As I've noted on many occasions, there is a fallacious and deceptive argument that always surfaces when the powers that be need to legitimate deep cuts to working class living standards (such as those being proposed by Obama at present). This argument is what I've called "budget cut fatalism".
But, given that this line of reasoning is a complete distortion, what is a more accurate way of discussing budget crises and deficits?
First, we must ask: why is there a deficit? This requires that we ask how the budget works in the first place. As everyone knows, budgets consist of two components: revenues and expenditures. Depending on the context, the immediate "cause" of a deficit could either be a steep increase in spending or a steep drop in revenue. In our case, as everyone knows, the primary cause was a sharp drop in revenue.
Next, we ask: why was there a sharp drop in revenue? The answer is obvious: because our economy (and most other capitalist economies around the world) are experiencing the worst crisis since the Great Depression. This has caused revenues to decline sharply, eroding the funding for many of the basic social institutions that make up our society.
But, who is responsible for this crisis? One thing is for sure: the culprit isn't social expenditure. The obvious answer to who's responsible is: the "too big to fail" banks and financial institutions that plunged the global economy into crisis by hitching economic growth to various ponzi-like asset bubbles, of which the housing crisis is the most visible and important. A more succinct answer to the question of "why are we in a crisis?", however, would be as follows. Capitalism is a rotten, crisis-prone system.
So let us take stock of what's been said so far. First of all, the deficit is not the result of "out of control spending", it is quite obviously the result of a sharp decline in revenues. Second, the sharp decline in revenues was brought about by the global economic crisis. Third, the crisis was fomented by those who run our economy, namely the class of persons who own and control the commanding heights of the economy. They are responsible for the crisis and the deficit, (and for all the social misery it has unleashed).
Looked at in this sober light, the question of "what is to be done?" is an easy one to answer: let those who made the mess pay to clean it up. In other words, "chop from the top". A 2% windfall tax on the record profits earned last quarter would be enough to obviate the need for all austerity measures.
Note that this is precisely the opposite of what Obama has done so far. He has done more than simply propose punishing cuts to the living standards of the vast majority of Americans. He has done more than simply refused to chop from the top... he has in fact made it his priority to give the top even more by embracing the Bush tax cuts for the rich. And his "deficit commission" has recommended even more gifts to the rich: a further reduction in the top marginal tax rate, a reduction in the rate of corporate taxation, etc. The argument that such obscenely low levels of taxation for the rich are needed for "economic growth" is just plain false. The longest, most robust period of economic growth in American history saw top marginal tax rates as high as 90%, even under Republican presidencies such as Eisenhower.
What's happening is simply a narrow exertion of class power. The few are throwing the many under the bus. And its a double-whammy: first, we had to pay to bailout the banks and transfer toxic assets from corporate rolls to public ones... and now we have to pay for the deficits caused by the bank crisis (and the bailout) by taking sharp hits in our standard of living. First we are forced to shell out billions of taxpayer money to underwrite a restoration of profitability for the financial elite. Now we are forced to close schools, cut health-care, slash Pell Grants, shut down libraries, cut public transportation, layoff public workers, etc. all in order to pay for a crisis we didn't even have the chance to cause, given our powerlessness to impact the decisions made by those who own and control the commanding heights of the economy.
Tuesday, February 15, 2011
How to Talk About Deficits (and How Not To)
Tuesday, July 6, 2010
Excellent Joel Geier piece on the Crisis
Excerpt:
The capitalist state, not the market, produced stabilization, the end of the free-fall, and the start of a recovery. However, the fundamentals of the capitalist economy are so weak that there is no confidence that if the state were to withdraw stimulus that recovery could be sustained. The fear is that if the “free market” was left to its own solutions, and government stimulus sharply curtailed, demand would collapse, renewing recession. All of this has to be subtly presented so that faith in “free enterprise” is not excessively undermined.Read it here.
