What Recession?

The one that is about to get worse, much worse if world governments and fiscal paranoia have anything to do with it. You see recently, there has been a lot of worry over the United States' - and other countries' - debt problem. Admittedly, the US and many other countries have taken on a lot of debt with stimulus packages and bailouts...measures that were %100 necessary, and that have done a lot to prevent the recession from getting worse and have saved or created thousands of jobs.

Recently, there has been a lot of legitimate concern and even more irrational fear-mongering about the levels of debt in the US. In order to understand the problem, we must realize that there are, in fact, two problems: debt and a recession.

Perhaps you disagree, but in my mind, the recession is far more important, and if we come out of it, debt will be less of an issue because taxes revenue will rise on it's own as people go back to work and businesses and the economy grow. Coming out of the recession is paramount to cutting the deficit because one naturally leads to the other. The opposite is not true. Cutting the deficit now will actually make the recession worse. Let's explore.

Keynes, John Maynard, was the first economist to explore and advocate for deficit spending, the idea that when the private sector is incapable of putting money back into the economy, the government must do it to spur growth. Perhaps you've heard of the New Deal, that's the idea. Like a person, the economy must eat; it eats money, and so every time we go out and buy cool stuff we're actually being patriotic. When times are good, Daddy America doesn't have to spend much because you and me and all the other patriots can buy cars, shoes, X-boxes and the like to keep things afloat, but when times are bad, someone has to pick up the slack. Enter Presidents Bush and Obama.

Bailouts and stimulus packages, while not popular, are practical and more importantly, are just that, important. Imagine an America in which Bush had not bailed out the banks. More banks close, lending dries up even more, the economy shrinks further. Bad news. Imagine an America in which Obama hadn't passed the stimulus package. Job creation disappears completely and more jobs are lost leading to higher unemployment and less tax revenue. More bad news.

Now imagine what would happen if most of the world's industrialized nations all decided to withdraw that stimulus spending at the same time, just as many of the world's economies are starting to turn it around. Let's put this in perspective, just this week, analysts at Goldman-Sachs, the company being sued by the federal government, openly criticized the Senate's refusal to extend unemployment insurance and benefits to impoverished state governments, calling this asinine policy, "an increasingly important risk to growth." If this isn't enough evidence for you, you can do some research on the history of the Great Depression and see that it took WWII to finally pull us out of that slump after FDR cut stimulus spending in the late 1930's and all the good that it had done vanished immediately.

So there you have it. The only bank that emerged from the crisis unscathed and is being sued because of possible fraudulent practices is condemning a government whose actions are going to make it harder to turn things around.

Let's make America better today. Let's tackle the big problem, the economic recession, first and let the results fix the deficit problem. Let's put Americans back to work by practicing tried and true economics policy. If we do that, we can figure out the deficit no problem.