1

arL v 1he uomlnanL Causes of Lhe CredlL Crlsls Why 8ad

CovernmenLs and roducLlvlLy are noL our greaLesL concern
19 november 2011
8y uavld ColleLL

1he 8est Governments Money Can 8uy
Demand product|v|ty and emp|oyment and |ts effect on econom|c growth

1he economlc physlclans of Lhe world economy are desperaLe uesplLe all Lhelr
exLenslve efforLs uslng every medlclne aL Lhelr dlsposal Lhe frall paLlenL has
suffered anoLher seLback ln 2011 WhaL concerns mosL ls Lhe reallsaLlon LhaL
Lhe vlrus LhaL lnfecLs Lhe world economy has become reslsLanL Lo all Lhe
convenLlonal LreaLmenLs Any addlLlonal doses of Lhe medlclne seem Lo
weaken Lhe paLlenL even furLher 1he world economy has become so fraglle
LhaL any ma[or shock Lo lLs sysLem may well cause lrreparable harm
LconomlsLs and markeL commenLaLors have become desperaLe ln Lhelr efforLs
Lo deLermlne Lhe underlylng causes of a worsenlng economy Some grasps aL
sLraws ln an efforL Lo unravel Lhe mysLerlous lllness of Lhe economy buL few
waver Lo propose a prescrlpLlon whlch Lhey belleve would heal Lhe paLlenL
CLhers slmply deny LhaL Lhe economy ls unhealLhy unforLunaLely Lhe
dlagnoses and prescrlpLlons are ofLen vlewed Lhrough pollLlcal and ldeologlcal
lenses Some of Lhe more perslsLenL vlews are as follow
1 CovernmenLs lack leadershlp are lneffecLlve and musL geL ouL of Lhe way
of Lhe prlvaLe secLor
2 1he corporaLe secLor does noL wanL Lo lnvesL lLs Lrllllons of dollars ln cash
because of uncerLalnLles Lhe governmenL musL Lherefore acLlvely
pursue pollcles Lo creaLe cerLalnLy
3 CaplLallsm has been sold ouL Lo soclallsm
4 Plgher growLh can only be achleved by an lncrease ln producLlvlLy
3 1he corporaLe secLor produces specLacular proflLs proof LhaL Lhe
paLlenL ls well
2

Many of Lhese vlews have some merlL buL by no means do Lhey address Lhe
underlylng problems of Lhe world economy nelLher does lL prescrlbe any new
medlclne whlch has a reallsLlc change of heallng Lhe paLlenL 1o face Lhe Lrue
naLure of Lhe underlylng problem ls Lo look ln Lhe mlrror Lo know Lhe
spreadlng vlrus ls us 8y naLure we refuse Lo accepL dlagnosls or prescrlpLlons
whlch are noL ln llne wlLh our ldeologles our belleve sysLems and our sLaLus ln
llfe

1he 8est Governments Money Can 8uy
1hls lssue has been ralsed before buL Lhe slgnlflcance of lL ls ofLen losL when
economlsLs and Lhe prlvaLe secLor crlLlclze governmenLs for our currenL
economlc predlcamenL 1he LruLh ls LhaL many developed counLrles especlally
Lhe uSA have Lhe besL governmenL LhaL money can buy
lf we Lake sLock of Lhe large amounLs of money LhaL Lhe prlvaLe secLor Lhlnk
Lanks and oLher lnLeresLed groups have spenL on Lhe elecLlon campalgns of
sLaLe and federal governmenL represenLaLlves and Lhe cosLs of lobbylng Lhese
offlclals Lo lnfluence and dlcLaLe Lhe dlrecLlon of leglslaLlon subsldy schemes
governmenL conLracLs regulaLory overslghL economlc pollcles eLc lL ls
dlfflculL Lo see how Lhey can acL lndependenLly leL alone glve sLrong
leadershlp