Thursday, July 1, 2010
Sunday, June 27, 2010
Authorized Media: "Banks Dodged Bullet"
Read the BusinessWeek article here. Here's an excerpt:
"A deal reached by members of a House and Senate conference early this morning diluted provisions from the tougher Senate bill, limiting rather than prohibiting the ability of federally insured banks to trade derivatives and invest in hedge funds or private equity funds.Before we know it, election season will be upon us and we will be aswim in calls to support Democrat incumbents. Presumably, the Dems won't try to sell their (basically conservative) politics as "change" this time around. They'll sell their ticket as a bulwark against Tea-bagger reactionaries.Banks “dodged a bullet,” said Raj Date, executive director for Cambridge Winter Inc.’s center for financial institutions policy and a former Deutsche Bank AG executive. “This has to be a net positive.”
But what happened during the two years of massive Democrat House majorities, a supermajority in the Senate, and an initially popular young president who was talking about fundamental change?
We saw the reactivation of the US's Latin American military strong arm in 2008, escalation in Afghanistan, complete continuity with the Bush years in terms of treasury policy, quick surrender on the already compromised "public option", failure to repeal anti-union laws that prevent organization of workplaces, increased drone attacks on Pakistan, severe cuts to public services, spending freezes for everything except the defense budget, refusal to enact progressive reform on the GLBT-rights front, a U-turn on off-shore drilling and an embrace by Obama of "drill baby drill", deference to a for-profit oil company that has devastated the Gulf of Mexico, etc. Now we have, basically, a failure to even secure adequate window-dressing to cover the fact that serious regulatory reform will not be passed.
It is more clear to me than ever that all progressive and left-minded people in the US need to organize independently of the Democratic machine, build existing social movements, and start new ones. We need to follow the example of the Black freedom movement of the 1950s and 60s- and, as Sherry Wolf has recently put it, "make them do the right thing". Of course, the ultimate aim must be to eliminate a social system in which there is a "them" who need to be made to do what's in the interest of the vast majority of people.
Saturday, May 22, 2010
Nice article skewering decifit-hawking
Read the article here.
What's all this "we" when people talk about the deficit? It's not as though Goldman Sachs talks in terms of "we" when they're deciding how to divide up quarterly profits. As Joel Geier put it in a recent ISR article, "The debt bubble has not be solved, it has merely been transferred from private hands to the state... The state nationalized private capitalist debt". Large capitalist firms externalized the costs of their risky speculative behaviors by moving their toxic assets from their rolls to the state. But they sure aren't externalizing their profits any time soon.
It's not as though there isn't lots of wealth in this society: the annual amount spent "rescuing" ailing financial institutions on the one hand, and in useless foreign occupation and war on the other, is enough to fully fund, many times over, things lie single-payer, plug state budget shortfalls, etc.
Tuesday, July 7, 2009
David Harvey speaks at Marxism 2009
David Harvey's speech from Marxism 2009 can be viewed free here.
Wednesday, March 18, 2009
AIG: Arrogance Incompetance Greed
From Al-Jazeera:
"Edward Liddy, the head of American International Group (AIG), a US insurance giant, told the US Congress that the "cold realities of competition" forced the company to pay out $165m in bonuses that have enraged the US public."Read the entire Al-Jazeera article here.
[...]
"the so-called "retention bonuses" include over $33m for 52 people who have left the company.
AIG has been kept afloat with more than $170bn of taxpayers money since September."
From Socialistworker.org:
"In the last three months of 2008, AIG lost $61.7 billion, the largest quarterly loss of any company in the history of capitalism. Nevertheless, the company is paying out--and publicly defending--huge bonuses to managers, including 73 checks in the $1 million-plus range."UPDATE: "A.I.G. Chief Asks Bonus Recipients to Give Back Half". How stupid does this moron think most people are? At first he defends the right to "compensate" executives with opulent bonuses... now he 'admits' that there is something amiss here and opts for the tepid non-solution of 'perhaps encouraging them to give half of it back'... is he begging to be refuted, or is this a serious attempt to stave off criticism? Fucking unreal.
Thursday, March 5, 2009
Watch'em squerm.
