Rommeldak at Post-Keynesian Observations writes it’s not we’re spending too much it’s that we don’t earn enough.

So what was the problem? Think about this: if, as a macroeconomic unit, we had the resources, technology, and productive capacity to produce all those houses, cars, TV’s, meals at nice restaurants, etc., then why did people have to go into so much debt??? Why weren’t our incomes sufficient to buy those absolutely-affordable goods and services without debt or at least with minimal debt? Therein lies the problem. We didn’t spend too much, we earned too little. Not only is there a systemic issue with respect to market economies being unable to generate a reasonable number of jobs for all those willing to work (see the discussion below), but income distributions have been becoming more and more uneven. Those who form the backbone of consumer demand, the middle class, have been losing relative income shares to the rich. This is all great fun for the rich in the short run, but it leads to what we have right now in the long run: falling sales, default, unemployment, recession, etc.

Hence, the focus of policy right now must not be on cutting back spending. Why should we? We can afford all that stuff, and buying it is what creates jobs and incomes for others. Rather, policy should create income and offer incentives for spending money. The private sector cannot do this alone because as we stand right now, all individual incentives are to restrict spending. Rommeldak, Post-Keynesian Observations.

Hat Tip: Duncan’s Economic Blog.