What we need to do

It is pretty clear that there is a lot of nervousness in the stock market. While there are some pretty clear signs that the economy is going into a sort of recovery, there is a wide divergence of opinion over how strong that recovery will be.

I've talked in prior writings here about how the economy has made a semi permanent contraction of 15% or so and that the growth is not going to recover that amount anytime soon. Companies have adjusted to the reduced level of sales and have figured out how to be profitable at the lower levels. We will see some growth, but consumer spending has to start from the new base, and if anyone expects spending to jump to where it was two years ago anytime soon, they really need to look at the economics.

A lot of the credit that was available due to home equity is simply gone. A lot of that debt has also been liquidated in foreclosures and credit card defaults and this was the major adjustment that led us to where we are today. There are still more foreclosures and defaults to come, but most Americans are not going to abandon their homes. Most Americans are going to make a good faith effort to pay their debts. What has hopefully happened is that those who count on easy credit and lax standards to support an unsustainable lifestyle can no longer get credit.

In order to reduce unemployment we need to promote new growth industries, one of which is the renewable energy area. I see more and more promising information related to that area and as we reduce our need for foreign oil we will see wealth and jobs created in this country. This is potentially an explosive growth area, once we pass a critical point. For example, if we start to convert Semi to run on Natural Gas we will need to convert or manufacture the semis and build infrastructure to support them. If we start to see a great increase in the use of home solar due to incentives, we will need to manufacture the panels in mass (probably driving down the cost) and installing them on homes.

Another thing that will lead to sustainable growth is the steps necessary to make manufacturing economical in this country. I believe a change in our tax system to a consumption tax on all products sold here instead of the current system could go a long way towards accomplishing that. Now, this would only work it that system replaced at the very least the business taxes we impose, it can't be an add on tax. We can actually keep payroll taxes, especially if we gear them to paying for services specific to our citizens, such as social security, medicare, etc.

I believe the first growth area is going to gain steam at last but could be jeopardized by a return to cheap oil. I would suggest that oil be taxed to assure that its price does not fall below a level that keeps alternate energy competitive.

We are in the midst of a transition in our economy. A lot of the pain has already been felt, but we are not complete and there may be additional pain. However, if we don't learn from our mistakes and take the actions needed to create future growth and prosperity, we have only ourselves to blame.