Demand

What causes demand? The topic comes up from the battle between differing opinions of economists during this economic downturn.

The desire is to increase overall demand, so that comodities again start getting pulled off the shelves. Keynesian economists insist that a quick infusion of capital into the market, obtained simply by borrowing it (from??), will increase demand. Once people have a little extra money, they'll spend it. The pump just needs to be primed. So, in other words, Keynes taught that demand comes from possesion of wealth. Once you have, you demand.

On the other hand Say's Law says that supply creates demand. It's kind of an "If you build it, he will come" concept. It reminds me of a Calvin and Hobbes cartoon. "Mom I just saw something on TV that I never knew existed but desperately need!" Really, though, it's not a bad thing. New products improve quality of life or improve productivity. As long as a product supplied does either or both of those things, there will be demand for that product, as long as the product can be afforded. Say is correct, with the stipulation that the supply must be affordable. Otherwise you have a lot of "I wish I could have that"s.

Here's the issue with Say's economics in the current economic state. Fewer and fewer can afford the supply that they're used to, so while they wish they could have the supplied products, demand still isn't there. It's a wish, not a request.

This is where Keynsian economists have taken over. Let's make it so people can afford the supply. That should change it from a wish to demand again.

But let's take a look at what's really happening to the demand problems. Why are people buying less this year? Is it because they don't have the means? There are several new unemployeds and likely more that have taken pay cuts. But the vast majority still have their jobs. So why aren't they spending? Answer the question by asking yourself the same. Why aren't you spending as much? The answer is simply we're scared. The economy keeps slipping, and we don't know what's on the horizon. We want to be wise with our money, save it, be careful not to be caught with nothing in case we wind up without a job in a couple of years. We don't want to invest in anything, 'cause nothing's making money. Isn't that it??

So, if it's not a lack of capital that's keeping us from spending, will having more money get you to spend it? Probably not. I think most people will conitnue to hoard it, save it for the pending rainy days. The fear is still there! The more fiscally irresponsible will likely spend more here and there, but even they won't spend it all. It isn't that the pump needs to be primed. The handle won't budge.

So what needs to change? What can fix this problem?

First of all, we all have to realize that the problem was in the works for decades. We have developed a financially flippant society that tends to live well outside our means. In other words, the economy had been artificially strong for years! We weren't really that rich. We just lived like it. It was simply a matter or time before the national over-supply would lose its inflated demand. The demand was artificially high because people were demanding what they couldn't afford. There were no "I wish I could have that"s. We would just put it on credit and figure out how to pay for it later. Our own fiscal irresponsibility has created this mess.

Unfortunately there isn't a quick fix. We will have to go through a rebalancing period. Trying to artificially inflate demand again will do nothing but allow us to live with the problem for a few more years. Supply will have to shrink to match the true national demand, which means that many will lose their jobs. Will it be akin to the Great Depression? I don't know… How much over-supply do you think we've had? I think it could be pretty bad.

There are a few things that much be changed if we're going to make it out of this situation relatively quickly and with minimal impact. First of all, we must stop living outside of our means. I know that spending seems to be the right thing to do to to get us out of this. That's what economists are saying, the government is saying, everyone is saying. Go ahead and spend, but do it within your means. We must get this system balanced correctly. It does us no good to break out of this quickly if we still have the same imbalance, resulting in the same problem in a few years!

Second, we must improve production. Our cultural directives toward laziness has undermined the traditional hard-working efforts of previous generations that made this nation the wealthiest in the world. Get rid of the union power that keep workers from really earning their pay. Promote efficient business models. Build and support businesses that produce optimization products. Simply put, we need to make the supply more affordable. Then will the wishes become demands. This is the correct way to increase demand. Any aritificial method is temporary and results in (continued) imbalance, and deficit spending will only delay the inevitable and leave a heafty debt to our future generations.

Finally, we need to get prepared for tough times, even if we do in fact manage to avoid those tough times, so that we don't live in fear. Fear will tear this economy and nation apart. Get an emergency supply that will last you a good long while. Get yourselves a healthy and secure savings that will last your family a good while. Then you can live without the fear of a total collapse, and you can begin to spend safely and comfortably.

Wow, our church leaders were right all along! Get the word out, starting with yourself!