July 13, 2011 (Information Clearing House) -- Most people voted for Barack Obama because they hoped that he could turn around the economy. They elected him because they thought that he understood the trials and tribulations of the common people and that he represented a departure from the fallacious ‘trickle down’ economics philosophy of the last 25 years. Unfortunately, the voters were grossly mistaken.
While the people realized that Barack Obama was not an expert in economics, they assumed that he would choose the right economic advisors, individuals who understood the real causes of the current economic crisis. However, he has surrounded himself with multi-millionaires who cannot identify with the vast majority of Americans. His economic advisors do not know what it means to live from paycheck to paycheck. They have never experienced foreclosure, or continuous harassment from bill collectors, or unemployment. They have never experienced the emotional horror of not knowing how they going to pay their bills, or where they are going to go when their home is re-possessed. Barack Obama’s economic advisors are unaffected by this recession on a personal basis and their only exposure to the hardships of this crisis is through the media. Many of Barack Obama’s economic advisors have actually contributed to the current crisis through the policies that they either promoted or followed during previous administrations. And what is most disconcerting is that Barack Obama’s economic advisors are actually disciples of Milton Freidman, the father of Reaganomics and the person most responsible for the economic crisis which the world is experiencing. The people whom Barack Obama has chosen to give him guidance on how to lead the United States out of what may be the worst recession in its history are blind to the causes of this crisis. And, since they do not understand the causes of this crisis, they do not know the solution. Hence, Barack Obama who is himself blind to economics is being lead by blind advisors, “the blind leading the blind.”
The actions taken by the Obama administration to reverse the recession have not been nor will be successful. No matter how much confidence he expresses, the fact is that he has not done what is necessary to eliminate the causes of this economic crisis. The title to the Obama strategy “stimulus” indicates that he and his advisors think that there is nothing really wrong with the economy; it only needs to be stimulated to move in the right direction. WRONG! If the engine in a car is broken, all of the gasoline in the world will not get the car going again. What makes matters worse is that because President Obama is blindly following his economic advisors, he has closed his mind to virtually any other solution. He naively waits for an improvement in the economy, not realizing that he has not done what is necessary to improve the economy. Barack Obama is at the train station waiting for the train to come in – he does not realize that the train is off the track miles away.
President Obama does not understand that the economy is broken. It is not merely sluggish, or asleep, or groggy; IT IS BROKEN. The actions, policies, and inactions of the previous four administrations and Congresses have caused serious imbalances and defects in the economic machinery of the US economy. The economy will not move in a positive direction until the defects are removed and the imbalances are fixed. Unfortunately, Obama has inherited the sins of past administrations. Ronald Reagan, George H. Bush, Bill Clinton, and George W. Bush made big mistakes regarding the economy, and these mistakes need to be corrected not ignored.
The economy is not driven by investment; the economy is not driven by supply; the economy is driven by consumption. The basic dynamic of an economy is the continuous cycle of demand, production, sale, and consumption in which demand reflects what will be consumed. The economy is driven by consumption and jobs are created because of consumption. When consumption is down, jobs are lost. When consumption is up, jobs are created. Businesses only create jobs in response to demand of consumption.
The US economy is driven by consumption; not the minimal consumption of the upper one percent of the population as is espoused in Reaganomics, but the consumption of the lower 99 percent of the population. Who will buy the ten million cars made each year in the United States? Who will buy the millions of homes built each year? Who will buy the tens of millions of appliances made each year? Who will buy the hundreds of millions of articles of clothing made each year? Will the three million people of the upper class buy ten million cars each year? Will the three million people of the upper class buy the millions of homes made each year? Will the three million people of the upper class buy the tens of millions of appliances made each year? Will the three million people of the upper class buy the hundreds of millions of articles of clothing made each year? Absolutely not! Not even the most exuberant greed would amass possessions of such quantities. But, the 300 hundred million people of the middle and lower classes will buy all of these things and more if they have the money to buy – not the credit to buy, but the money to buy. The middle and lower classes want to work and they want to buy things: goods and services that they want and need to preserve life and liberty and to pursue happiness.
What is the basic cause of the current recession? Is it lack of investment? Is it a problem with the banks? Is it an issue with the insurance companies? No, the basic problem with the economy is a lack of consumption. This problem does not involve the top 20 percent of the population; it involves the bottom 80 percent – over 200 million people.
Does President Obama realize that half the families within the United States have a gross income of less than 50 thousand dollars a year and a net income of less than 38 thousand dollars a year? Since there are approximately 100 million families, that means there are about 50 million families or over 150 million individuals who fall into this income class. Most families who have a net income of less than 38 thousand dollars a year live from pay check to pay check. They have little to no money left over after paying their bills. If prices increase on the average by 3 percent and their incomes increase by a similar 3 percent, there is no problem. But if prices increase significantly more than their incomes, they are in trouble.