Can we expecL Lhese puppeLs Lo show leadershlp?
3

1he lnsurance commerclal banklng accounLlng and securlLles lndusLrles made
nearly 1 bllllon ln campalgn conLrlbuLlons Lo Amerlcan pollLlclans over Lhe lasL
decade and pald [usL over $2 bllllon for lobbylsL Lo acL on Lhelr behalf accordlng
Lo Lhe CenLre for 8esponslble ollLlcs 1here are around 17000 lobbylsLs
worklng ln WashlngLon uC ouLnumberlng lawmakers ln uS Congress by abouL
30 Lo one 1he ClassSLeagull AcL whlch lnLroduced Lhe separaLlon beLween
commerclal and lnvesLmenL banklng was a llkely casualLy of such lobbylng by
Lhe flnanclal lndusLry We all know by now how Lhe ensulng consolldaLlon or
merglng of commerclal banks lnvesLmenL banks securlLles flrms and lnsurance
flrms ended ln a wldespread banklng crlsls ln 2008 and how governmenLs had
Lo ball Lhem ouL
ln a deLalled sLudy Lhe 8esearch ueparLmenL of Lhe lMl found LhaL lobbylng
was assoclaLed wlLh more rlskLaklng lenders durlng Lhe 2000's Where Lhe
lenders were more llkely Lo beneflL from lax regulaLlon Lhey lobbled mosL
aggresslvely whlch allowed Lhem Lo engage ln rlskler LransacLlons and
consequenLly exposed Lhem Lo worse ouLcomes durlng Lhe banklng crlsls noL
surprlslngly Lhese lenders also beneflLLed mosL from subsequenL governmenL
ballouLs

LxLenslve lobbylng also applles Lo oLher corporaLe secLors lncludlng members
from Lhe oll and energy secLor whlch LogeLher wlLh some parLles from Lhe
flnanclal secLors pay llLLle or no Laxes desplLe bllllons of dollars ln proflL
Accordlng Lo AcLlonald lnLernaLlonal Lhe pharmaceuLlcal lndusLry by
Lhemselves spenL over $1 bllllon lobbylng ln Lhe uS ln 2004 alone
ln Lurope Lhe laLesL scandal ls Lhe doozy" where members of Lhe Luropean
arllamenL showed a wllllngness Lo accepL cash for requesL by lobbylsL Lo make
amendmenLs Lo leglslaLlon ln Lhe doozy case" Lhe lobbylsL" Lurned ouL Lo be
[ournallsLs from a newspaper lnvesLlgaLlng how much lnfluence Lhey could buy
lnLeresLlngly such accepLance of cash by members of Lhe Luropean arllamenL
for amendlng leglslaLlon ls apparenLly perfecLly legal
1here ls dlfferenL ways Lo vlew Lhe above Cne vlew ls LhaL such lobbylsLs
supply pollLlclans and governmenLs wlLh valuable lnformaLlon Lo make
lnformed declslons AnoLher vlew ls LhaL lobbylng has become a sophlsLlcaLed
form of brlbery whereby Lhe lobbylng parLy galns an unfalr advanLage Lo Lhe
deLrlmenL of lLs compeLlLors and Lhe communlLy aL large 8oLh vlews may have
4

some LruLh Lo lL lrrespecLlve of one's vlew lL's hard Lo deny LhaL ln a sysLem
where corporaLe buslnesses spend huge amounLs of money (sometlmes mote
tboo tbe tox poyoble by tbem) on lobbylng Lhey do so Lo lnfluence Lhe pollLlcal
sysLem and economlc pollcles ln order Lo galn a beneflL from such lnfluence
rlvaLe enLerprlse would noL lnvesL ln such acLlvlLles lf lL dld noL Lurn a proflL
one way or Lhe oLher uue Lo Lhe slze of Lhelr conLrlbuLlons blg buslness
obvlously has a sLrucLural advanLage ln Lerms of Lhelr access Lo and lnfluence
on declslonmakers
AlLhough Lhere ls compeLlLlon beLween varlous corporaLe lnLeresLs when Lhey
acLlvely pursue publlc supporL durlng elecLlon campalgns Lo geL Lhelr ALeam
lnLo power lL does noL make much of a dlfference lf Lhe 8Leam wlns no
lndependenL or unsponsored parLy has any reallsLlc chance Lo geL elecLed as
Lhe malnsLream medla wlll slmply crowd Lhem ouL" Cf course Lhe elecLoraLe
musL carry an equal parL of Lhe blame as Lhey have overwhelmlngly re[ecLed
candldaLes who are noL parL of Lhe ALeam or 8Leam
lrom a pracLlcal polnL of vlew one has Lo accepL LhaL Lhe hlghesL bldders wlll
be Lhe wlnners and LhaL Lhey wlll conLlnue Lo be Lhe domlnanL lnfluence on
governmenLs and lLs economlc pollcy ln Lhe foreseeable fuLure Small buslness
and members from less wealLhy communlLles have become relaLlvely less
lnfluenLlal and relevanL ln Lhls lobbylng game Many governmenLs have
become corporaLe agenLs" under Lhe conLlnuous guldance of Lhe corporaLe
world and oLher lnfluenLlal groups lew of Lhese guldlng groups lf any
harbour soclallsL ldeals CovernmenLs are largely conLrolled by caplLallsL who
are commlLLed Lo Lhelr brand of free enLerprlse
lL's Lherefore lronlc LhaL many of Lhe economlsL and markeL commenLaLors
who conslder Lhemselves as free markeL champlons or pure caplLallsL now call
on Lhe governmenL Lo sLep aslde" and heap crlLlclsm on Lhem for lack of
leadershlp creeplng soclallsm bad economlc pollcles and Lhe lnablllLy Lo acL
coheslvely ln an efforL Lo save Lhe economy Pow can one expecL sLrong
leadershlp from elecLed offlclals when Lhey are conLlnuously pressured and
gulded" by selflnLeresLed parLles LhaL heavlly conLrlbuLed Lo Lhelr elecLlon
campalgns?
3

