Stephen Monrad

For us to get out of our current recession, someone has to start buying the things that the economy produces. This is a problem because people are worried about the future and aren’t spending.

Instead of increasing government spending or trying to encourage consumers to spend more when they don’t want to, I think we should save physical goods for the future. When people save, they are working now to consume later. If the economy as a whole is saving, it should be stockpiling goods for future use. The way to do this is to stockpile goods that deteriorate slowly over time and won’t become obsolete.

Good candidates for long term storage are mineral commodities like metals. What would happen if the government used borrowed money to stockpile iron? The mining industry could expand production, providing jobs for unemployed workers. This would help end the recession.

If consumers start drawing down their savings once the recession is over, the government could sell off some or all of its stockpile of iron to prevent the economy from overheating.

There are lots of details that would need to be worked out to use saving physical resources as a tool to combat recessions. I like the idea because it matches real world activity with the decisions consumers are making.

Recessions are caused by people saving more than they earn. When this happens, demand falls below supply and businesses are forced to cut back production. For the economy to pick up again, money needs to get spent. Someone has to buy what has been produced.

This is the idea behind government stimulus spending. Governments can solve the problem of low demand by buying more goods and services themselves. While this solves the immediate problem of low demand, it creates a longer term problem. The people who have been saving will one day want to spend the money they have saved.

Since the government borrowed the money, it is government that will have  to pay it back. The only honest way for them to pay it back is from taxes. Triggering inflation or defaulting on loans would also solve the problem, but investors wouldn’t be happy. For the savers to get the value of the money they invested  back, either taxes have to go up or government spending needs to fall. People won’t be happy with any of these ways of paying back the debt.

I think a better approach is to solve the problem of excess saving in a way that makes sense physically. If people want to save more than they earn, some of what people produce needs to be physically saved. A way needs to be found to set aside goods that can be stored for long periods of time. One way to do this would be to stockpile something like  steel when demand in the economy is low.

When savings is higher than borrowing, mining and smelting would expand. People laid off because of reduced consumer spending would move to these sectors. When the savings is drawn down, mining and smelting operations are mothballed and the stockpile is drawn down. This frees up workers to produce the consumer goods people want.

This is something that governments could do right now. They could start buying up steel to pick up the slack in demand in the economy. Instead of building infrastructure that might not be needed, the government could be preparing for the eventual increase in demand that will inevitably come.

I heard a news story today where it was argued that recessions are good for people’s health because they buy less of harmful things like cigarettes, booze, and junk food.

This argument is weak for a couple of reasons. During a recession, people tend to be stressed. When people are stressed, they look for things that provide immediate satisfaction. Many people who are stressed turn to drinking. They  will buy the booze and skip things with longer term benefits like carrots and gym memberships.

The main problem with recessions is that the pain isn’t evenly distributed. If everyone were paid just a little less, then everyone could cut back a little and perhaps some people would cut back on bad things like booze and cigarettes. For most people, however, it is all or nothing. Either you have a job or you don’t. If you don’t have a job, you are in big trouble. You may be prevented from buying bad things, but the good things are going to go for sure too. People who can’t find work aren’t going to make looking after their health a priority.

As I see it, recessions, unemployment, and poverty are bad for people’s health and sanity.

In this current recession, we seem to be shedding mostly manufacturing jobs in Canada and the United States. The politicians seem to be saying that we need to refocus our economy on service jobs because the manufacturing jobs are going to disappear in the long run anyway.

While this may make sense in the short run because jobs in industries like advanced health care and banking pay well, I think we need to be careful. Health care and banking are luxuries. In tough times, what people need is food, clothing, and shelter. I think we should be maintaining our ability to provide these things for ourselves in case major problems develop in the future.

While the current economic downturn is unpleasant, the basic functioning of the economy is intact. The problems of global warming, depletion of fossil fuel resources, and fresh water shortages will require actual changes to how things are produced. If we give up manufacturing, we will be counting on other countries to figure out how to solve these problems. If only partial solutions are available, you can be sure that they will meet the needs of their own people first.

I think we should keep the ability to grow food, make clothing, and build warm, functional housing. We shouldn’t allow the manufacturing sector to wither and die.