As you are reading this you know our economy is in a serious recession. The government mouthpieces tell us this is the worst recession we've seen in more than 30 years. In truth folks, this is the only recession we've seen in 30 years. In fact, the last one was in the early 1980's and it lasted less than a year; hardly a pothole on the economic highway. Prior to that we had runaway inflation to contend with during the 70's not to mention the Arab embargo which falsely created gasoline shortages, long lines at the fuel pumps and rationing of gasoline. Economies are rarely calm and sanguine. Turbulence, accompanied with times of jubilance and despair are the order of the day. Unfortunately, unreasoned panic from our leaders also seems to be part of the package.
At this point in time we, the taxpayers of this great country, have shelled out, under the direction of our panicked leaders, over 300 billion dollars in loans and free grants to some of the largest corporations in the world. Unfortunately, those loans and so-called bailouts haven't worked and probably won't work.
Let me ask you a question. Assuming your family is in financial trouble and your Uncle Sugar comes along and gives you a loan of $10,000. The loan is made with the understanding that Uncle Sugar wants you to go out and use the money to help the local economy. Fortunately for you, Uncle Sugar didn't make that a condition for the loan. He simply hands it to you and says you can spend it anyway you want. Are you going to spend it or are you going to put it away to protect your family in the coming months? Some would spend it in frivolous ways but most would put it away.
Corporations aren't much different. The bulk of the money they were loaned was put aside to help cushion and protect the future of the company or it was squandered in the form of undeserved bonuses and rewards. Want to guess what these same corporations will do if they get more?
The United States is supposed to have a free economy. Note the phrase, supposed to have. For a free economy to work properly several things have to be in place. Most importantly, in my opinion, is lots and lots of competition. Unfortunately, this is one thing the United States has legislated out of existence. Back in the last century the United States did things like enforce the anti-trust laws in our country. AT&T is a good example. This company had grown so big and powerful the government felt it was impossible for anybody or anything to compete. So, the government forced AT&T to break itself into 10 separate companies in order to allow competition to continue. Unfortunately, the government only did half of the job. They forgot to write any legislation, which would prevent future consolidations. Look closely at the original 10 and you will see most have been reabsorbed and are, once again, giant corporations. Contrast that with some of the companies we have today; Citicorp, Bank of America, Ford, General Motors, Chrysler, just to name a few, are so large, government economists tell us if just one of them were to fail it would result in catastrophic consequences. The true catastrophe would be, if one or more of these companies were to fail the taxpayer of this country would have to pick up the very generous retirement and medical programs now being provided by those companies. For some unknown reason, our government has not learned they need to create laws, which require 401(k) and all the other retirement other retirement accounts to be completely separate from the operating coffers of a company. Didn't Enron teach them anything?
Did you know, at one time in our fairly recent history there were more than 100 automobile manufacturing companies? The first automotive manufacturing company began in the year 1863. (For those trivia buffs it was the Roper). Here in the United States, four specialty automotive manufacturing companies began business in the year 2000 or after. Of the original 100+ companies, not including foreign car companies who have built manufacturing facilities here in the States, most have died but some were merged and/or absorbed by larger and more powerful companies. Chrysler bought Jeep, General Motors merged with Pontiac, Oldsmobile and Buick and Studebaker merged with Packard but later died. REO, Tucker, Nash, Kaiser, Frasier, Stutz, Cord and Stanley are just some who tried and failed. When one or two failed, which they obviously did, it was nothing more than a blemish on our economic face. Workers were absorbed or retrained and the economy kept rolling. Now, talk about one of them failing and we hear the words catastrophic and unacceptable.
Think of an economy as wildlife. In nature, if there are few species the chance of survival are slim. If the numbers of species are many and varied then the chances of survival are much better. Now think about habitat and food supply in nature.
When the habitat is large and varied and the food supply is abundant then many various species of flora and fauna will thrive and grow and flourish. If, for some reason, the habitat decreases then the various species of plant and animals will decrease until a balance is once again achieved. If the food supply decreases the animal life will also decrease until, again, a balance is achieved. This process we all learned about in Elementary School is called Survival of the Fittest.
Economies work exactly the same way. As long as there is a large and varied mix of manufacturers, growers, suppliers, transporters, diggers, eaters, etc, etc, etc., things will go along as they should. As people increase in numbers and prosperity, businesses will grow and thrive right with the consumers. When the consumer thrives and earns more money they feel happy and confident the future will be good. Consequently, the consumer spends more money to acquire more goods and comforts. The more comforts they acquire, the better they feel and so on and so on. If one or two participants in each segment of the economy succumb to bad fortune the rest of the economy can absorb and adjust and the economy will continue to roll along as it should. Unfortunately, at this time in our history, our economy consists of a few extremely large corporations with few, if any, competitors. If one overly large company fails, the rest of the economy is not capable of absorbing and adjusting to the economic disaster. Those souls can't be absorbed so they go backward in their earnings. Because they are earning less they feel more and more vulnerable. The more vulnerable they feel the less they spend. As they slow their spending surrounding people start feeling less and less secure so they start moving into a defensive posture. They start saving rather that spending. They stop buying non-necessities and so on and so on. Bingo, recession and/or, if the cycle goes on long enough, depression.
There is a very old joke I know everyone has heard; which came first, the chicken or the egg. While it's not a funny joke it is a GREAT question. I will rephrase the question; which came first, the consumer or the producer?
An economy does not start with a producer, a manufacturer, a transporter, a grocer, a barber or a dentist. An economy starts with consumers; people with needs. At first those people do for themselves. They grow their own food. They make their own clothing. They hunt their own meat.