From the Financial Times:
Pointing to Mr Obama’s tax hits, the US Chamber of Commerce on Friday described his budget as the “most redistributionist in modern American history”....Martin Regalia, chief economist at the CoC, said [of his organization's take on the Obama budget]:“I would prefer not to mention the views of our members, which contain too many expletives for a family newspaper.”I'm inclined to think that the amount of CoC expletives provoked by a piece of legislation is directly proportional to how socially-just the legislation is.
Tuesday, February 24, 2009
Against balanced budgets
"Think how many times you have heard conservative politicians say that since businesses and households have to balance their budgets, government should do the same. But individuals and businesses separate out their current expenses from their capital outlays; people don’t define themselves as running a deficit this year because they bought a new house for $200,000. No, they finance capital expenditures like houses, new kitchens, and automobiles by borrowing, and they count themselves as living within their means as long as they have income to cover all their expenses including interest payments." - Fred Block (UC Davis sociologist) in Dissent
As Block puts it: "one essential issue has yet to be engaged or discussed: changing budget procedures to facilitate a long-term increase in government investment spending." 'Balanced budgets' are the reason "why we have a $2.2 trillion backlog of needed repairs to our decaying infrastructure...why our vital research and development machinery is generating fierce battles between different interest groups fighting for a piece of a shrinking pie....why our education system... is increasingly threadbare, dysfunctional, and ineffective in facilitating upward mobility." Glaringly omitted here is "this is (one reason) why we have decaying public health insurance programs (medicaid, medicare) and the worst health insurance system among all Western capitlaist nations because public money is not spent guaranteeing universal access".
Block proposes creating two different Federal budgets: a 'current account' and a 'capital account', where the 'current' acct would be kept in balance (except during reccession) and the 'capital' acct would be financed by borrowing. I'm not sure whether this is a good idea or not, but such a plan's raison d'etre (facilitaing large spending initiatives) is far more attractive than that of deficit-hawking (i.e. strangling the ability of the government to spend).
Concretely, Block proposes the following:
"First, the Obama Administration needs to begin right away developing plans for big ticket infrastructure projects to assure that they will be “shovel ready” over the next three to five years. Now is the time to map out, prioritize, and secure public support for multi-year projects of building high-speed rail lines, modernizing mass transit systems, and facilitating the replacement of coal and oil with green energy. Second, there needs to be an “all hands on deck” offensive to persuade the public of the urgency of this budgetary reform."
Wednesday, February 18, 2009
Reaping the fruits of "reaching across the aisle"
"SO WHY does the stimulus legislation contain so many half-measures? After all, Obama's inauguration four weeks ago was celebrated by huge numbers of people, and his popularity remains high.-From the ISO's excellent breakdown of the Obama Stimulus Plan.
For one thing, the Republicans presented a virtually united front against the stimulus bill, and the mainstream media reported their every slander of the proposal without hesitation. "One might have expected Republicans to act at least slightly chastened in these early days of the Obama administration, given both their drubbing in the last two elections and the economic debacle of the past eight years," wrote columnist Paul Krugman.
But no. The GOP trotted out every tired complaint about "big government" and wasteful spending--this from a party that ran up a staggering government debt over eight years of George W. Bush, thanks to the astronomical sums wasted on the Pentagon war machine.
Still, the Republicans shouldn't have been able to gain the upper hand in this debate. They did because of the new Obama administration's insistence on cooperating with the GOP in the spirit of "bipartisanship."
For at least the first several weeks after Obama's inauguration, while the White House was talking about how much it valued their input, the Republicans were able to define the stimulus legislation on their terms. That meant depicting it as stuffed with "waste" and "political pork" to reward Democratic "interest groups"--rather than a collection of measures that could create jobs and bolster working people's living standards."
The NYTimes has a nice breakdown here. And here.
Monday, February 9, 2009
Just to reiterate....
