The Zero Economy: No Jobs, No Demand; No Demand, No Business

It's pretty basic: if people dont have incomes that cover their expenses, they can not buy much.

If they do not buy much, business can not sell much. If sales numbers dont increase, neither do profits or stock prices. And if stock prices dont increase, eventually even compliant boards have to start thinking about limiting bonuses and option grants.

Business wont spend because they can not reliably anticipate future sales. The can not do that because not emough people have jobs or rising incomes to stimulate those future sales. In situations like this, the government is generally considered the engine of growth. But that approach is out of favor due to ideological opposition from some for whom theory trumps reality. Until corporate compensation for senior executives is impacted there will be little impetus for action. In the interim, this is going to be an expensive way to learn that your theories dont work. JL

Robert Reich comments in the Huffington Post:

The Bureau of Labor Statistics reports today no jobs were created in August. Zero. Nada.

Well, not quite. The strike at Verizon reduced the labor force by 45,000. Minnesota government employees returned to work, adding 22,000. So in reality, America added 23,000 jobs. Almost zero. In reality, worse than zero. We need 125,000 a month merely to keep up with population growth. So the hole continues to deepen.
Since this Depression began at the end of 2007, America's potential labor force -- working-age people who want jobs -- has grown by over 7 million. But since then the number of Americans with jobs has shrunk by more than 300,000.

If this doesn't prompt President Obama to unveil a bold jobs plan next Thursday, I don't know what will.

The problem is on the demand side. Consumers (whose spending is 70 percent of the economy) can't boost the economy on their own. They're still too burdened by debt, especially on homes that are worth less than their mortgages. Their jobs are disappearing, their pay is dropping, their medical bills are soaring.

And businesses won't hire without more sales.

So we're in a vicious cycle.

Republicans continue to claim businesses aren't hiring because they're uncertain about regulatory costs. Or they can't find the skilled workers they need.

Baloney. If these were the reasons businesses weren't hiring -- and demand were growing -- you'd expect companies to make more use of their current employees. The length of the average workweek would be increasing.

But the length of the average workweek has been dropping. In August it declined for the third month in a row, to 34.2 hours. That's back to where it was at the start of the year - barely longer than what it was at its shortest point two years ago (33.7 hours in June 2009).

It's demand, stupid.

So what does a sane nation do when the consumers and businesses can't boost the economy on their own?

Government becomes the purchaser of last resort. It hires directly (a new WPA and Civilian Conservation Corps, for example). It helps states and locales, so they don't have to continue to slash payrolls and public services. (The help could be structured as a loan, to be repaid when unemployment drops to, say, 6 percent.)

And it hires indirectly -- contracting with companies to rebuild our crumbling infrastructure, including school buildings, to take another example.

Not only does this create jobs but also puts money in the hands of all the people who get the jobs, so they can turn around and buy the goods and services they need -- generating more jobs.

Get it? Not exactly rocket science.

So why don't Republicans get it? Either they're knaves -- they want the economy to stay awful through next Election Day so Obama gets the boot. Or they're fools -- they've bought the lie that reducing the deficit now creates more jobs.

Every time you hear anyone say we're "broke" or "can't afford to spend more," tell them we'll be in worse shape if we don't. If the economy remains dead in the water, the ratio of public debt to GDP balloons.

And remind them that the federal government can now borrow at fire-sale rates. Interest on the ten-year Treasury bill is 2 percent.

Do you hear me, Mr. President? Please -- be bold next week. And if, as expected, Republicans refuse to go along, take it to the people. Mobilize the public. Use the bully pulpit. That's what you have it for.

One more thing, Mr. President. You also have to tackle inequality. When so much income and wealth continues to flow to the very top, America's vast middle class still won't have enough purchasing power to boost the economy. Priming the pump is necessary but won't be sufficient without enough water in the well.