John Maynard Keynes explained the dynamics of an economy in a prolonged period of high unemployment more than 70 years ago in The General Theory. Unfortunately, it seems very few people in policymaking positions in the United States or Europe have heard of the book. Otherwise, they would be pushing economic policy in the exact opposite direction than it is currently heading.Do yourself a favour and read the whole thing. Do everybody a favour: read this, fully comprehend it, then agitate to get governments to follow a Keynesian approach. Otherwise we are all back to Hoovervilles and bread lines hoping that a new Hitler will come along to kill maybe 200 million people this time but give governments an excuse to give their economies a real Keynesian boost through military spending that will get us out of the ditch.
Most wealthy countries have now made deficit reduction the primary focus of their economic policy. Even though the US and many eurozone countries are projected to be flirting with double-digit unemployment for years to come, their governments will be focused on cutting deficits rather than boosting the economy and creating jobs.
The outcome of this story is not pretty. Cutting deficits means raising taxes and/or cutting spending. In either case, it means pulling money out of the economy at a time when it is already well below full employment. This can lower deficits, but it also means lower GDP and higher unemployment.
I never cease to be amazed that people are more stupid than I think possible. And sure enough, they prove that even my low expectations are far too high. I once again must lower my expectations about intelligence in government.
2 comments:
RY,
Strange but true.
Just this morning my brother and I were commenting on people being more stupid than we care to admit.
Basically it went like this:
I thought I was pretty dumb until lately. Sad but we both said it.
What is worse? Those who use fear of deficit to their own ends in an election year. Where were they when all this mess was starting.
Kanna: It is the very Republicans who now howl the loudest who let deficits get out of control and the public debt to build. If you think back to Clinton's 1992 election, there was talk of a "lock box" and how money could be spent only if there was real control over those spendthrift Democrats (this after Reagan and Bush I had run up the debt with big deficits).
Clinton dutifully put aside some of his social programs and cut services and raised taxes and by the end of his second term the US was running a "supluss as far as the eye could see".
In steps Bush II and Greenspan who argues that lowering the public debt too precipitously would upset the bond market, so they needed a little deficit each year to facilitate bonds. With this justification Bush II did the first of his two tax cuts that removed a trillion dollars from the budget over the next 10 years. And the country headed into big deficits.
But Bush told everybody "don't worry" because these deficits were fueling a big surge in economic growth. (It never came.)
Then at the end of Bush II's second term, his "no regulation" policies plunged the US into the Great Recession with a trillion dollar deficit and an overall federal debt climbing toward the record levels that WWII caused.
But of course these same Republicans who have "suddenly got religion" don't mention the profligacy of Bush II. They are focused laser-like on that "socialist" Obama.
In short, you can't trust a word spoken by the right wing nuts in America. They twist facts to suit their political agenda. Their agenda is endless tax cuts for the rich and big corporations. Their agenda is to remove all social programs for the poor. Their agenda is to lie about "stimulating business" when in fact they only want to enrich their supporters. They use right wing social agendas to mobilize fundamentalist Christians to get elected, but once elected these politicians service only the needs of the rich and the big corporations.
It is pathetic. But you can only "see" it if you have some historical perspective. But the media doesn't remind people of what lies they've been fed. So the same slick agenda can be fed to the electorate again and again. Lies can be "sold" because the media doesn't feel it has an obligation to do news analysis, it only acts as a stenography to record the "he says, she says" political posturing.
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