission isn’t working. 

We could wait, cross our fingers, and hope that the private economy turns around enough to get that investment going again.  We could even reduce taxes (which would increase government deficits) and hope that gets investment going again. Or while we’re waiting for the private economy to revive we could increase government spending on useful things we need anyway like new power plants, new and improved transportation infrastructure–you name it, just make sure this spending produces jobs (remember that unemployment is a big cause of deficits) and results in capital improvements. 

One approach basically says sit still and tough it out. Government spending can’t help, this approach counsels, so just hang in there and wait.  The other approach says if the private economy isn’t functioning, get busy doing what needs to be done anyway while we’re all waiting.  If we’re going to run deficits at least know we’re building something we need!  And if this investment by government lands smack dab on some private company’s balance sheet, so much the better.  It might actually shorten the time we have to wait for private investment to return.  

Myself, I don’t like sitting around idle waiting for private industry to get busy making investments.  Eventually they will invest.  I hope this time they’ll invest in America because for a number of years most of what investing has been done has been done overseas.  But that’s another part of our problem (chronic trade deficits) that must wait for another discussion. 

I think we should get busy making the infrastructure improvements we do need. These are things we should have been building all along, but haven’t.  There’s an old saying that the best time to plant a tree is 35 years ago.  The second best time is now. If that takes government spending, so be it.  How about you?

From President Obama’s speech on Aug. 30th.

“And there’s currently a jobs bill before Congress that would do two big things for small business owners: cut more taxes and make available more loans.  It would help them get the credit they need, and eliminate capital gains taxes on key investments so they have more incentive to invest right now.  And it would accelerate $55 billion of tax relief to encourage American businesses, small and large, to expand their investments over the next 14 months.

Unfortunately, this bill has been languishing in the Senate for months, held up by a partisan minority that won’t even allow it to go to a vote.  That makes no sense.  This bill is fully paid for.  It won’t add to the deficit.  And there is no reason to block it besides pure partisan politics. 

Small business owners and the communities that rely on them, they don’t have time for political games.  They shouldn’t have to wait any longer.  In fact, just this morning, a story showed that small businesses have put hiring and expanding on hold while waiting for the Senate to act on this bill.  Simply put: holding this bill hostage is directly detrimental to our economic growth.

So I ask Senate Republicans to drop the blockade.  I know we’re entering election season.  But the people who sent us here expect us to work together to get things done and improve this economy.”

Republicans are only about power.  Nothing else.  Their actions throughout this recession have been focused not on helping the economy recover, but just the opposite.  They don’t want economic recovery.  They want suffering, because suffering increases dissatisfaction, and dissatisfaction normally hurts the majority party.

Despite this continuous Republican blockade against economic recovery, Obama has had some victories–although the Republicans needed to be heavily bribed in order to get the bills passed.

Here’s the list of the more significant bills that have managed to go into law and are aimed at speeding recovery.

Progress

• The President signed the American Recovery and Reinvestment Act, which has been responsible for about 3 million American jobs and brought the economy back from the brink of another depression.
• The President signed Wall Street Reform, the most sweeping reforms since the Great Depression, to hold Wall Street accountable, put an end to bailouts and “too big to fail,” and enforce the strongest consumer protections in history.
• The President signed the HIRE Act providing a payroll tax credit for companies that hire employees who have been looking for work for 60 days or more.  Millions of workers have been hired through this process already.
• The President launched the National Export Initiative with a goal of doubling exports and supporting several million new jobs over five years. 
• The President announced the “Making Home Affordable” home refinancing plan.
• The President launched a $15 billion plan to boost lending to small businesses.
• President Obama played a lead role in G-20 Summit that produced a $1.1 trillion deal to combat the global financial crisis.
• The President signed the Fraud Enforcement and Recovery Act which gives the federal government more tools to investigate and prosecute fraud, from lending to the financial system, and creates a bipartisan Financial Crisis Inquiry Commission to investigate the financial practices that brought us to this point.
• The President signed the Helping Families Save Their Homes Act, expanding on the Making Home Affordable Program to help millions of Americans avoid preventable foreclosures, providing $2.2 billion to help combat homelessness , and helping to stabilize the housing market for everybody.
• The President signed the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act to protect Americans from unfair and deceptive credit card practices.

Beezer here.  Not too shabby considering the Republican blockade.  Most of the original legislation had to be severely compromised in order to gain even a narrow margin of victory.  In some cases it took direct bribery of a few Republicans to gain passage.

It’s the cost of doing business with a ethically bankrupt Republican Party.