Robert B. Reich, a co-founder of The American Prospect, is a Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. His website can be found here and his blog can be found here.
The biggest drag on this economy -- easily two-thirds of the current slowdown -- comes from the huge drop in business investment. I mean, we re talking about Niagara Falls here. The first quarter last year, business spending was rocketing at an annual rate of more than 20 percent over the year before. By the end of last year, almost nothing.
Okay, so why is American business so bearish? American companies invested like mad in the 1990s, expecting that American consumers would follow right along and buy everything that was being produced. But last year American consumers reached their limit. They re deep in debt and can t go deeper.
CAMBRIDGE, Mass. -- The old industrial struggle was between companies and workers. The new struggle is between . . . companies and workers. But the battle isn't what it used to be. Now, it's over who's going to spend enough to keep the economy moving forward. The crunch will come if companies lay off so many employees that consumers go on a spending strike.
Since last year, American companies have cut way back on their purchases. The economy isn't in recession only because consumers haven't cut back their spending as well. If they do, the American economy tanks.
A growing chorus is telling Americans that one of the best ways to demonstrate that the nation won't be cowed by terrorism is to continue to buy shares of stock and retail goods. Vice President Cheney said he hoped Americans would "stick their thumb in the eye of the terrorists and . . . not let what's happened here in any way throw off their normal level of economic activity." House Minority Leader Dick Gephardt proclaimed that Americans were "not giving up on America, they're not giving up on our markets." Treasury Secretary Paul O'Neill said, "We're going to show we have backbone." On Thursday night, President Bush asked Americans for their "continued participation and confidence in the American economy."
Consumer confidence is dropping like a stone. Mass layoffs are sending chills through an America already shaken by the horror of September 11th. Last week alone, companies announced more than 100,000 layoffs, and there are signs of hundreds of thousands more to come.
I do not believe that it is politically feasible to insulate such huge funds from a
governmental direction," Alan Greenspan told the House Ways and Means
Committee last week, one day after President Clinton proposed investing a
portion of Social Security funds in the stock market.