There's been a lot of hubbub surrounding the Obama administration's decision to cap executive pay. As has already been noted on this blog by all of its contributors at some point or another: this move by Obama is, to paraphrase arvilla, "a tepid crowd-pleaser" meant to obscure any criticism of capitalism, as such.
I think it's worth re-posting some of Krugman's breakdown of the issue:
My response to this prospect is: so? If taxpayers are footing the bill for rescuing the banks, why shouldn’t they get ownership, at least until private buyers can be found? But the Obama administration appears to be tying itself in knots to avoid this outcome."Right: because they think public ownership is the devil. But they shouldn't they be hard pressed to say, as they have been saying, that this whole 'solution' about 'keeping private enterprise private'. If that were truly what it was about, then the private enterprises would be privately fuct. Were they truly the private, ebullient beacons of free-market glory that the Administration wants to pretend they are, they would be imploding and collapsing before our eyes. If private investors give the banks capital, then they demand partial ownership. If the Federal Government gives the banks hundreds of billions of dollars, they demand nothing except (after some public criticism) that the really, really fat cats keep their compensation under a half million. Is this a joke?
It's also worth re-posting an excerpt from a Willem Buiter column in the Financial Times from a while back. While Krugman suggests that the banks should be taken into public ownership "at least until a private owner is found", Buiter wonders why certain types of banking should be privately-run affairs at all:
[...]
Monday, February 2, 2009
Krugman: "Bailouts for Bunglers"
Some of the highlights:
“Say I’m a banker and I created $30 million. I should get a part of that,” one banker told The New York Times. And if you’re a banker and you destroyed $30 billion? Uncle Sam to the rescue!Read the rest here. Obama's verbal scolding of the 'excessive' bonuses of Bank executives (whose 'private' institutions were recently injected with tens of billions of taxpayer money) seems to have been little more than an attempt to prepare the groundwork for a new round of bailouts (rather than nationalizations) of large banks on the verge of collapse. The first line of Krugman's op/ed is painfully clear about what's happening: If you waste immense quantities of someone else's money, according to logic of the Obama Administration you get a check for billions more dollars (preceded, of course, by a brief verbal chiding from the President).
[...]
We can’t afford to squander money giving huge windfalls to banks and their executives, merely to preserve the illusion of private ownership.
Normally when a bank is in need of capital they sell stock to investors in return for ownership shares in the returns. But apparently this isn't how it should work if taxpayers are the ones providing the capital. Bank owners should get to keep all of that money, says Geithner, because to demand joint ownership would mean, *gasp* that the banks would be (in part) publicly owned. According to Geithner, “we have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system.” But who is "we"? I imagine that the current owners of BoA, Chase, et. al would love to "preserve that system" (i.e. would love to continue to receive gifts (ungodly sums of money) from the Federal Government with no conditions that they relinquish control/management or any of the potential returns from the gifts they've recieved).
But what on earth, at this point, is private about these institutions? If having private ownesrhip and private shareholders, as such, is all that the Administration cares about then why not keep public funds and institutions quarantined from them in order to maintain the sacred aura of 'privateness' preserved in these shining beacons of 'free' market glory? Because the collapse of these financial institutions will cause widespread public suffering for many millions of people whose jobs, incomes, health, savings, etc depend on the health of these financial behemoths. So, any Obama or Bush administration advocate of bailouts will tell you, the motivation to bailout these huge banks has to do with (at bottom) supposedly 'public' concerns to preserve the livlihood, welfare, incomes, savings, health of millions of Americans who have no direct involvement or connection to the financial sector or these institutions.
But, any sane person would ask, why then all the bullshit rhetoric about 'preserving private ownership'?
I say nationalize them, expropriate all company holdings, and offer the newly unemployed executives entry-level jobs (i.e. teller, cashier) in the new public institution to be erected on the ashes of their private racket.