CovernmenLs' agendas have become lndlsLlngulshable from LhaL of prlvaLe
enLerprlse uld Lhey noL accede Lo vlrLually all demands ln Lhe ballouLs LhaL
followed Lhe 2008 credlL crlsls? uld Lhey noL help Lhe blg corporaLes Lo
soclallse Lhelr losses when Lhey needed governmenL asslsLance and allow Lhem
Lo prlvaLlse Lhelr proflLs when condlLlons became more favourable? uld Lhey
noL exerclse pressure Lo lnsure LhaL accounLlng boards relax Lhe mark Lo
markeL" accounLlng rules whlch some lncorrecLly advocaLed as a ma[or cause
of Lhe crlsls? uld Lhey noL lower Laxes over Lhe lasL Lhree decades especlally
for Lhe Lop lncome earners so LhaL Lhe wealLh lL promlsed Lo creaLe could
Lrlckle down Lo all Lhe clLlzens? Can anyone honesLly deny LhaL Lhese demands
came from anyone buL Lhe purlsL of caplLallsLs?
1he accusaLlon LhaL governmenLs have become more soclallsLlcally orlenLed
and are waglng class warfare agalnsL Lhe rlch ls somewhaL amuslng and
counLerproducLlve for Lhose who wanL Lo furLher Lhe course of caplLallsm lf
governmenLs would sLop faklng some sympaLhy for small buslnesses and Lhe
less wealLhy groups or refraln from sofLly slapplng Lhe reckless enLrepreneur
or banker on Lhe wrlsL lL would render Lhem less effecLlve ln glvlng blg
buslness and many oLher members from prlvaLe enLerprlse whaL Lhey wanL lf
economlsLs or markeL commenLaLors really wanL any ma[or change convlnce
blg buslness and/or Lhe powerful lobby groups LhaL lL's ln Lhelr or Lhelr cllenL's
lnLeresL Lo do so and Lhe [ob wlll mosL llkely geL done 1hose wlLh Lhe blggesL
budgeLs wlll wln more ofLen Lhan noL 1haL ls Lhe caplLallsLlc way
1here are also many supporLers of free enLerprlse LhaL are of Lhe oplnlon LhaL
democracy should rule and regulaLe caplLallsm Lo ensure a measure of rlsk
conLrol and a level playlng fleld for all parLlclpanLs 1he enormous lnfluence
exerclsed on declslonmakers by members from Lhe corporaLe world and oLher
powerful lobby groups makes Lhls lmposslble Some of Lhe sLrongesL
supporLers of caplLallsm have acknowledged LhaL Lhey cannoL be expecLed Lo
dlsclpllne Lhemselves ln Lhe pursulL of proflL We need sLrong lndependenL
governmenLs Lo do LhaL
unforLunaLely LhaL ls noL Lhe way lL works aL presenL and Lhe sLaLus quo ls
probably golng Lo conLlnue for some Llme Lo come ln Lhe meanLlme Lhe
ldenLlLy of Lhe vlrus LhaL aLLacks Lhe world economy wlll noL be admlLLed nor
wlll we admlnlsLer Lhe blLLer medlclne requlred Lo heal Lhe paLlenL



