Economists Discover Consumer Demand Problem. It’s About Time!

“The main reason U.S. companies are reluctant to step up hiring is scant demand, rather than uncertainty over government policies, according to a majority of economists in a new Wall Street Journal survey.”

Phil Izzo, Dearth of Demand Seen Behind Weak Hiring, Wall Street Journal, July 18, 2011

(See my post on July 14 for an estimate prepared by Moody’s Analytics of the dollars that will be drained from U.S. consumer demand by the end of this year because of changes in government programs.)

The political fight over the deficit is off target.  The political fight over the size of government is off target.  The traditional public-private system for equitably distributing the wealth we produce (a substantial level of high wage private sector employment supplemented by government employment and targeted income entitlements) is badly broken because the private sector can’t create enough jobs, much less enough quality jobs for the old system to work.

Given investment trends now at work in the world economy, and given the weakness of the labor movement, the U.S. private sector will necessarily play a much smaller role in equitably and rationally distributing the vast amount of wealth produced in the U.S. every year than it did in the past.   It will not produce enough jobs and high enough earnings to do the wealth distribution job that must be done.

Government will have to play a bigger role or we will have to give up a lot more economic security and wellbeing than we already have.