Thursday, January 29, 2009
A Stimulus Bill for Freedom-loving, American Americans
From the Republican bonehead Jim DeMint for the Heritage Foundation:
"The Democrat bill takes money--actually, it borrows money--and decides where it should go. It does virtually nothing to stimulate the economy while it wastes billions of taxpayer dollars. It's a hodge-podge of long-supported pet projects that the normal budget process would have thrown out. Using the troubled economy as their motive, Democrats have opened the floodgates for all sorts of outrageous wasteful spending. Here are just a few examples from the Senate's bill, which we will debate next week:
- $400 million for researching sexually transmitted diseases,
- $200 million for bike and pedestrian trails and off-road vehicle routes,
- $200 million to force the military to buy environmentally friendly electric cars,
- $34 million to renovate the Department of Commerce headquarters,
- $75 million for a program to end smoking, which if successful will bankrupt the children's health program Democrats are about to pass.
And those are just some of the ridiculous things they have written into the bill."
That is some ridiculous crap indeed. Especially the part about finding cures for STD's! Also, its not as though people are going to be employed building/renovating the DoC HQ. But they probably don't need the work, since there are tons of new construction projects being undertaken right now in the private sector... (whoops). And the part about ending smoking and bankrupting S-CHIP makes perfect sense.... uh, er... what?
Is this the best that Republicans have got? Absolutely pathetic.
Venkatesh, Galbraith, et. al Debate Obama Stimulus
Full text of the debate/panel here.
Excluding the conservative idiots who are whining about spending increases, there are some interesting points in this exchange.
For Galbraith, the stimulus is not bold enough (or commensurate with the gravity of the crisis at hand). Stiglitz said virtually the same thing when he told the BBC today that the Obama Stimulus package is "totally inadequate". He recommends the following ideas (which sound marvelous to me):
Michael Oppenheimer argues, correctly in my view, that infrastructure spending must be spent with the future in mind (which is to say, the environment and climate change). In concrete terms (no pun intended) this means eschewing highway construction/expansion in favor of mass transit and greener forms of transportation. He writes:– All the resources being released from residential and commercial construction should be taken up in public building. At the federal level, strategic investments in mass transit and other long-term improvements — largely omitted from the current package — should be authorized via a permanent National Infrastructure Fund.
– Comprehensive foreclosure relief, through a 90-day moratorium followed by restructuring except in cases of demonstrable borrower fraud.
– Increase Social Security benefits, say by 30 percent, and a lower the eligibility age of Medicare to (say) 55 years of age. This would offset the deep drop in equity wealth of the elderly population, while favoring the poor. Expanding Medicare eligibility would permit more workers to retire, freeing firms from carrying health care costs for older workers.
– A payroll tax holiday to restore the purchasing power of working families. By setting the payroll tax rate at zero (and letting the government write a check to the Social Security Trust Fund for the uncollected sums), tax relief can be delivered at large scale and with immediate effect. Later, if growth resumes rapidly, this measure could be scaled back.
– A Reconstruction Finance Corporation, to meet industrial needs for credit and to help with restructuring and modernization.
– Jobs programs, in the spirit of the New Deal, to hire people to do what they do best, including art, letters, drama, dance, music, scientific research, university teaching and the work of the non-profit sector — including for community organizations.
– An energy program with a framework adequate to meet the climate crisis and sufficient to reduce demand for oil and quell speculation as the economy recovers.
The trade-off between building new highways and expanding or even just maintaining mass transit capacity is an obvious example. Both are “shovel-ready” but one supports the emergence of a green economy while the other just ossifies the existing patterns, which are a big part of our economic and international problems in the first place.Steven Goldsmith, presumably in an attempt to sound unique or creative, argues that what America needs more of right now is a boost in volunteerism. Thus, he recommends an increase in funding for Americorps. I say fuck that. People need jobs not charity, and getting well-off people to volunteer is, at best, an idea that is peripheral to the main thrust of any serious effort to stave off disaster for ordinary Americans.
