Tradingurus.com | (Originally posted at myarackobamaom) Beyond po... | Economics,Opinion, Market Opinion,

Written by Franklin, on 04-08-2008 22:47

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Tags : Economics, Opinion, Market Opinion,

(Originally posted at my.barackobama.com)

Beyond political discourse, we need to face the reality that America’s economy has been declining since mid 2001. The economic policies of the Bush administration did nothing to encourage the creation of new industries.
If we use the image of an engine to represent the economy, what the Bush administration has been doing is to jumpstart the engine in the hope that it will catch up. Their thinking is “it worked for Reagan; it should be working for us.” However, there is a big difference between the American economy of the mid eighties and today’s.
During the eighties, there was a real economy that could use the added energy to start working and producing on its own. The industrial base of America, built during the war and post war years, was able to take in that extra energy and start working on its own. Today, we have destroyed the industrial base of the economy and there are less and less pieces in the engine that can make it work on its own.
When you do nothing to fix the engine, what happens is that every time you jumpstart the economy, it sputters for a while, makes a lot of smoke and dies. With each new jolt of energy, the engine breaks down little bit more. In economic terms, each one of these jumpstarts creates a new financial bubble. The reason is simple enough. You are injecting a lot of money into the system, but the money has nowhere to go, thus it goes into a financial loop that lasts for a couple of years until it dies out. These financial bubbles create the illusion of prosperity, move money from sustainable ventures into speculative investments. These financial bubbles get everybody running to be the next millionaire and make us forget of how to create real, sustainable wealth. However, when the financial bubbles blow, there is nothing there. There are no new industries, there are no new businesses, and there is only destruction and disillusion.
Conservative commentators try to equate the “dot com” bubble that formed during the Clinton administration to the housing and commodities bubbles of the Bush administration. They will tell you that are the market forces at work, and that bubbles are just part of the economic cycle. The truth is that during the dot com bubble America created new industries, new ways of doing business, new professions, and millions of jobs that never went away. Financial bubbles, on the other hand, leave nothing behind but a wake of destruction.
The Bush administration’s and McCain’s economic policies do nothing to create new industries. Their tax cuts encourage investment in old industries that cannot provide the kind of growth we need. Their easy credit policies encourage further financial speculation because they neglect investment in infrastructure and education, which are needed for the creation of new industries. What they did is to cut the Reagan model and try to apply it to an America that does not resemble the America of the eighties. It is no wonder that we ended up deeper in debt, poorer as a nation, weaker as a military power and at the brink of losing our standing in the world.
The current state of the economy is dismal. The financial system is insolvent and we are at the brink of economic collapse. The past eight years had extended the possibilities of a credit-based economy to almost its full capacity. The society as a whole is in the red and there is only one way to get out of this pickle. As we are exhausting the possibilities of using further credit to make our economic engine work, we need to create new “sources of energy.”
I am not talking about only literal new sources of energy, like alternative energy, synthetic fuels, and such. I am talking about new industries that can start creating real wealth. Part of those industries may be alternative energy industries, but we will need more than that. We need to reverse thirty years of economic destruction during which we saw only eight years of a search for new industries.
America did not become a great country based on financial speculation alone. It became a great country because it was able to export to the world industrial products that the world needed.
Entrepreneurs have only two ways to compete: producing technological innovations that allow for increased production with lower costs, or lowering the cost of their production by reducing wages. Economic reality tells us that in industries with a low level of innovation, the only way to create wealth is by reducing the labor expenses. This is what has been happening in the textile, garment, automobile, and other industries. They moved from the North, to the South and finally across the border.
Unfortunately, we cannot go back the industries of the past century for help. It is time to look at the present with our sight in the future. Going back is tempting. After all, McCain is the devil we know. However, going back will not bring back our prosperity. It is time to go back to work as a nation. It is time to create an industrial base that puts “Made in America” back on the global map.
It is going to be hard work, but we in America know how to work hard. It is going to be difficult, but we have done harder things. People, we are the country that put men on the moon, that is our legacy. We are the country that created a new form of government, and that is our legacy. We are the country that can do, and today we need to shake the daze of financial speculation of our collective heads and start dreaming of real wealth for all hard working Americans.