Worse than Expected

In the LA Times I read the following:

"Every Economics 1 textbook introduces the economy with the same simple equation. It reads: consumption + investment + net exports + government spending = gross domestic product or output."

I can follow this OK. Though I would think that something called "production" belongs in there too. Maybe it is covered under "net exports." But given this equation, the argument runs, the only factor that can pump up the economy is government.

People have not completely stopped consuming of course. But they are cutting back. Investment is slowing down because of the credit crunch. As for net exports, our balance of trade is way out of kilter in the wrong direction.

So that leaves government.

The problem here is clear enough. Where is the government going to dig up the money. The tax base is clearly eroding. If people are consuming less–there goes sale’s tax–down I mean. And with property values declining, there goes the property tax. The result in California? An estimated debt next year of 42 billion.

I suppose they can just print money–the risk there though is re-inflation.

Given the dimensions of the crisis, the people who are supposed to know things about the economy argue that things could easily be worse in four years, at the end of O’s first term.

In the meantime, how many futures may be ruined, and how much social unrest and upheaval may occur?

Beats me.

The new aircraft carrier named after the first Bush cost 6 billion dollars.

The total defense budget (there is argument about this) takes up 20 percent of the national budget or about 1000 billion dollars.

Hey, I think I see a way to get some money. We, not that long ago, were spending closer to 7 percent of the national budget on defense. If this 20 percent figure is correct, it’s a recipe for ruin. The Soviet economy collapsed because for a couple of decades they spent more than 20% on the military.

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