Venkatesh argues that the stimulus needs to be more 'locally oriented'. Yet, the examples he gives:
For example, two cities (or counties) can independently spend millions to shore up new transit systems. Yet, a regional focus might more efficiently and effectively serve a population whose movements cut across their borders. Giving unemployed workers subsidies to retain their health benefits is progressive, but in some metropolitan areas, workers are facing eviction and would much prefer rental subsidies. Averting homelessness might take priority over a doctor’s visit.beg the following question. Why not do both (avert homelessness and guarantee health subsidies)?
Arizona gutting public education to balance budget
I've written before about the crazy-drastic action the GOP-led Utah legislature is taking to keep their books looking good. Now Arizona, directly following the departure of the "education governor" to the Obama administration, seems to have lost their damn minds (via HuffPo).
You can read a detailed account of what is going on at Arizona State in all this madness here. Seriously...shouldn't education always be the last thing that gets cut (if anything needs to be cut at all)? Is it so hard to convince yourself you can't throw away your future to make it through a (relatively) short-term crisis?Senate Appropriations Committee Chair Russell Pearce (R-18) and Arizona House Appropriation Committee Chair John Kavanagh (R-8) are leading a charge for massive cuts in public education across Arizona. The Pearce-Kavanagh proposal includes $631 million cut from the Arizona university system over 18 months, a 10 percent across-the-board cut for public elementary and secondary school districts, elimination of all-day kindergarten and early kindergarten, and elimination of $125 million in school tax credits currently provided to individuals and corporations who donate to public education.
Last year, then-Governor Napolitano urged lawmakers to work on a bipartisan plan to avert the impending budget crisis, but most elected officials were preoccupied with re-election campaigns. After the election, when Napolitano was named as the likely new Homeland Security Secretary, the Republican-led legislature decided to wait for the automatic ascension of fellow-Republican Janet Brewer to the governorship. In the meantime, the budget shortfall became a budget crisis.
The state budget shortfall is $1.6 billion for the 2009 fiscal year (July 2008 - June 2009) and more than $3 billion for the 2010 fiscal year (July 2009 - June 2010). Under the Pearce-Kavanagh proposal, roughly two-thirds of the money needed to meet the shortfall would be extracted from the universities. The rest of the cutbacks are primarily to elementary and secondary education and health care.
Friday, January 9, 2009
Bipartisanship?
One vote short of a super-majority in the Senate, with punishing majorities in the House and control of the White House, the last thing we should be hearing is talk about "bipartisanship". We hold elections for a reason, and the consequence of the last two is that the GOP has been thoroughly hammered and rejected as the ruling party. The Dems need one vote (if we include Lieberman in the Dem caucus) to push through any proposal they like and overrule a filibuster.
Yet despite these electoral mandates, despite the huge momentum of political capital buoying up the new President-elect, we are given tepid, half-way proposals for action.
Paul Krugman writes in his most recent column:
Is the plan being limited by a lack of spending opportunities? There are only a limited number of “shovel-ready” public investment projects — that is, projects that can be started quickly enough to help the economy in the near term. But there are other forms of public spending, especially on health care, that could do good while aiding the economy in its hour of need.Or is the plan being limited by political caution? Press reports last month indicated that Obama aides were anxious to keep the final price tag on the plan below the politically sensitive trillion-dollar mark. There also have been suggestions that the plan’s inclusion of large business tax cuts, which add to its cost but will do little for the economy, is an attempt to win Republican votes in Congress.
Whatever the explanation, the Obama plan just doesn’t look adequate to the economy’s need. To be sure, a third of a loaf is better than none. But right now we seem to be facing two major economic gaps: the gap between the economy’s potential and its likely performance, and the gap between Mr. Obama’s stern economic rhetoric and his somewhat disappointing economic plan.
"Political caution"? "An attempt to win over Republicans"? A friend has suggested to me that the rhetoric of bipartisanship could be being implemented in an attempt to forestall the inevitable obstruction from the Republican congressional minority. But we aren't talking about rhetoric here. Obama's stimulus plan is a concrete policy proposal, and I cannot see any reason to blame Republican opposition for its tepid and 'cautious' (which is to say, unduly conservative) character.
