Schenk: It’s all about the animal spirits—that’s Keynes’ term for consumer confidence. If people don’t have confidence, they won’t spend and businesses won’t invest.
American consumers are still in recession mode—they don’t believe the recession has ended and they’re not spending. They’re hoarding cash.
This leads to a liquidity trap, where money is being trapped in banks which aren’t lending, households that aren’t spending, and businesses which aren’t investing.
Government spending and permanent consumer tax cuts would improve consumer confidence, which would unleash this liquidity trap and bring a flood of money into the economy, increase spending, and get things going again.
Rick: For once you’re right. There is a crisis of consumer confidence and animal spirits are low. But what we need is clarity on taxes, regulations, energy, and health-care costs.
People need to know what their future taxes will be and that we won’t have a fiscal crisis in the near future because of excessive deficit spending.
Companies won’t make long-term business plans if they don’t know what their costs will be in labor, energy, regulations, or taxes. It’s time for the government to provide clarity.
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