Friday, August 7, 2009

Cash for Clunkers--A Poem

A man losses his job.
Nobody has money
to buy what he makes.
And, he has no money
to buy what they make.

Who has the money?
Has it blown away,
leaving many destitute?
Have our factories rusted,
leaving labor no machines?

If it takes money
to make things,
then let’s make
more of it.

Can’t do that, old sages say.
We must suffer for past excesses.
But, those suffering
are not those who
made silly paper.

Can do it, new voices say.
If banks only want to play at the casino,
let the government write numbers
after the names of the homeless,
Joe the plumber and Sarah the unemployed.

Only blind superstition stops it.
We won’t be the first civilization
to worship old gods while
they perished from the earth.

Thursday, August 6, 2009

Cash for Clunkers

Great idea. let's do more of it. The real weakness in the economy is consumer spending. The last expansion was fueled by ever increasing consumer debt, but that could not go on forever. How about cash for old water heaters and refrigerators? Let's turn them in for more energy efficient ones. How about any essential item made in the US that would put more people to work?
The only thing wrong with the cash for clunkers program is the means of finance. There is no reason except superstition to finance it with government borrowing. It could be done with funds created by the Treasury or Federal Reserve. News programs are asking "Where will the money come from?" The implication of the question is that the money supply is fixed and if we are to have cash for clunkers it has to come from savings rewarded by payment of interest. But, in a recession when all resources are not being used, there is no reason to save. There is no opportunity cost.
New money can come from where it always has come from--new credits created by banks. Our banks are now mostly solvent, but few want to borrow money to make things when consumer demand is weak. When the banks don't want to create more money to put all of our resources to work, the government should do it. There is no reason other than myth and superstition that we allow people to be unemployed and citizens to cut back on their living level. Our plants did not rust or our engineers lose the formulas. We just need to understand the essentials of money creation. Money is made when a bank writes numbers after a borrowers name. Of course they charge interest for the loan. If government has given banks the right to create money, then government can certainly do the job itself and without paying itself or anyone else interest.
Incidentally, you may have read that some banks and Goldman Sachs made millions (or was it billions) last quarter and payed their executives absurd bonuses after being bailed out by the government previously. They did not make profits loaning money to business to make things, but rather they profited from financial trades in the equivalent of a giant casino--buying and selling paper. We saved their butts for this??