Will the recession just go on and on and on? In the absence of far more vigorous government action, it certainly looks that way.
At a recent conference sponsored by several think tanks, Paul Krugman declared that the recession could literally continue indefinitely because the economy is stuck in a cycle of depressed wages, reduced consumer purchasing power, damaged banks, and business hesitancy to invest -- and no strategy on the political horizon is about to alter this dynamic.
It's not surprising to hear that from Krugman. The startling thing was that his two co-panelists, former Reagan chief economist Martin Feldstein and the chief economist of Goldman Sachs, Jan Hatzius, agreed that massive stimulus spending was the necessary cure.
In similar circumstances in the middle and late 1930, GDP growth turned positive, but unemployment remained stuck in double digits. It took the accident of World War II for government to spend and invest at a level that finally brought back full production and full employment. Annual deficits were as high as 28 percent of GDP, more than triple the current level. Once prosperity returned, however, the debt level came steadily down.
But Republicans have made it impossible for the government to increase spending to create jobs and investment, and deficit hawks of both parties would rather have government tighten belts.
If fiscal policy is inoperative, that leaves monetary policy. The Federal Reserve has abandoned its inflation phobia and is turning to the printing presses (the trendy euphemism for printing money is "Quantitative Easing.")
But most economists think that the Fed is about out of tricks. Very low interest rates have already triggered a risky speculative boom in commodity prices and a flight from the dollar. Zero interest rates don't stimulate the economy when banks invest the proceeds in Treasury bills because they are too traumatized to lend to business.
Faced with a Japan scenario of endless stagnation triggered by a wounded financial system, you might think this country would be having a serious, adult debate about what it will take to rekindle growth. A useful debate, for example, can be had about the relative benefits of tax cuts versus public investment (according to the bipartisan Congressional Budget Office, public investment wins, hands down.)
But instead, the microphones have been hogged by people who think that the road to prosperity is paved with austerity.
Deficit hawks dominate President Obama's fiscal commission, which is due to report by December 1. Even though Social Security will be in surplus for the next 27 years, austerity mongers want to slash benefits, on the theory that some kind of human sacrifice will restore business confidence.
And just in case the official fiscal commission is insufficiently hawkish, a privately funded commission will shortly issue its own austerity blueprint. The Pew-Peterson Commission on Budget Reform wants to reduce the public debt as a recovery strategy. But if we pull back on public spending while the economy is still deeply depressed, that only reduces economic output. Debt would actually loom larger because GDP would be smaller.
Happily, three of the think tanks that sponsored the conference that brought together Krugman and Feldstein have now unveiled a website, providing the evidence for a national strategy of growth rather than austerity. (Full disclosure: one of the sponsors is Demos, where I am a senior fellow. A second is the Economic Policy Institute, where I serve on the board.)
OurFiscalSecurity, as a counterweight to the power of the deficit hawks, is sorely needed. Pete Peterson is spending a billion dollars of his own money to promote the austerity view. EPI, Demos, and their third partner, the Century Foundation, don't have anything like those resources, but they have logic on their side.
If we want to get out of this recession, we need to put Americans back to work. There is no shortage of work to be done, building 21st century infrastructure which also makes the US economy more competitive. And if you don't like the idea of government taking the lead, consider that most of the funds that build modern water and sewer systems, high-speed rail, universal broadband, cycle right back into private business investment and private payroll jobs.
Nor does it make any sense to demonize Social Security. Incomes of the elderly have been hard hit by the financial collapse, the related bust of housing values, and the steady erosion of private pension plans. For a large majority of the elderly, Security is more than half their income. Cut Social Security and you further whack purchasing power. Social Security benefits have already been cut by the 1983 reforms that slowed indexation and raised the retirement age. In a deep recession, we should be debating how to expand Social Security, not how to cut it back.
In a fair debate, growth beats austerity. But the necessary recipe to get us back to prosperity will be doubly on the defensive after November. From one side, an enlarged Republican caucus in Congress will be going after public investments. From the other side, the bipartisan caucus of austerity-mongers will be promoting belt-tightening.
Sooner or later, the citizenry will come to its senses. And in the meantime, all we can do is rely on the power of argument, evidence and leadership.
Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His new book is A Presidency in Peril.
Government action has made recovery harder not easier. For about the same cost as the stimulus bill the government could have suspended payroll taxes for a year. That would have saved money for employers and given money to people that work. Since payroll taxes are capped at $100,000 that is where the savings would be and who would get the money. So you would decrease the cost of employment while increasing the money that people took home. It wasn't done because politicians don't get to take credit for things when they simply allow people to keep their own money.
Non-tax supported businesses, Industrious individuals, and Corporations are the only sources of REAL JOBS for US citizens that CREATE REAL NATIONAL WEALTH for the USA that can make a net increase of US national wealth. These non-tax supported jobs are also the only source of funds to contribute of part of that created wealth in the form of taxes to the government in order to pay ths salaries of taxpayer supported bureaucrats payrolls and other government expenses , except for funds raised by printing and selling US bonds that obligate our chindren to repay these bonds when they become due.
