What Economy Do We Want to Recover?

The Economic recovery that the whole world awaits, begs a question that we should, in this time of travail, try to answer wisely for our future. The question is whether we want to recover the economy we had or build a new economy that is better for all of us.

It is widely assumed that the current recession began with the housing crisis about the time that the holders of sub-prime began to realize that, in fact, they did not qualify for a loan. This was about the time their mortgage payments began to go up and up and up because of the increasing interest.

They did not qualify for a loan because our economy cannot build a home for a price that many of us can pay. In poor communities like the one I work in, there is a huge differential between the number of homeowners and the number of renters, because the renters cannot afford to buy a home at the market price. The only new home builders in the poor communities are non-profits who receive government funds to build "affordable" housing for lower and middle income buyters. Typically the non-profit builders will spend about $125,000- 135,000 to build a home that they sell for $100,000.00. But, these government subsidies are limited so that while the purchase of this house at $100,000 requires a loan, there is not enough subsidy out there to help the mortgage industry. HUD provides subsidized rental housing for millions in the nation. All of which is to say that we had an economy that excluded about 30% or more of all people from buying homes either because they did not make enough income to qualify to buy a home with a enough space for their family or, to put it another way, we could not figure out a way to build a home for a price that these buyers could afford. The truth is both: we have an economy that pays about 30% of the population a salary that is too low for them to afford to buy and maintain a home and we cannot build homes for a price that they can pay. Is that the economy that we want to recover?

if you asked me, I would say NO! We do not need to recover this economy. That is the economy that led to the current recession. We need an economy where more people make enough money to buy a home and where homes can be built for a price that working men and women can afford. What the current economy tried to do was to qualify more people to buy homes without increasing wages ( a typical Republican solution to problems). in fact, the problem of reduced consumption does not have to do with the prices of what can be bought but with the lack of disposable income with which to pay.

We need a new economy in which providing a livable wages is a primary goal. This will only help the economy because it is a true economic stimulus, not a temporary one, not a paper created one. Workers spend money if they have it. They buy cars and homes and all other kinds of things that business needs to sell. We do not need to redistribute the wealth by government programs, but by creating an economy that pays higher wages to more people instead of creating higher profits for fewer people.

Until we find a way to increase wages, especially at the lower end, we are doomed to a boom and bust economy. The Europeans got it right on this one, not us.