The recovery has stalled. It is unlikely that America will find itself back in recession but the possibility of a double dip cannot be dismissed. The problem is not on the supply side of the ledger. Corporate profits are still healthy. Big companies continue to sit on a cash hoard. Large and middle-sized companies can easily borrow more, at low rates. The problem is on the demand side. American consumers, who constitute 70 per cent of the total economy, cannot and will not buy enough to get it moving. They justifiably worry that they will not be able to pay their bills, or afford to send their children to college, or to retire. Banks, with equal justification, are reluctant to lend to them. But as long as consumers hold back, companies remain reluctant to hire new workers or raise the wages of current ones, feeding the vicious cycle.
There are things that could be done!
Under normal circumstances, this would be the time for the federal government to take bold action to ward off a double dip. For example, it could put more cash in peoples’ pockets while giving employers an extra incentive to hire by exempting the first $20,000 of earnings from payroll taxes, for a year or two. It could lend money to state and local governments. It could launch a new Work Projects Administration (modelled after its antecedent during the Great Depression) to put the long-term unemployed to work on public projects. It could amend the bankruptcy law to allow people to include their prime residences in personal bankruptcy, thereby giving homeowners more leverage to get mortgage lenders to mitigate the terms of their loans.
But these are not normal circumstances.
No, they're not. People need to realize that the rules have changed. Republican policy is that by continually cutting taxes (and doing nothing else), happy and profitable businesses would use that excess cash to hire people. And once upon a time, the more workers you hired, the more money you could make, but that's not true anymore. Today, companies with excess cash -- which is the current situation, by the way -- could use that money to hire American workers, or they could buy rows and rows of dill pickles. Both are about as critical to their main mission of making as much money as possible for their shareholders -- now that they can replace workers with automation or with much cheaper labor abroad. Getting millions of Americans back to work is only of interest to the public -- you and me and the officials we elect -- and not to the private sector.
So there needs to be public solutions, like the ideas mentioned above.