Bail Out Consumers Now: Economist Condemns Bank Bailouts, Calls For Homeowner Rescue

Homeowners and consumers need a Special Victims Unit, because the government is bailing out criminals.

Dr. Ravi Batra is an economics professor and author of The New Golden Age: A Revolution Against Political Corruption and Economic Chaos Courtesy: ravibatra.com

(CLEARWATER, Fla.) - According to Dr. Ravi Batra, economics professor and author of The New Golden Age: A Revolution Against Political Corruption and Economic Chaos, (see: ravibatra.com ), bailing out banks is like bailing out criminals while victims are left to suffer.

The only difference here is that the victims, homeowners and consumers, are the foundation of the economy, and they are hurting because their wages have not kept pace with rising prices.

The celebrated economist Milton Friedman once said that the true test of a theory is its forecasting ability. Batra’s theories easily pass this sterling test.

This is because in the first edition of his book printed in 2006 Batra vividly foresaw the current economic chaos in all its dimensions. He forewarned us about stock market losses, the credit crunch, homeowner defaults and above all soaring unemployment, starting in 2007 and lasting at least till 2010.

Yet Batra regards all these as just the symptoms, not the root cause of the problem. Unlike traditional economists, he argues that the real problem is deeper, because it springs from the vast imbalance of the two fundamentals—supply and demand. The main source of supply is productivity whereas the main source of demand are people’s wages.

Since productivity has been soaring because of the computer revolution, while wages have been stagnant, supply has risen faster than demand over the last 30 years.

However, debt also raises demand, so the government has artificially maintained the supply-demand balance by creating a mountain of debt through its own budget deficits and by luring people into borrowing through low interest rates. By now the nation is in hawk as never before, and the credit crisis has inevitably followed.

Hence the solution is not in generating more debt, which is what the Bush administration has been doing with little success and what the new administration proposes, but in following policies that will raise wages and bring them in line with the vast jump in productivity. At present, with supply exceeding demand, there is overproduction and hence mounting layoffs.

Batra offers a five point program to fix the current mess.

Raise the hourly minimum wage by $1 every year until it reaches $10.

Raise the salaries of government employees by 10%, which China did in November.

Bailout the harried homeowner and not Wall Street and big banks, because if the homeowner can make mortgage payments, banks will be in good shape.

The government should buy the shares of GM and Ford for $5 billion and give them to their workers, whose representatives will then run the companies. It will then be up to them to save their jobs. The government may also spend another $10 billion to lighten the burden of pension and healthcare costs in the auto industry.

Trim the trade deficit sharply by fixing the dollar exchange rate with the currencies of China, Japan and the Eurozone. Without this measure all others will have limited success.

“Just throwing money at the current economic chaos is like a doctor giving pain killers to his patient. That does not cure the illness. We need real economic reforms to eliminate the fundamental imbalance between supply and demand. Without the proposed measures, 2009 will be a lot worse than 2008.”

Batra, the economist who foresaw the current crisis, as well as the ascension of President-Elect Barack Obama, has a long track record of predicting cycles in the economy. His concern today is about the philosophy of handing the healing of our economy over to people with much experience but old ideas. New troubles require novel approaches, not the hackneyed ideas that have brought us to the brink of a depression.