Demand product|v|ty and emp|oyment and |ts effect on econom|c growth
Some argue LhaL producLlvlLy growLh raLes musL lmprove before Lhe economy
wlll regaln lLs prevlous robusL growLh lnnovaLlon and lncreased producLlvlLy
are seen as an essenLlal prerequlslLe Lo hlgher growLh Many are alarmed by
Lhe relaLlve lower producLlvlLy whlch has befallen Lhe developed world ln
2011
LeL us look aL Lhe problem of Lhe unlLed SLaLes 1he uS 8ureau of Labor
SLaLlsLlcs (8LS) produces quarLerly flgures for labour producLlvlLy growLh for
Lhe manufacLurlng secLor and nonfarm buslnesses Labour producLlvlLy ls
calculaLed as Lhe ouLpuL per labour hours worked When we look aL hlsLorlcal
producLlvlLy Lrends downward movemenLs ln producLlvlLy growLh seem Lo
colnclde wlLh ma[or slowdowns ln Lhe economy 1he currenL low producLlvlLy
(1
sL
and 2
nd
quarLer of 2011) flgures are malnly a byproducL of a slowlng
economy and noL Lhe cause of lL or a slgn LhaL workers have become less
efflclenL
When Lhe economy slows demand drops followed by a drop ln ouLpuL and a
reducLlon ln labour hours and employmenL A drop ln producLlon (due Lo a
drop ln demand) whlch ls fasLer Lhan a drop ln hours worked and/or layoffs wlll
always resulL ln a lower and ofLen negaLlve growLh ln producLlvlLy 1he
opposlLe ls also Lrue lf producLlon lncreases fasLer Lhan employmenL (hours
worked) producLlvlLy growLh wlll lncrease 1hls seems obvlous enough buL lL's
Lhe lnLerpreLaLlon of Lhe daLa whlch causes some Lo come Lo Lhe wrong
concluslon
LeL's look aL some charLs whlch cover Lhe perlod from 2004 Lo 2011 and
analyse Lhe relaLlonshlp beLween demand employmenL producLlon (supply)
and producLlvlLy ln Lhe flrsL charL we compare real reLall sales (88SlS 8lue
llne) Lo nonfarm payrolls (A?LMS 8ed llne) 1he shaded area lndlcaLes Lhe
Llme perlod for Lhe recesslon LhaL sLarLed ln 2007

7



lrom Lhe above charL lL's clear LhaL demand represenLed here by reLall sales
(lnflaLlon ad[usLed) sLarLed Lo decllne before Lhe recesslon began LmploymenL
conLlnued Lo grow Llll !anuary of 2008 before lL sLarLed Lo descend lnLo a sLeep
decllne unLll Lhe end of 2009 Whlle reLall sales made an upward move ln Lhe
second quarLer of 2009 neL layoffs conLlnued lnLo Lhe 2010 calendar year
When lL sLarLed Lo recover ln Lhe beglnnlng of 2010 lLs pace of recovery dld
noL maLch LhaL of reLall sales
ln Lhe nexL charL we compare Lhe ouLpuL of Lhe manufacLurlng secLor
(Cu1MS) wlLh real reLall sales (88SlS) 1he close correlaLlon beLween Lhe Lwo
ls obvlous
8



lL ls noLable LhaL ouLpuL (green llne) made a small surge upwards [usL before
Lhe recesslon sLarLed and LhaL lLs decllne lagged reLall sales (blue llne) by a few
monLhs CuLpuL Lhen descended wlLh reLall sales buL lL sllghLly lagged reLall
sales ln Lhe recovery phase whlch sLarLed ln 2009 1he above charL lndlcaLes
LhaL reLall sales (demand) was a leadlng lndlcaLor aL boLh Lhe sLarL and end of
Lhe recesslon lor Lhls reason lL's noLeworLhy LhaL real reLall sales flaLLened
somewhaL ln 2011 and Lurned marglnally negaLlve ln AugusL of 2011
roducLlon and manufacLurlng reporLs show a slgnlflcanL slowdown ln nonfarm
and manufacLurlng ouLpuL growLh for Lhe 2
nd
quarLer lf real reLall sales
conLlnue Lo decrease ln Lhe comlng monLhs lL's vlrLually a glven LhaL ouLpuL
wlll follow lL Lo lower levels
ln Lhe charL below we compare lndusLrlal producLlon (lnu8C 8ed llne) wlLh
nonfarm payroll employees (A?LMS 8lue llne)