Taking tax collected from bureaucrat paychecks (a portion is being taxed and returned to the government coffers VIA taxes) is not a net contribution of taxes to the government, but a drain on the economy.
Millions of unemployed US citizens could be employed for a short term to build high speed rail, iunfrastructure, and other things if the USA had national wealth available to mortage in order to obtain US dollars from individuals in foreign industrial nations to spend for this endeavor
Uncle Ron
And if they disagree with you, you presume them to be irresponsible, correct? Thus the unanimity.
The other thing that is worth knowing is that America was already the economic titan of the world, surpassing Germany and Britain in terms of capacity. America today, however, is de-industrialized. Our factories are not on idle. They mostly don't exist. Our productive capacity and most of our jobs have been outsourced to where labor is cheap and government ruthless. The Republican platform can be reduced to establishing similar business friendly conditions here. The Democrats, on the other hand, live in a state of denial, as if printing money to hire people on the people's dollar, or on borrowed dollars, can solve this problem.
Obviously we need a humane alternative to both platforms. I don't know if this is good or bad news, but key to any possible fruitful reworking on the present mess is the realization is that without challenging basic assumptions about capitalism, it is inevitable that although the super rich will continue amassing capital and power for a while, in fairly short order the greed machine will seize up definitively because nowhere on earth will there be enough people with enough money to generate profits for the
===
Sure, but that was a different time. Back then, we were like the business operator who takes out a loan with a plan to grow the business and pay back the loan. Today, we're consumers who have been living beyond our means by using debt. To take out a huge loan just to continue our lifestyles would be fiscally irresponsible.
The market which i am very happy to report has been doing great.
I believe there will be a big correction once a reality sets in.
I do NOT believe the company earning they report today other them a few players such as apple , goggle and several others.
The reason i do not believe them is because if they are caught lying they NEVER will go to jail but what will happen is a NONE PROSECUTION AGREEMENT that will require a fine.
This instrument is now and has been used on massive fraud from banks and others.
No Jail just a fine for billion dollar frauds what a wonderful country.
Oligarchs love crony capitalism where they can privatize their profits and socialize their losses and then at the same time argue that we need them. The bond holders of Fanny & Freddie received premiums as if they were private companies even though they had no risk of loss, the bond holders knew the losses would be dumped on the people.. which is exactly what happened and is happening. Risk free premiums on a massive scale.
Allow the true competition of domestic currencies, let the people decide and we will be much closer to capitalism where savers are not penalized at the expense of the well connected crony capitalist... let them keep their dollar system with its deceptive taxation. The well connected get the near interest free fiat money first and can buy up commodities before the inflation hits the people and the rich get richer and the poor get poorer.
Now that is over. Now the capitalist class busies itself in the hard task of reducing their labor costs, first by moving their productivity to where labor is cheap, and now by beating down the laboring class here, meaning also disciplining what was called the middle-class, into submission. Submission means to agree to work harder and longer for less. Submission means a diminished future for our children. Submission mean the weak and the elderly left to their own devices.
But you can't tax non-existent income and someone without enough earning or borrowing power to buy I-Phones or whatever widgets won't. And so the owner class can beat us down as much as they want but, even as they have their way with us, they destroy the very markets for the goods, products, and services they absolutely depend on. Once the body is drained of blood, the vampire is out of luck.
In other words, they can't win - which doesn't mean the other class will win be default. That is what is in the balance, only that. The profiteers are doomed, but the rest of us have to act creatively, courageously, intelligently and collectively if there will be any good to come out of the inevitable collapse of free-market capitalism. Will we?
So the vampire is not yet out of luck - the vampire moves across the profit surface to find new blood. And can do that ceaselessly as long as there is a consuming class. We can of course, revolt, but its at that point that capital, US and global, goes fascist to protect its interests. It allies with the state against the worker. Dim scenario I know, but we have not even figured in the ecological catastrophe going on.
the federal deficit vs their socialized benefits & guess what they will pick?
Mike
It's not just the Republicans - are you not familiar with Obama's Cat Food Commission headed by his appointment and old, rich man named Simpson who totally wants to dismantle SS??? Oh yes, Obama IS NOT your friend and does not care about you or your granny.
They are selling the lie that SS can not be sustained - it is funded through 2030 and all they need to do is raise the cap to keep it in place.
All the top 1% with all the money and all the power want to do away with this one last safety net for the working class - why? because they want to divvy all the money up for themselves and not pay for those pesky small people...
Meanwhile everyone should know that Congress voted themselves a $9K pension pay increase per year for thsi year - the poor on SS didn't need an increase BUT THEY DID OF COURSE!!
I suggest Americans demand all the bloated pensions & benefits be stripped from these bast.@rds before one nickel of SS is taken away.
The policy of using government spending to revive the economy has been thoroughly disproved, theoretically and empirically. It didn't work in the 30's, didn't work in Japan in the 90's, and has failed spectacularly the past two years. That's because if the government is already running at a deficit, any additional spending crowds out private investment, because it must come from 1) increased taxes, 2) greater borrowing, or 3) printing more money. All of which are job killers.
