(12/21/11_ Prestowitz cited on Deficit Spending

Government Must Increase Deficit Spending to Spur Recovery

The News Journal (Wilmington, Delaware)

December 21, 2011

DESMOND M. KAHN

To develop an approach to create more jobs in our economy, it helps to understand why so many Americans are without a job. The short-term reason that private companies will not hire more people is that they do not see enough demand in the economy to support additional employees.

A lack of demand means there are not enough people with money to spend demanding more goods and services to buy.

The reason for the low levels of demand is that, as economist Dean Baker explains, we as a country lost so much wealth in the collapse of the housing bubble, and in the stock market drop that was caused by that collapse.

Although some people talk or write about the "financial crisis" as if that were the problem, the crisis in our bloated financial sector was caused by the collapse of the housing bubble. Baker calculates that literally trillions of dollars of wealth disappeared in the collapse of the bubble. Remember back five to 10 years ago, when many Americans were spending money from home equity loans? In many cases now, their homes have either less or negative equity, and the banks have sharply reduced those loans. The people who formerly spent their home equity and stock market earnings have cut back.

Click here to read the entire article at Delaware Online.