Friday, March 13, 2009

Why simply restoring consumer confidence won't make a difference

It won't make a difference because the theory behind the importance of consumer confidence is that lack of it contributes to a downward spiral that turns recessions into depressions: economic downturns are made worse by people becoming unwilling to spend money, which in turn causes hardships on business causing more people to be fired, which makes people less willing to spend money. The problem with that is that it assumes that the underlying economy is relatively sound and that all that's required is a burst of money to stabilize it. In particular, it assumes that the industrial infrastructure of the country is sound, and that it's only been reduced in output through lack in demand. Instead, the underlying industrial economy of the U.S. has been shipped outside of the country in large part in the last two decades, hollowing out the basic industry of the country.

Stimulating consumer spending won't work because we don't have the companies making the things that people would buy anymore.

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