Notwithstanding the author's claims, there is a well-established history of tax cuts having a greater effect on economic growth than government spending. Yes, I know, it hurts to "give rich people tax cuts". But taking money away from rich people to "create jobs" just doesn't work.
Try again.
The gov't is running at a deficit that's due, first and foremost, to the fact that the rich people got more rich during W. Bush's tenure. Tack on an illegal war, by the way. How much capital is private business sitting on right now and how many jobs are they creating? How many more times do we have to believe them when they say 'trust me... this time, I promise I'll create jobs. No, really, I will".
Horse-hockey, I'm afraid.
By the way, whatever happened to those "shovel ready jobs" that the author is apparently referring to in his waltz down memory lane? Infrastructure, railways. blah blah blah.
Oakland police union cadets are paid $65K to start.
I guess that the citizens could double their taxes every so often, or maybe the citizens should vote to disband the city government to eacape their union contract obligations to their city bureaucrats.
He really finds it "startling" that Martin Feldstein (former director of AIG) and Jan Hatzius (Goldman Sachs) support "massive government spending"? That's "startling"? Nice "think tank" conference, I guess this is his idea of bringing together "liberal intelligence".
It is interesting that he makes note of Feldstein being a former Reagan economist but decides to leave out that Feldstein recent job was director of AIG and was one of the ones with direct oversight of AIG's Financial Products division leading up to and through the crisis, how much was the government bailout of AIG (what was it $180 billion)? Who were the largest counter parties again that benefited from the massive tax payer bailout of AIG?
The "accident of World War II"?
"Growth beats Austerity". LOL, what a slogan. I can't really see his forecast that the "citizenry" will sooner or later "come to its senses" and all rally behind this slogan/ideology. I think it is very safe to say he can leave out the sooner in that prediction.
This is his strong argument for massive government spending and intervention?? This article is just a weak regurgitation at best.
Take the number of US citizens, divided into the trillions and see how much each person/family would have received. They would then spend the money, causing industry to pull forward and create more jobs and it would be as simple as starting the engine in your car! Now it's too late I guess.
I know this sounds foolish, but is it as foolish that what is happening now?
Incurred by the _previous_ administration.
Since there are a little more than 300 Million people in the U.S. according to the last census report, $1 Trillion dollars comes out to about $3,333.00 per citizen if we split the money among the citizenry... Since the average debt in the U.S. per household is $18.6K (not including mortgage debt), giving the money to the citizenry would have done nothing to save a rapidly collapsing economy...
http://moneycentral.msn.com/content/SavingandDebt/P70581.asp
Giving the money to the citizens who have already shwn remarkable immaturety by getting so far in dept, would have likely have slowed the bleeding by a couple of months but would not have stopped the crash of the housing market, auto industry, Wall Street corruption, and a meriad of other problems. The easy, yet not well thought solution is always to say give the money back to the people in tax cuts which would have allowed every industry to fail and then when every had spent their pittance $3,333.00 they would have had no job, no banks no government and the U.S would cease to exist as a country.
Before offering ridiculous suggestions.. how about stopping and think about the long term impact first.
No one thinks dividing wealth equally is a good idea, gotta give the job creators a reason to get out of bed and all that; but this economy is proof that excessive inequality of wealth isn't such a hot idea either.
I get the impression that fiscal conservatives only mean to cut governmnet spending as it applies to Main St Americans - like dismantling SS - Boehner cried "armageddon" at the idea of one nickle being spent to help the jobless - yet he remained silent and smug as they passed all the "unfunded" spending that raised his own pension and spent on the bogus war and other pork. And remeber Joe Barton of Texas - with a campaign pot filled with contributions from big oil - he apologized to BP that the government would even consider holding them liable for gulf clean up. Better to make the small guy Main St pay with increased taxes.
They will not for one moment stop spending on all the pork and special interest groups that give them fits full of bribes on a day to day basis.
percent greater than when Social Security INSURANCE,Medicare/Medicaid was implimented. Treating
Social Security as the Insurance it was intended to be, instead of an entitlement, can extend benefits
for those with modest retirement incomes or unexpected catastrophies, as originally intended.
A $20,000 Social Security benefit for a retiree with $100,000 retirement today, equals the
amount paid to approximately 2.5 retirees who never earned more than $10. an hour.
Cap all sources income eligibilty for benefits at $100K. Kiss the ground to retire at such a level &
the opportunities this nation provided us or those who left an inheritance allowing us those levels.
Who WANTS to use their health insurance, property/casualty insurance, life insurance? Social
Security is INSURANCE: against poverty in old age, minor children if you die, or you/family if
you are disabled and can't earn what you once did. Retirees including National & Local politicians
with 100K+ retirement income/pension plan/benefits, don't NEED a Social Security check, unless
catastrophe strikes. A small sacrifice showing 38 milllion voters earning less than $60,000, that
carving a path to change, is; by example. Electronic voting is on its way. Hopefully, an industry
not to be outsourced. When an encoded IP address allows your scanned vote from wherever you
are, the rules, by the click of 18-50 yr old voters will overwhelm change, faster than any leader
can imagine, tonight.