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Saturday, March 15, 2014

A Certain Uneasiness

Although many US companies are awash in cash and liquidity, we find that there is a certain opposition to both the minimum wage and the changes to overtime regulations as proposed by President Obama.

I am not going to say that since the companies have so much money they ought to spread it around.
That would be an appeal to a moral and emotional faculty that does not exist in the present time.

However, these amounts of Cash are greater than the historical norm.
Instead on investing in expansion or research and innovation and opening new sources of jobs, the companies are hanging on to their Cash. In the old days of high employment, companies would plow back money into projects that created more revenue.

Now they do not.

This is not a criticism of these companies.

This situation guarantees a non-expanding economy.
When and if the next recession hits, it will hit an economy that was already mired in a snow pile in low gear, and has spent the last 6 years or more in a situation where,
(1) wages have been stagnant for 20 years,
(2) companies have not been spending much money to create new revenues and jobs.

Wage stagnation will eventually result in the destruction of the class of people whose wages are stagnant. Even though there is no inflation to speak of, prices continually increase. (Interestingly enough, automobile prices increase while automobile rental rates seem to decrease.)

When the next recession comes, what will support us from falling too far, and what shall be there to effectuate recovery?

After the Great Depression started in 1929, the next recession came in 1937. It increased unemployment, but not to the levels of the early Depression, and things did bounce back, even before WWII started.

Depressions in our Capitalistic system seem to occur on average less than 10 years apart.
What will be the Bouncey House when our House Of Cards stumbles again soon?
Reduce entitlements?
Provide a too small stimulus?
Argue about government defaults?

This is what the House of Representatives and the Senate should be studying: why there is so little investment of capital in our economic future and what that threadbare future might be like if we cannot change the course of events.


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