Understanding America’s Economic Doldrums (2008-2012)

We reproduce below a letter from Jeff Herman of Bell Canyon, California to the editors of The Wall Street Journal published online on August 1, 2012 and in the print version, Opinion section, on August 2, 2012. It is published here as it is about as clear a statement as can be made about the cause of the lingering unemployment problem in America. Reading this brief essay one gathers that Americans generally, not everybody of course, indulged in a long-lasting binge of borrowing and consuming which has caused a long-lasting hangover. The author hints at but does not highlight the role of the U.S. federal state in encouraging consumption in preference to saving, borrowing over investing, and acting generally as a prototype for financial irresponsibility.

“Mortimer Zuckerman [editor of U.S. News & World Report] accurately lays out why ‘Unemployment Is Still the Biggest Election Issue’ (op-ed, July 24). What he does not tell your readers is why the unemployment situation will not change anytime soon.

“Consumer spending represents 70% of the economy and as the article states, consumers have lost over 40% of their net worth in the past few years. The following forms of stimulus have worked in the past and could work in the future.

“If consumer debt could double as it did from 1980 to 2007, unemployment would drop markedly. If government debt could triple as it did from 1980 to 2012, unemployment would drop markedly. If mortgage rates could drop by 500% as they did from 1980 to 2012, unemployment would drop markedly. If consumers could borrow with no need for income verification as they did in 2005 through 2007, unemployment would drop markedly.

“Sadly, consumers can’t double their debt again. The government can’t triple its debt again. The generational decline of mortgage rates will not happen again and most consumers can hardly qualify for new credit, given borrowing restrictions and the lack of collateral. Not only can’t these kinds of stimuli happen again, but in many cases they are reversing course and will have the opposite effect on consumers and consumption.

“Why won’t publications, reporters, economists or even our elected officials tell the American people the truth about the headwinds facing us instead of expounding on silly issues like fighting to the death over a 2% reduction in the deficit by raising taxes on the rich?”

Jeff Herman

Bell Canyon, California



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