9




MosL noLable lndusLrlal producLlon's (8ed llne) decllne was sLeeper Lhan LhaL
of nonfarm payrolls (8lue llne) and lL recovered upwards earller and aL a much
sLeeper lncllne Lhan nonfarm payrolls 1herefore one would expecL a decllne
or slowdown ln Lhe growLh of producLlvlLy ln Lhe 2008 calendar year followed
by a sLeep lncrease ln producLlvlLy from Lhe second half of 2009 and
LhroughouL 2010 1he 8LS producLlvlLy growLh flgures show LhaL labour
producLlvlLy dld acL accordlngly
1he above charLs followed Lhe expecLed paLLern lL sLarLed wlLh a drop ln
demand (real reLall sales) followed by a drop ln producLlon and followed by a
reducLlon ln employmenL As long as Lhe reducLlon ln employmenL (LoLal hours
worked) lags decreaslng producLlon ln a recesslon Lhe raLe of producLlvlLy
growLh wlll Lend Lo slow or go negaLlve 1he opposlLe ls Lrue ln economlc
recovery when producLlon recovers aL a fasLer pace Lhan employmenL
producLlvlLy wlll Lend Lo lncrease
ln Lhe followlng charL we compare manufacLurlng ouLpuL (Cu1MS) wlLh
employmenL (MAnLM) wlLhln Lhe manufacLurlng secLor 1he relaLlonshlp
beLween Lhese Lwo seLs of daLa as shown on Lhe charL closely slmulaLe Lhe
10

relaLlonshlp beLween 8LS flgures for manufacLurlng ouLpuL hours worked and
Lhe resulLanL labour producLlvlLy


Labour producLlvlLy slowed ln 200 when producLlon and employmenL moved
parallel for a perlod of Llme 1hen producLlvlLy sLarLed Lo acceleraLe before Lhe
onseL of Lhe recesslon (shaded area) ln 2007 as producLlon lncreased and
employmenL sLarLed Lo decrease uurlng Lhe recesslon perlod producLlon drop
aL a fasLer raLe Lhan employmenL causlng a slgnlflcanL reverse ln producLlvlLy
growLh raLes LhaL moved lnLo negaLlve LerrlLory for much of 2008 lL dld noL
happen because workers suddenly became less producLlve buL slmply because
demand plunged followed by a fasLer decrease ln producLlon Lhan
employmenL 1he opposlLe happened when producLlon boLLomed aL Lhe end
of 1
sL
quarLer of 2009 and moved sharply upwards whlle employmenL was sLlll
decreaslng LmploymenL boLLomed aL beglnnlng of 2010 buL lLs raLe of
lncrease was much slower Lhan LhaL for producLlon resulLlng ln lncreased
producLlvlLy Cnce demand sLarLed Lo slow down ln 2011 employmenL sLarLed
Lo caLch up wlLh producLlon and Lhe producLlvlLy growLh raLe sLarLed Lo slow
1he charL below whlch Llmeframe lncludes Lhe 1973 and early 1980
recesslons shows Lhe close relaLlonshlp beLween reLall sales producLlvlLy
11

(nonfarm all persons) and subsequenL recesslons lL seems Lo lndlcaLe LhaL
slgnlflcanL changes ln reLall sales do have a dlrecL and near lmmedlaLe lmpacL
on producLlvlLy As reLall sales slow so does producLlvlLy 1hls relaLlonshlp
weakened ln subsequenL decades probably because employers could respond
more swlfLly Lo a drop ln demand by reduclng Lhe work force and worklng
hours aL a fasLer pace



