Demand Side Economics

If you build it, they will come. If you make it, they will buy.

Which comes first, supply or demand? I can build it, but they may not come without money to buy a ticket.

   News item: The Bank of England and the European Central Bank said they plan to hold interest rates down for "an extended period." Read: As long as it takes to revive the sagging economy. Their position now echoes that of the Federal Reserve in America. On both sides of the pond, interest rates for major borrowers is well below 1 percent, and in one case, zero, as monetary mavens try to make enough cash available to induce folks to get the economy moving.
   Fiscal finches, meanwhile, the remnants of the Reaganauts and Thatcherites, continue to chant austerity, or spending cuts, even as central bankers in Europe and America call for more spending, not less.

   News item: U.S. employment increased by 195,000 in June, the Bureau of Labor Statistics reported, but the number of people without jobs was unchanged, at 11.8 million, and the number of jobless as a percent of the total labor force was also unchanged, at 7.6 percent. "Both measures have shown little change since February," the government said. Also showing little change were two other data points, the labor force participation rate and the employment-population ratio.
   Conclusion: Work-wise, nothing's happening.

   Meanwhile, across the pond, recessionary waves are still washing through the population. In the countries that use the euro as currency, the unemployment rate is above 12 percent, according to data released by Eurostat on July 1, and 11 percent throughout all 27 countries in the EU. Some 26.5 million people are out of work throughout the EU, with the highest jobless rates recorded in Spain and Greece -- both above 26 percent, according to Eurostat, the statistical office of the European Union.
   Croatia has just joined the EU, adding its 4.4 million population to the total. But with 18.1 percent of the workforce out of jobs, and its economy sagging by 2 percent last year, that's not going to help the overall European economy.

   Spending by consumers accounts for some 80 percent of total consumption (government accounts for some of the rest). But consumers can't consume without means to buy, and that means money. And those without jobs don't have it.

   The monetary mavens are helping, by making more money available, but if too much cash inflates prices, the exercise becomes self-defeating. Fiscal finches and austerity crows only make things worse by not spending what money is available, especially by government, which doesn't have to worry about debt. At least, not in the short term.

   It's not difficult. Government can, and should, step in and boot the economy by spending, hiring people and putting them on payrolls so they have cash to buy stuff, which induces makers to increase their output so more stuff is available, and the economy grows.
   It's not new. It worked in the 1930s. and it can work again today. The director of the International Monetary Fund, Christine Lagarde, said a month ago that the U.S. recovery "is gaining ground and becoming more durable. However, it has a way to go." And that means to ease off spending cuts to boost the recovery.
   Monetary policy, as it pushes interest rates near zero, doesn't have much more room. Therefore, it falls to government to act. If the austerity crows have their way -- as is happening in Europe and is proposed in America -- look for things to get worse before they get better.