Paul Krugman’s latest column is Defining Prosperity Down.

And I worry that those in power, rather than taking responsibility for job creation, will soon declare that high unemployment is “structural,” a permanent part of the economic landscape — and that by condemning large numbers of Americans to long-term joblessness, they’ll turn that excuse into dismal reality.

This is a valuable column as far as it goes.  In future columns I’d like to see him explain why the high unemployment does not have to be a “structural” part of our economy.

As I wrote to my friend ScottC, here is my argument as to why it does not have to be this way.

The media and so called economic pundits are all talking about how our economy is 70% based on consumption.  They are all trying to figure out when the American consumer is going to spend again like they did during the bubble.

Well that resumption ought not to happen if we consumers have any sense.  During the bubble people were treating the rising value of real-estate as a second income.  They kept refinancing and taking the added equity out as cash.

The second income stream died with the crash.  If the values start to rise again, I hope people will not keep turning it into cash via refinancings.  You need a rising level of equity as a cushion against disaster.

So what will power our economy in the future?  It has to be exports.  There are places in the world where this over consumption from a real estate bubble did not happen.  In fact there is under consumption in these places compared to the rising real wealth (standard of living) of the people in those countries.  You probably know from your own experience with coworkers and customers that India, China, Korea, and Viet Nam are growth areas, to name a few.

If we figure out how to regrow our competitiveness in exports, then we will recover.  If we don’t we will sink back to the level that is maintainable by our own consumers at realistic levels of income.  Of course we will lose some even there because of imports replacing locally produced products and services. This replacement causes the loss of good wage jobs in this country.

If we cannot convince the wealthy of this nation to rejoin the compact as described in the article mentioned in my post suggested by ScottC, Are The American People Obsolete?, then there may be no solution but emigration.  By convince, I mean give them a reason.  No amount of attempted coercion will do it.  They will just leave and take their money with them.

Martin Weiss has written Get Real, People — In Praise Of Suzana Megles.

Talking about supporting President Obama, he says:

There are certain things he can do and others that need a voting majority in Congress. Don’t go all fickle now that we have a chance of real sensible change.
And like Susan Megles says, give the man credit for taking on a hugely difficult and complicated task.

In looking into Martin Weiss’s background I found another interesting post by him, Science Locates the Seat of Hate, Fear and Lies.

MRI scans have revealed lobes on the amygdala which, responding to experimental injections of stem cells, appear to modify symptoms of hate and fear. These new regions have been designated the prevaricon and the trepidigma.

The article in Barrons, Needed: Better GDP Growth, starts off well.

THE GDP REPORT MAY EASE some fears that the U.S. is heading for a double-dip recession….But it also confirms widespread concerns about a sharp economic slowdown, commented The Wall Street Journal.

That news item could have been responding to Friday’s report on GDP growth in this year’s second quarter. But it actually appeared in early February 2003. Widespread concerns about an economic slowdown seemed even more warranted at the time, because growth in gross domestic product had been running much slower. We know now that the sharp economic slowdown then expected turned out to be a sharp acceleration by the second half of 2003.

The point is not that a sharp acceleration will necessarily occur in the second half of 2010. But quarterly GDP growth is littered with examples of slowdowns — and speed-ups — that turn out to be short-lived, while often inspiring economic commentators to regard them as long-lived.

However, at the very end the article had this ignorant statement:

Revisions to consumer spending reaffirmed the ineffectiveness of fiscal stimulus to boost consumption. In response to both the cash-rebate program under Bush in 2008 and the stimulus package under Obama in 2009, consumers perversely cut consumption. And personal savings rates were revised up, thus underscoring that consumers squirreled away the government-bestowed cash, possibly out of concern that the deficits could mean higher taxes later on.

Cash rebates and other forms of tax cuts were well known at the time to be ineffective as economic stimuli to boost consumption.  Their purpose was to give people some help with their budgets that were under stress.  Just because Congress found it convenient to put the tax cuts  in the same Congressional bill with actual fiscal stimuli, there is no reason to say that these items were targeted to be the fiscal stimulus part of the bill.

Consumers were cutting consumption because one of their supplies of credit, real-estate price growth, had disappeared.  This cut in consumption was neither perverse, nor a reaction to fiscal stimulus.  Given how absurdly low and unwise was the personal savings rate during the housing bubble, the subsequent rise in personal savings rate was much desired by and for individuals.  Moreover, I bet the extra savings had nothing to do with fears of higher tax rates later on.

The Keynesian insight into affect on the economy of this attempt to increase the savings rate is called a paradox.  The paradox is that the attempt by almost everyone to increase their savings rate at the same time causes a slowdown in the economy which makes it impossible for many (but not all) to actually accomplish an increase in savings.  When you lose your job and your mortgage is foreclosed due to the shrinkage of the economy, you cannot increase your savings rate even though you desire to do so.

