I've always said, instead of trying to induce the same reckless credit expansion that led to the current situation, we'd be better off increasing unemployment benefits and welfare both in amount and length of time until we can get to a bottom where consumption of goods is based on leverage levels that aren't maintainable.
That's the good way to spend money to delay an economic collapse. But it won't provide a recovery. And I don't think that anyone should be waiting for the "free market" do do that either. At the root of this whole crisis is an employment and income problem.
I have a theory o about what happened, and what can happen now. I'll post it, for what it may be worth:
How do economies "grow"? Real
economic growth (ignoring accounting rules) is an increase in the production of goods and services. What has encouraged this increase in the past? Population growth and technological improvements leading to higher productivity.
Population growth didn't really increase wealth per capita, so we shouldn't be too sorry for losing that, but it was mostly lost in the "west", where population growth has slowed down considerably. So don't expect the growth rates of some past "golden years".
What about productivity? Usually it encourages a virtuous cycle: production increases, sales increase, wages increase, consumption increases also.
But this cycle can be cut at any of its four steps: technology can stagnate for some years; sales can collapse if they depend on foreign trade and there's a crisis in export markets; wages can be kept down through a variety of methods; people can "go bankrupt" for a number or reasons.
Any of these can break the cycle, and worse, propagate and turn it into a vicious cycle. And we can now see the four at work!
Apparently it started as a income collapse, as incomes which had been inflated through debt were reduced. But that was not its root cause, and therefore reinflating debt will not solve anything, only postpone the problem a little. The root cause were symmetrical shifts in employment in two "zones" of the world which broke, within each zone, the usual market economics cycle.
The "wealthy world" moved more and more people into non-productive jobs, but attempted to keep their income stable by either encouraging them to borrow money, or by having the business employing them rely on financial schemes for its income - effectively running on borrowed money also.
While this was happening the "developing world" employed more people on productive jobs, mostly to export goods and even services. While the compensation of many workets on the "wealthy world" was too high compared with the value of what they were producing, the compensation of the workets of the export industries of the "developing world" were (are!)
necessarily too low compared with the value of what they're producing. The proof is simple: it that compensation wasn't too low, there would be no net flow of goods and services exported from those developed countries: their own population would absorb its own production.
"Globalization" enabled all this. And the proponents of globalization thought that it would be a good deal. Workers on the "developing world" would be
charitably exploited (my own expression to describe the idea) - they were getting less that they deserved, but their countries were developing, after all...
While the "wealthy world" would import at will (deficits don't matter). Except that deficits do matter - people don't like it when their money goes missing, or payments cease being made, and there's a limit to the amount of debt which can be accumulated before this happens. The workers of the "developing world" could perhaps have been kept quiet and the system of exploitation kept going
ad eternum. But the workers of the "wealthy world"
had to be paid. And sooner or later the business build to pay them, dependent on loans (because they were not really producing anything) would collapse. That time has come.
There's just one more piece to fit: who was lending? Who had the money to lend? Obviously, those who were profiting from the work of all those people who produced goods for export but were not consuming anything equivalent to what they produced. Governments? Banks? Wealthy individual? I don't know, but it would be just matter of following the loaned money to its source... all three, probably, in a very short-sighted exercise.
These imbalances, between production, wages, and profits, happen to a greater or lesser degree within countries. But countries have their own political systems to deal with this, welfare being the most usual one.
Between countries, however, there's no such system for "charitable" transfers of wealth. The stabilizers were currency rates, duties, etc - all that
obsolete junk which the globalizers saw fit to abolish... their absurd system would not be possible otherwise. Which is to say, this depression wouldn't have happened!
The solution for this crisis can only be one: roll back everything which was part of "economic globalization". The big fall in or world trade is a
good thing (economically...), a first step towards economic recovery. It must be followed by reinvestment in productive industries where they were previously dismantled. But that part can only happen after the political idea of "free trade" is killed.
If that doesn't happen fast enough... the "free-marketeers" will end up killing capitalism.
That would be irony!
