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Politics : View from the Center and Left -- Ignore unavailable to you. Want to Upgrade?

To: Cogito who wrote (129354)	1/26/2010 10:42:15 PM
From: slacker711	Read Replies (2) \| Respond to of 541933

The problem in economic contractions is that when companies start laying off workers, demand for products and services weakens, leading to further layoffs. When whole companies give up the ghost, this disruption is intensified, as more and more people find themselves without jobs. It becomes a vicious cycle. So there are no strong companies around rehiring the laid off workers. The companies that are left standing go into a defensive posture and freeze or reduce hiring, since they are seeing reduced demand. That puts a big hole in the "let the chips fall where they may" argument. Your comments make it sound like the only way out of a recession is government spending. As Reich noted today, it wasnt government spending that got us out of the recession in '93 (the so called "jobless" expansion). There are vicious circles in economics, such as bank runs....that is exactly where government needs to step up to stop the feedback loop. I see little evidence that this is the case today. No, we arent yet adding jobs, but no realistic economist thought we would be at this point in the recession. It takes time to wring out the excesses and to lay the foundations for the next generation of leadership among American corporations. I'm not saying that the government shouldnt take steps to ameliorate the pain, but I am reading way too many articles/comments that seem to imply the only way out of a recession is government spending. That is absurd. Slacker

To: Cogito who wrote (129354)	1/27/2010 9:50:17 AM
From: Katelew	Read Replies (2) \| Respond to of 541933

It becomes a vicious cycle. Yes, but it doesn't spiral down forever. An equilibrium point is reached, and it will be reached faster if the government doesn't try to preserve every job. Another reason is that the government has no way of really knowing whether or not a company is well-managed or not when it tries to prop them all up. Strong companies tend to survive recessions on their own because they have prepared for the inevitable downturns. They have money set aside, or have hired well, or have solid inventory contol systems in place, etc. So to blame a business failure entirely on a recession is mistaken. Actually recessions serve to clean house....weed out the weak and redistribute assets to more efficient use. They spawn innovation, too, and often entirely new industries and technology come about from the crisis management that takes place. Just this morning I read about two new policies Caterpillar will adopt to help its suppliers more easily obtain bank credit. Perhaps the main reason to avoid government intervention is simply that it prolongs the process of weeding out the weak. Unemployment insurance runs out. Better to get the process over with quickly so rehiring can start.