The greatest disincentive

The most salient symptom of our current economic strife is the housing crisis. The situation is blamed on Fannie Mae, Freddie Mac, and sub-prime borrowers who suddenly were sapped with gas prices that triggered a cascade of overdue bills leading to foreclosure and bankruptcy.

The last seventy or so years led “free market” operators to hypothesize that consumers eventually forget the relative value of money. One could look at the saw-blade patterned increase in gasoline prices and compare that to short-term consumer trends, ten cents up, two cents down, twenty cents up, four cents down, three dollars up, seventy five cents down.

When the gas prices approached four dollars a gallon people appeared to permanently alter their spending habits. This may be happening, not because people stopped forgetting about the economic situation from months earlier, but because they no longer need to remember it. The Internet does that for all of us.

Another theory is not that everyone suddenly changed their consumption habits based on a single major event, but an accumulation of individuals experiencing temporary negative events, changed their behaviors enough to cause our economy to reach a tipping point.

The continuing cycle of unemployment and reemployment has kept the unemployment rate below double-digits, but that number only represents people still on the unemployment roles. It doesn’t represent the number of people that fell off the roles because their unemployment benefits have run out.

The unemployment rate also does not represent the number of people who struggled through unemployment and then found a job, then cut up their credit cards and vowed never again to use credit. I am one of those people.

It’s not that the unemployment rate has increased to the degree that negatively affects the economy; it’s that the total number of people who have temporarily experienced unemployment within a generation is larger than ever in history.

To my knowledge this kind of creeping influence has been ignored. It permanently changes consumer behavior. The so-called “free market” luxuriously inhaled and exhaled employees in a vast worker surplus, all the while failing to make the connection between employees and consumers.