The real problem with the economy, and how to fix it

Every day now, we hear the pundits talk about how they have no idea what to do.  They say the economy is bad, and getting worse every day.  There's a credit crisis, wall street's value is a little more than half what it was five months ago, homes are foreclosing, jobs are being lost, giant companies are going out of business.  As reporters repeat over and over again, everyone knows something needs to be done, but no one knows what.

Well, I know what.

As those giant businesses like the Big 3 teeter on the brink of bankruptcy, Congress once again is debating a bailout bill.  Almost every qualified economist will tell you that the way out of a recession is to spend money until there's enough of it that other people can spend as well; this is called Keynesian Economics.  Some point to Japan as a counter-example, but Keynesians say the Japanese simply didn't spend enough money.

Yet the public deplores the idea.  Why?  Most of America has no idea what Keynesian economics is, or the difference between macro- and micro- economics, for that matter.  They think of the crisis as they think of shopping for groceries; there's less money, so let's spend less to meet the budget.

That's not how economics work on the scale of a government with trillions of dollars to work with, but because our politicians all want to get reelected, they refuse to back spending bills.  They all secretly want to have bailouts, but they can't.  That's why, in the case of the auto industry, they're leaving it to the Obama administration and the new Congress to deal with; at least the newly elected representatives can take the force of the blame.

The solution is not simply to ask our politicans to suck it up and do what's best for us, even if we don't want it.  The government is and always will be the voice of the people, and that shouldn't change.  Instead, a massive propaganda campaign needs to take place, educating the people about what's going on and explaining why bailouts are actually a good idea.

After all, half the problem is a crisis of perception.  The public thinks the government isn't doing a good job; the public thinks the economy is in a severe recession; therefore the public is holding its money, without realizing that holding their money is precisely what is creating the recession.  For those who ask where all the money went when Wall Street crashed--it simply evaporated when people got the perception that the companies on Wall Street weren't worth as much any more.  In fact, there is a very powerful philosophical argument that perception is reality.

By changing that perception, we completely reverse the current track of the economy.  After all, what really happened sometime in October that made the economy go in the tank?  Not much.  We were in what some would describe as a perilous economic situation for at least a few years before that time; it was just the failing of several large investment firms that brought attention to the problem and created the perception crisis.

Now, the other part of the problem is that the economy does need fundamental change.  That, of course, is why the bailouts and other spending measures exist in the first place.  President-elect Obama has already committed to dramatically improving government infrastructure.  In addition, many industries need to seriously rethink their strategies--banking, investment, autos, real estate.  And in the end, it will be new strategies and technologies that will pull the economy back together, like renewable energies and cheap, environmentally friendly cars; so government spending needs to focus not only on saving old industries, but promoting new, better ones as well.

In the end, it all comes down to what we think is going on.  And right now, we think the economy has crawled into a hole under the dump.  Let's rebuild a sphere of confidence and drag it back out, and then fill in the hole and build a recycling plant.  We need to fix not just the credit crisis, but also the perception crisis.  Spread the word.