lrom Lhe above lL seems obvlous LhaL Lhe slgnlflcanL lncreases and decreases
ln Lhe growLh raLe of producLlvlLy can hardly be aLLrlbuLed Lo any sudden and
slgnlflcanL changes ln Lhe producLlveness of labour 1he plunge ln producLlvlLy
growLh ln 2008 (and prlor recesslons) ls closely relaLed Lo Lhe facL LhaL
producLlon can be shuL down fasLer Lhan employmenL 1he opposlLe ls also
Lrue producLlon can be lncreased (aL leasL for a whlle) wlLhouL lncreaslng
employmenL aL Lhe same pace by uslng Lhe ldle Llme of exlsLlng workers beLLer
and secondly Lo expecL more from exlsLlng workers who are under severe
pressure Lo hold on Lo a [ob Cnce employers formed Lhe oplnlon LhaL demand
growLh had reLurned ln 2010 Lhey sLarLed Lo employ agaln buL Lhey were wary
of Lhe susLalnablllLy of demand and reemploymenL occurred aL a much slower
12

pace Whlle Lhls gap beLween producLlon and employmenL lncreased
producLlvlLy lncreased LhaL's pure loglc Powever when demand (as shown
here ln Lhe real reLall sales charLs above) sLarLed Lo sLagnaLe Lhe gap beLween
producLlon and employmenL sLopped growlng resulLlng ln lower producLlvlLy
growLh

Jhat does the above te||s us about product|v|ty and econom|c growth
1 Weak producLlvlLy dld noL cause Lhe recesslon ln 2007 nor was lL Lhe
cause of prevlous recesslons or Lhe currenL slowdown ln 2011 As shown
above producLlvlLy was growlng aL a hlgh raLe [usL before Lhe onseL of
Lhe CreaL 8ecesslon 1he drop ln demand as reflecLed ln real reLall
sales" caused producLlon Lo fall followed by a drop ln producLlvlLy 1he
same scenarlo may be unfoldlng ln 2011 alLhough on a more mundane
scale

2 A rlse ln producLlvlLy wlll noL solve Lhe slow growLh problem wlLhouL
removlng or ad[usLlng Lhe sLrucLural consLralnLs LhaL llmlLs growLh ln
demand ln facL Lhe relaLlve hlgh growLh ln producLlvlLy ln 2009 and
2010 raLher conLrlbuLed Lo Lhe wldenlng lmbalance beLween supply and
demand because Lhe frulLs of lncreased producLlvlLy were noL evenly
dlsLrlbuLed beLween workers and employer corporaLes roflLs of mosL
of Lhe blg uS corporaLes lncreased qulckly from Lhe end of 2009 noL
only because of lncreased producLlvlLy (ouLpuL/labour hours) buL also
from Lhe beneflL of lower real wages LmploymenL dld noL only lag Lhe
lncrease ln producLlon slnce early 2009 buL Lhe real medlan lncome of
Amerlcan workers decreased aL Lhe same Llme causlng a chaln of evenLs
LhaL wlll evenLually show up ln falllng demand MosL of Lhe frulLs of
hlgher producLlvlLy are locked up ln corporaLe proflLs 1hese proflLs are
noL lnvesLed ln producLlve capaclLy nor ls lL spenL on labour or
consumables 1hls may be good for sLock prlces ln Lhe shorL run buL noL
for Lhe economy as a whole Cnce governmenL sLlmulus Lapers off and
unemploymenL beneflLs are reduced or llmlLed Lhe negaLlve effecLs
from Lhe above wlll show up ln demand

13

3 SlgnlflcanL changes ln demand are Lhe prlmary drlvers of mosL recesslons
and recoverles roducLlvlLy ls an lmporLanL facLor ln Lhe long Lerm
growLh and a counLry's relaLlve compeLlLlveness buL a susLalnable
recovery or change Lo fasLer growLh wlll mosLly depend on rlslng medlan
lncomes and [ob growLh

4 1he currenL hype over low producLlvlLy ls mlsplaced and lL focuses Lhe
aLLenLlon on lssues LhaL have llLLle Lo do wlLh Lhe currenL slow growLh
uS producLlvlLy growLh ln Lhe lasL decade has ouLperformed Lhe
prevlous flve decades yeL lL resulLed ln Lhe decade wlLh Lhe lowesL
growLh

3 1he facLors LhaL lnfluence producLlvlLy mosL over Lhe shorL Lerm ls
lncreaslng or decreaslng demand whlch have a dlrecL lmpacL on
producLlon volumes Cnce a sLeady lncrease ln demand can be
esLabllshed an lncrease raLe of producLlvlLy growLh ls llkely Lo follow
lnnovaLlon mechanlsaLlon and Lechnology cannoL become Lhe prlmary
drlvers of growLh whlle demand ls sLagnaLlng

