Businesses Need Customers

Via Kevin Drum, an LA Times article that once again makes the point that we’re facing a crisis of demand — small businesses say they have access to credit but can’t expand because they don’t have any customers.

Drum comments, “Until consumers start spending again, economic growth is going to be weak. But what’s going to get consumers spending again?”


I don’t think this is brain surgery. If currently unemployed people had more cash in their pocket because — for example — the government hired them to do a job, then they’d probably spend more. If the federal government offered financial support for mass transit operations, then bus fares would be lower and consumers could spend more. If we did general state and local fiscal relief then taxes would be lower and consumers could spend more. If the Fed acted to raise short- and medium-term inflation expectations, then consumers would be inclined to spend more and businesses would be more inclined to undertake risky expansion projects. Ten percent unemployment is a fixable problem. I think it’s an open question as to whether these tools would become ineffective at 6 percent or 7 percent or 8 percent, but we could definitely make major progress.