This week’s proposals by the Obama administration to deal with the persistent economic crisis will be, as with previous plans that involved trillions of taxpayer dollars, little more than salt in the wounds. Once again the strategy is to stimulate the economy by funding projects and tax cuts while ignoring the root cause of the problem: a housing foreclosure meltdown that has chilled the spending of a majority of American consumers.
With 11 million homeowners underwater on their mortgages and 3 million more already foreclosed, we have to assume, given the average household size, that some 40 million Americans are feeling mighty strapped. The numbers grow to an overwhelming majority when you take into account the distress of all homeowners, who have watched the value of the family nest egg dwindle even if they substantially paid down or paid off their mortgage debt. And this very widespread feeling of being suddenly much poorer is a nationwide scourge that has dramatically cut the appetite for consumption that drives the economy.
That fact is recognized even by the very business people who are supposed to be inspired to new investment and hiring by Barack Obama’s proposal on Wednesday of an accelerated tax break on business investments. As William Dunkelberg, chief economist for the National Federation of Independent Business, told The Wall Street Journal, “If you give a small business guy $20,000 he’ll say, ‘I could buy a delivery truck but I have nobody to deliver to.’” Although Dunkelberg’s members would be happy with a tax cut, he said the most important help would be to “finally address the most important person in the economy–the consumer.”
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