Jobs, Jobs, Jobs

Today's employment news isn't good.

Unemployment is up to 9.1%.

I hate to be a pessimist, but I'm not surprised. The stimulus plan (ARRA) wasn't big enough, and included too many tax reductions in lieu of direct government expenditures.

To understand why, you need to be familiar with three concepts:
A. Liquidity trap. That is when our national monetary authority reduced short term interest to zero, but banks aren't lending and companies aren't borrowing. We are in a liquidity trap. There are many reasons for this - companies, for example, aren't investing because they have no expectation that new customers will suddenly appear. Another reason is:
B. Liquidity preference. In uncertain economic times, companies prefer to hold liquid assets (that can be readily converted to money, like bonds) rather than illiquid assets, like real estate and other commodities;
C. Aggregate Demand. Classical economists have believed for nearly two centuries that there will never be an overall shortage of aggregate demand. Time and again they are proven wrong, but the belief persists. Our aggregate demand is way down because we have the lowest percentage of the population employed since the great depression.

The reason our recovery is stalled is that, in a liquidity trap only government expenditures have a realistic chance of overcoming liquidity preference, improving aggregate demand for goods and services, and therefore stimulating businesses to hire workers and invest in increasing productive capacity.

Businesses aren't refusing to invest because Democrats have hurt their feelings, as some seem to suggest.