Blood in the Streets

Dear Hank,

November 24, 2010

Blood in the Streets

I hate to speak ill of anyone so I’m not going to do it. But I have to wonder, “The people who are calling for massive cuts in government spending during a time of recession did they fail Econ 101?” One senator is looking forward to the upcoming vote on raising the debt ceiling that Congress will have to do in April. He’s looking forward to it not passing and says, “There will be blood in the streets.”o And indeed there will be. I’m just not sure whose or how much. He’s under the impression that we will cut government spending massively so the debt ceiling won’t have to be raised.

Likewise, the folks who say the current screening by TSA is a bad idea and why don’t we just follow the Israeli example for airport security?

I happened to hear a fellow on the radio today. He’s very popular with what are now called conservative and right wing in this country. I was astounded that he said in less than two minutes that the housing crisis was caused by the big banks not the little banks and that the solution to that was to have your local bank lend to you, a bank where they know you. Likewise, he said the solution to airport security was the same. You go to an airport where they know you. Then all this pat down nonsense wouldn’t be needed.

Okay there are three issues I’ve brought up. The first one about econ 101 and cutting government spending; if you run a business or a home when you don’t have any money, or very little, you cut back, you don’t spend. This makes sense so why not apply this to the government? Well, one of the roles of government is the welfare of the people, trying to create conditions that help people to survive and make a better life. One can argue how much or what kind but I think most people would want a government that helps them or at the very least doesn’t hurt them. Part of the government’s role is to watch over what is called the economy. The study of the economy and how to do this is called economics or as it used to be called political economics. A simple example of an economy is someone buys something from someone. In this transaction one person spends money and one person earns money. The person who earns the money calls it income. If no one spends then there is no income. Simple enough. If you look at a whole country there are three broad categories of who spends money: people, companies, and the government, if all three categories cutback on spending money the total size of the economy shrinks.

If people have jobs they get paid. If they get paid they spend. If they spend the economy increases by the amount they spend. Conversely, if people don’t have jobs, they don’t have money, they don’t spend money and the economy gets smaller.

In the United States the current size of the economy is such that a 1% drop in the size of the overall economy means a loss of one million jobs. This can be a quick downward spiral. The faster the economy sheds jobs the faster it shrinks, the faster it shrinks, the more jobs it sheds.

If the government wants to keep the economy going at the level it currently is at and if neither businesses nor individuals are spending money than the government needs to spend money. If it doesn’t the economy gets smaller, people loose their jobs and the downward spiral begins.

The last Republican proposal about how they want to trim government spending would cut the size of the economy by 1.1 percent – that’s 1,100,000 jobs.

But that was their modest proposal.

If the debt ceiling doesn’t get raised then government stops spending money period. Everything stops in 20-30 days: social security, medicare, defense, everything.

Then there will be blood in the streets.

I’ll deal with the other issues later. I gotta go.

B