Over the past few years the prices of basic necessities such food, electricity, heat, and healthcare have risen between 20 to 30 percent, while the average income has risen less than 5 percent. Food, electricity, heat, and healthcare account for about 40 percent of the family budget for those whose net income is less than 38 thousand dollars a year. A 25 percent increase in basic necessities represents about a 10 percent increase in total expenses. For those 50 million families whose net income is less than 38 thousand dollars a year, a 10 percent increase amounts to approximately $300 a month. Since these families were already living from pay check to pay check, they did not have any extra money or income to absorb this excessive increase in the prices of basic necessities. In order to survive financially and pay for the 25 percent higher cost of basic necessities, a significant number of these 50 million families used credit cards to bridge the difference between the higher expenses of food, electricity, heat, and healthcare and their inadequate monthly net income. This, of course, was only a temporary fix. Soon, their credit cards reached their limits, and they could not use credit to pay for basic necessities.
Complicating their already desperate financial situation, once these families reached the limits on their credit cards, their interest rates increased as well as their monthly payments. Since these families were already financially constrained, they now had to play the ‘who should I pay’ game. This is a strategy used by families (tens of millions of families) who do not have enough money to pay all of their monthly expenses. Because there is not enough money, these families were forced to pay their bills late and pay irregularly. Paying credit cards, auto loans, mortgages, utility bills, water bills, and phone bills late incur LATE fees, a scheme used by businesses to increase revenues and profits. Late fees can be significant (ranging from 5 to 10 percent) and when almost every expense involves a late fee, the family’s monthly obligations, which already exceeded their income, increase significantly. And, now on top of the 300 dollars a month in additional expenses for basic necessities caused by an excessive increase in prices, higher interest rates and late fees add an additional 200 dollars in unaffordable monthly expenses. For the 40 to 50 million families in this situation, how can they come up with an additional $6000 a year to pay for these unjust expenses?
What do these people now do? They only way to financially survive, at least for a short period of time, is to stop paying their mortgage – their largest monthly expenditure. While these families could make partial payments on their mortgages, the mortgage companies do not allow partial payments preferring instead to foreclose and re-possess people’s homes. Such is the origin of and main reason for the present recession in the United States. And, what is most troubling is that this situation is expanding to more families due to job loss, continued price increases, and the vulturous policies of the credit card and finance corporations.
President Obama does not seem to understand that the current recession is being caused by 50 to 60 million families (between 150 and 180 million people) who are extremely constrained financially. These people would like to buy cars, appliances, clothes, entertainment, etc. but cannot because they cannot afford to. Toxic assets, poor investments, and the other vague euphemisms that Obama’s economic advisors have given as the causes of this economic crisis are totally Reaganomic and wrong. Truly absurd is the idea that the money being given as bailouts to the banks, insurance companies, auto companies, etc. will trickle down to these 150 million financially desperate people. The trickle-down economic theory is wrong – wealth and income does not trickle down from the rich 3 percent of the population to the non-rich 97 percent of the population. In fact, it works in the opposite way.
The economy will not turn around until these 50 to 60 million families are helped out of their financial slavery and enabled to consume the goods and services which they need and desire. Positive and sustainable economic growth will not occur until this situation is corrected. For the economy is driven by the work and consumption of the people and not by the stock market. All of the investment in the world will not and cannot rebuild the economy unless that investment is in these people who are the basis and backbone of America.
It should be clear that what has been elaborated here is drastically different from what President Obama and his economic advisors have been saying. The Obama administration seems to be following an economic strategy which is blend of Keynesianism and Friedmanism and it is not working. Friedman and Keynes are dead, let their economics die. Barack Obama has to be open to a different strategy and different economic philosophies. He cannot be closed-minded. It is time for national debates on the economy. President Obama and his advisors need to face the Nation and admit that their strategy for fixing the economy is not working and ask for help in creating a new strategy. The American people cannot accept the current attitude of the Obama administration which is “trust us, we know what we are doing” and “it will take time”.
Barack Obama needs to remember that he serves the People of the United States. The People put Barack Obama in office and the People can take him out of office. The People elected Barack Obama to fix the economy and he has not done that. If Barack Obama is not capable of fixing the economy, then the People need to recall him and replace him with someone who is.
Dale Pivarunas is a supply chain management consultant. He has a bachelor’s degree in mathematics and a second bachelor’s degree in theology. He also has an MBA and a second master’s degree in Operations Research.
He has written a book entitled “Economic Disaster by Design - The Planned Economic Crisis: The Causes and the Solution”. The book addresses the current economic crisis as well as economics in general. Its approach is philosophical, holistic, pragmatic, easy to understand and based on Christian social principles and the Natural Law. The book clearly explains the causes of the economic crisis in the United States and outlines real solutions. The link to his book is http://economicdisasterbydesign.com :