When this 'cautious' spending regimen doesn't work wonders, what will Democrats say to idiotic morons like Mitch McConnell when they inevitably start bantering that "gummint spending doesn't work"?
We would be mistaken in a characteristically liberal fashion, however, if we simply assumed that "political caution" meant only throwing a bone to the Democrat's electoral opponents. Obama and company took power with the blessing (and financial backing) of powerful business interests, and the Administration already has representatives of Capital sitting in cabinet posts. In short, there is a general sense in which Obama's crew aims to keep Capital supportive of the new Administration. But we should not confuse this with prudence, expediency or economic wisdom: this is an expression of the new Administration's ideological trajectory and economic alliances.
FDR's administration made the nearly-fatal mistake of trying to balance the budget after an initial round of massive government spending and quasi-Keynesian initiatives, a similar example of political 'caution' which derailed and obstructed the ability of the spending initiatives to generate recovery by stimulating demand. This example is different in many important ways, but the strategy was mistaken for the same reasons as Obama's apparent flip-flopping, hodge-podge approach.
Friday, December 19, 2008
"I've abandoned free-market principles to save the free-market system"
"I've abandoned free-market principles to save the free-market system," Bush told CNN television, saying he had made the decision "to make sure the economy doesn't collapse." Bush's comments reflect an extraordinary departure from his longtime advocacy for an unfettered free market, as his administration has orchestrated unprecedented government intervention in the face of a dire financial crisis. US President George W. Bush said in an interview Tuesday he was forced to sacrifice free market principles to save the economy from "collapse."
Tuesday, November 25, 2008
On Christina Romer
In a recent article in TNR, John Judis deconstructs the fiscal and economic theories underlying Romer's (Obama's new cabinet appointee) approach to the Great Depression. Admitedly, the critique does not focus on what she is saying should be done now, but if her approach to the Great Slump is any indication, its Right of even most mainstream Democratic thinking on the matter. Here's an excerpt from the article:
"In a paper delivered in September 2007, Romer addresses more directly recent government fiscal and monetary policy--but with the same implications. She contends that after World War II, the Truman and Eisenhower administrations developed a "modern" fiscal and monetary policy that was remarkably successful. It stressed a commitment to budget surpluses to prevent inflation and the use of deficits only in the extremity of a recession. During the Kennedy and Johnson years, Romer argues, the U.S. abandoned this approach for one that sought to maintain low unemployment (a four-percent target) through, if necessary, persistent budget deficits. Romer contends that the '60s model led to the high inflation and unemployment of the '70s."This is seems to accord with the standard conservative reading of the economic history of the 20th century, which we should contrast with:
"The standard account has been that the U.S. economy began to revive from 1934 to 1937, when Franklin Roosevelt's government hiked public investment and ran budget deficits; that the recovery stalled in 1938 after Roosevelt erroneously put the breaks on the economy and tried to run a surplus; and that the country only recovered from the depression after that because the U.S. began running deficits again and because of growing war orders from abroad; and that the final recovery awaited the massive public defense investment in 1941 and 1942. Gross public investment increased 150 percent from 1940 to 1941, and that's when unemployment began to plummet."She emphasizes monetary over fiscal fixes which seems to be precisely the wrong view about how to fix the current situation (given that monetary fixes via interest rate cuts by the Fed have proven to be a total failure in reversing the slump). Of course, this is not what the Obama transition team has been pushing for, so her mere appointment is certainly no indication of radical change in course. Nonetheless:
"If Romer's views of September 2007 are applied to November 2008, what do we get? Deficits, but with an eye toward surpluses, and an emphasis--going back to her article on the Depression--on monetary rather than fiscal expansion as the solution. If that is, indeed, what Romer advocates, that's probably not the change we need--or that Obama has promised."
Monday, November 24, 2008
The Threat of Deflation
Lee Sustar has a sharp article at socialistworker.org that is a pretty helpful crash-course on the turbulence and what the threat of deflation entails. If you're anything like me, you might not have known too much about deflation before reading it, but it leaves you with a fairly clear overview.
