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Not Stimulus, but Economy Needs “New Demand”

by Al Schuler, Economy Analyst
USDA Forest Service


(hit the play arrow to follow the month-to-month changes)
 


 

Jobs are created primarily in the private sector and they are not by borrowing money to invest/grow/create jobs for several reasons:

(1) There is still a credit freeze to some degree;
(2) There is much uncertainty re: impact of newly created government programs as ones in the pipeline;
(3) and, most importantly, lack of demand.

With interest rates at historic lows, and still lack of demand, something is seriously wrong. Many people actually have money to buy, invest, etc., but they are not doing so – why – I believe it is because there is a dearth of products/services that people want to buy.

We are at a time in history when we need some new industries that produce products/services that will “create its own demand”. This is what drives businesses to invest – to produce products people want to buy. One can apply these thoughts to any current industry.

E.g., in the wood products industry, we need a lot of innovation to create products /services that will help get us through the current housing mess. Examples could include ecosystem services/products (biodiversity, water quality, wildlife); biotechnology type products – biofuels; green products – certification, chain of custody, green building products, etc. We need these new products/services because, maybe, the housing industry will not be able to absorb (today or in the future) the current volume/production capacity of wood products.

In essence, the theory is that innovations create new technologies that in turn create new industries which create new products which create new demand.

Here is abbreviated definition of the cycles – Kondratiev waves (also called super cycles, surges, long waves or K-waves) are described as regular, sinusoidal-like cycles in the modern capitalist world economy. Averaging fifty and ranging from approximately forty to sixty years in length, the cycles consist of alternating periods between high sectoral growth and periods of relatively slow growth.

Early on, four schools of thought emerged as to why capitalist economies have these long waves. These schools of thought centered on innovations, capital investment, war and capitalist crisis. According to the innovation theory, these waves arise from the bunching of basic innovations that launch technological revolutions that in turn create leading industrial or commercial sectors.

en.wikipedia.org/wiki/Kondratiev_wave

Joseph Schumpeter (theories of “creative destruction”) was another economist who trumpeted/built on these ideas (http://en.wikipedia.org/wiki/Joseph_Schumpeter).



Disclosure: No stock