Dean Baker Provides A Simple Explanation For The Slow Recovery

The press does a bad job of informing the public about the economy.  They jump on every short term signal that provides either a positive or negative indication of the direction that the economy has taken.  The real problem is $1.4 trillion of home equity has disappeared.  That equity was being used to fuel consumption.  The new home construction industry has also collapsed.  New home construction is at an historical low.  It would take a 50% increase in business investment to make up for the shortfall in new home construction.  Business will not do that until it sees a rise in consumer demand.  The GOP claims that if we are nicer to business, perhaps by cutting their taxes, they create the new jobs that we need.  That is a pipe dream.  Only government can step into the void that has been created by the real estate collapse.  Longer term, the dollar must fall in order to support US export growth.  There is a strong relationship between trade deficits and budget deficits.  Large trade deficits produce a large dent in GDP, and tax revenues fall proportionately unless internal demand fills the gap.  That gap had been fueled by the housing bubble that has deflated.