Because of this well known paradox, unbiased economists prefer fiscal stimulus by the government that involves direct spending such as the purchase of goods and services. This is why shovel ready infrastructure  projects were preferred as part of the stimulus. This is how consumption is boosted by fiscal stimulus.

The paradox in this article is that someone who could have such reasonable insights into the current over-reaction to the slowdown in the second quarter could have such seemingly poor understanding on how a fiscal stimulus should operate.  He also seems to have a perverse misunderstanding about what was cause and what was affect if he thinks that people’s increase in savings was a perverse response to tax cuts.

What is the Republican’s definition of a bad deficit contributor?

The subheading to the article, Are the American people obsolete? is:

The richest few don’t need the rest of us as markets, soldiers or police anymore. Maybe we should all emigrate

The article further goes on to say:

In every industrial democracy since the end of World War II, there has been a social contract between the few and the many. In return for receiving a disproportionate amount of the gains from economic growth in a capitalist economy, the rich paid a disproportionate percentage of the taxes needed for public goods and a safety net for the majority.

In North America and Europe, the economic elite agreed to this bargain because they needed ordinary people as consumers and soldiers. Without mass consumption, the factories in which the rich invested would grind to a halt. Without universal conscription in the world wars, and selective conscription during the Cold War, the U.S. and its allies might have failed to defeat totalitarian empires that would have created a world order hostile to a market economy.

Globalization has eliminated the first reason for the rich to continue supporting this bargain at the nation-state level, while the privatization of the military threatens the other rationale.

My friend ScottC put me onto this story.

Maybe this explains why trickle down economics isn’t trickling very much down our way.

I have been wondering for a while what happened to Henry Ford’s dictum:

There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible.

I now see that the disconnection between the rich and the not rich is what has allowed them to renegotiate the contract.  (As if we had anything to say in that negotiation.  Maybe abrogation would have been a better word.)

Suzana Megles has written the post In Defense of President Obama on OpEdNews.

Criticizing is so easy to do – but understanding the problems which President Obama faces daily requires that we try to support him as best we can. I also try to be as positive as I can. We seem to only zero in on our perceived negatives. What is that song– Accentuate the positive, eliminate the negative.

My comment on OpEdNews about her post was:

I have been posting a lot of comments indicating that this web site needs to publish more items like yours.

Call it positive reinforcement or “Accentuate the Positive, Eliminate the Negative” (yes I remember the song, I am only a few years behind you), most advice about how to motivate people uses some variation of this.

We do want to motivate the President to do more good, don’t we? We also want to motivate the voters to give him the Congressional majorities he needs to make progress, don’t we?

I can’t imagine we want him to do less good, or strip away what Congressional support he has.

Leonard Pitts Jr. of The Miami Herald has written the commentary Our Personal Narratives Often Ignore Facts.

Ten years ago, Arthur Teitelbaum, then an official of the Anti-Defamation League, wrote in another context: Beware the moments when facts seem to confirm prejudices. Such times are traps, when the well-meaning are misled and the mean-spirited gain confidence.

Guilty as charged.  That is what my blog posts are all about.  Once or twice I have posted something that disproves one of my prejudices.  I can’t think of which post that is, but I know there is one.

If the government wanted to spend more money to save jobs, where would be the best place to put it now?

Let’s look at three choices.

1. Give tax cuts to corporations so they will hire more workers.  It is reported that overall, corporations are sitting on $800 billion dollars of cash equivalents that they don’t know where to invest.  Do you suppose giving them more money in the form of tax cuts would suddenly wake them up to ideas of where to put the extra money to work to create jobs?  Do you suppose lack of tax cuts is preventing them from spending the $800 billion they have already socked away?

2. Invest in more infrastructure projects.  Previously we couldn’t find enough shovel ready infrastructure projects to hit the ground running.  We are still in the process of investing and spending the money already set aside.  This is the money that the Republicans wanted spent on the extension of unemployment benefits because it wasn’t already being used right away.

3. The state governments are about to lay off 50,000 people because of holes in their budgets. Some of these people will be teachers, police, and firefighters.  Do you suppose that if the federal government filled that hole, that 50,000 jobs would be saved?  Most states’ constitutions don’t allow them to run a deficit.  There is no such restriction on the federal budget.

Gee, I can’t figure out which option to choose.  Can any economic genius help me make a decision?

On Nightly Business Report, Alan Blinder and Mark Zandi talked about their analysis which says that all the government attempts to rescue the economy have saved or created 8.5 million jobs.  They were talking about the study reported in the article, Blinder, Zandi Say Bailouts Likely Averted Depression.

Has anybody before had the audacity to come up with numbers like this?

Let me think real hard if I can remember anything of the sort.

How about my post on February 17th, 2010, Obama Saves 5 Million Jobs Through February 2010?

And they laughed when I sat down to the spread sheet.