Conc|us|on
rlvaLe enLerprlse has only lLself Lo blame for Lhe currenL economlc crlsls and
governmenLs' flawed pollcles Lo solve lL Cur aLLempLs Lo lnfluence and conLrol
governmenLs has come full clrcle CovernmenLs Loday don'L have Lhe
lndependence of mlnd and lnLegrlLy Lo do whaL ls rlghL for Lhe naLlon as a
whole 1o crlLlclze and blame Lhem ls meanlngless We are all compllclL ln
creaLlng mlndless puppeLs and Lhere ls no lndlcaLlon LhaL compeLlLlon for Lhe
puppeL masLer has abaLed
Crowlng demand ls probably Lhe only force LhaL can pull us ouL of Lhe currenL
slow growLh envlronmenL SusLalnable growLh ln demand cannoL be achleved
by hlgher producLlvlLy more publlc debL ballouLs money creaLlon or
governmenL sLlmulus 1he soluLlon ls Lo creaLe a susLalnable lncrease ln
demand wlLhouL a comparable lncrease ln Lhe supply of goods and servlces
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1haL unforLunaLely cannoL be achleved by prlvaLe lnvesLmenL rlvaLe
enLerprlse does noL easlly lnvesL wlLhouL Lhe promlse of a relaLlve qulck reLurn
rlvaLe lnvesLmenL alms Lo produce and sell goods and servlces (new supply) aL
a hlgher value Lhan whaL Lhey wlll pay for wages (new demand) or any oLher
lnpuL 1he end resulL wlll be an lncrease ln unuLlllsed capaclLy and a larger
lmbalance beLween supply and demand
lL ls up Lo governmenLs Lo do Lhe [ob buL Lhey have nelLher Lhe lndependence
of mlnd Lo Lackle Lhe much needed sLrucLural reforms nor Lhe money Lo lnvesL
ln selecLlve caplLal pro[ecLs 1helr publlc debL has already reached
unsusLalnable levels and lL would be unwlse Lo lncrease lL CreaLlng more [obs
and llfLlng consumpLlon expendlLure wlLhouL a slgnlflcanL lmpacL on
governmenL debL wlll be dlfflculL Lo achleve We have reached a sLalemaLe
poslLlon klcklng Lhe can down Lhe road has now become Lhe defaulL soluLlon
We wlll dlscuss posslble soluLlons ln laLer blogs buL noLe LhaL Lhe besL soluLlons
may noL be Lhe mosL popular wlLh blg buslness lf lL was lL would have been
pursued by Lhe lobbylsL and lmplemenLed long ago Powever before we
pursue Lhese unpopular soluLlons Lo map a way Lo recovery we have Lo face
up Lo Lhe underlylng and domlnanL causes of Lhe economlc crlsls LhaL sLarLed
long before Lhe beglnnlng of Lhe CreaL 8ecesslon of Lhe 2000's
Slnce Lhe boomlng decades of Lhe 1930' and 190's Lhe uS and world
economy are ln a downward growLh Lrend weakenlng wlLh each passlng
decade Cne of Lhe mosL relevanL quesLlons musL be where dld Lhe demand
go? ln our nexL blog we wlll expand on Lhe above Lrend and lLs relaLlonshlp
wlLh producLlvlLy dlsLrlbuLlon of producLlvlLy galns and LaxaLlon coverlng Lhe
perlod from 1920 Lo 2010

Copyright David Collett 2010.
Whilst every effort was made to ensure the accuracy of this article, neither this document; nor its author, David Collett;
nor any publisher of this article; offer any warranties (whether express, implied or otherwise) as to the reliability,
accuracy or completeness of the inf ormation appearing in this article. Neither do any of the above parties assume any
liability for the consequences of any reliance placed on opinions expressed or any other information contained in the
above article, or any omissions from it. ts content is subject to change without notice. Any inf ormation offered, is
intended to be general in nature and does not represent any investment or business advice of any nature whatsoever. f
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you choose to rely on such information you do so entirely at your own risk. Neither David Collett nor any third party
involved in publishing this article, assume any responsibility or liability for the outcome of such reliance.