How Do We Jump Start Our Economy?
Our economy is not an automobile (car) and it cannot be jump started like an automobile. But, there is something we can learn from the way we used to jump-start our car in the past and how we jump-start today. In the old days when the automobile stalled, we would manually push to start the car. It was a labor -intensive process. Today we jump start the car using jumper cables, portable chargers, and designer chargers that meet the specification of the automobile manufacturer. The reason for the change is because the times have changed, most of the cars have automatic transmission, digital technology, and the process has changed from a manual push to a technology based process. If the economy was like a car, we could charge the economy with a stimulus plan and expect the economy to return to normal growth. The economy is more complex than a car and it is not a man made machine. Economists think they can solve the economic problems based on the theories and past economic experiences. The problem with that thinking is the environment is changing and the old theories and approaches are not enough to stimulate the new economy.
We learned a lot from the great depression of 1929 and we realized that the managing economy involves monetary policy, fiscal policy, and managing the financial health of the financial institutions. If we look at our economic policy, the Federal Reserve has maintained the discount rate to zero to loosen the credit and maintain the circulation of funds in our economy. The federal government has bailed out failing financial institutions to maintain confidence and availability of credit to businesses. The Government has also interjected billions in the economy by investing in our infrastructure. The question is why has our unemployment rate jumped to 10.2%. The answer may depend on the economic school of thought and the assumptions that economists make in explaining the economic situation. The average American is not interested in a debate between the two schools of economic thought. They are interested in finding a well paying job that provides an income to support their family, a house to live without thinking of foreclosure, and credit to buy goods or services so that they enjoy life, and pay as they go.
The current economic policy can be best explained using the jump-start process of the car. The car with an automatic transmission and digital technology has stalled, and we are trying to start the car by a manual push like we used to do in the past. We have a new (digital) economy and we are trying the tools we have used in agricultural and industrial economies. First, we need to recognize that we are part of both global and digital economy. Second, the Federal Reserve needs to do whatever is needed to maintain liquidity in our economic system. Maintaining a zero discount rate has not brought the liquidity and access to credit for small businesses. The financial institutions are prospering; large investors and foreign investor have access to credit because of the Federal Reserve’s action. The Federal Reserve needs to understand the changing nature of business of financial institutions and do whatever is needed to make credit available to both small businesses and consumers. Third, the Government has invested in our country’s infrastructure thinking that it will stimulate our economy soon. It was a good investment; the problem is it will not stimulate the economy like old days. These days the construction is more a technology based process. A construction project that required 1000 employees in old days can be accomplished today by little over 100 people. The raw materials and prefabricated materials are imported from other countries. The heavy equipment used may be leased from a foreign subsidiary. The trickle effect is going global from U.S. investments in infrastructure. This economic thinking will take years for economic growth. The trickle down economic policy is from the past and will not solve our current problem.
To stimulate economic growth, we need to include behavioral economic, understand the role of digital technology in the economy, and recognize that our economic system has changed to micro-cell economic system. We have borrowed and invested billions of dollars and still were not able to build the consumer confidence. The consumer confidence is low; the number one concern of the public is the economy.
The average American is still thinking of the economy before going to bed and waking up in the morning. In a digital economy the focus of the economic policy should be on millions not on just few. Millions of people make the nation prosperous not few so called essential industries. Our economy is a micro-cell economy. In a micro-cell economy, the growth of the economy depends on the growth in micro economic cells. The growth of micro-cell depends on education, intellectual capital, monetary capital, digital technology, and communication. A trickle up approach is needed to stimulate a micro-cell economy rather than a trickle down approach.
Bloger@sunlona.com
