Changes in the structure of the economy have led to a significant shift in the natural balance between savings and investment, causing a decline in the equilibrium or normal real rate of interest that is associated with full employment. In this situation, a temporary increase in fiscal stimulus reduces, rather than increases, the long-run debt-to-GDP ratio.Anything that stimulates demand will operate in a positive direction. Austerity is counterproductive unless it generates so much confidence that it is a net increaser of demand.
President Obama has said that he intends to use his presidential power to do what he can to improve the economy and lay the groundwork for future change. While there are limits as to what Obama can based on executive authority alone, there are many areas where he can have an impact. He already identified one area in his State of the Union Address, when he announced that new federal contracts would require that workers be paid a higher minimum wage. This sort of action can be carried much further. Of course, negotiations mean that we are prepared to give up something. That seems like a small price to pay for the millions of jobs that could be created.
The discretionary civilian budget -- the part that looks after your and your children's future other than social security, health, and emergency support -- is disappearing. What about America's future scientific and technological leadership? What about America's role in fighting climate change and promoting clean energy through new R&D? Forget about it.
If we were to measure the real wealth of our society -- our health and well-being, the health of the natural world, our level of education, etc. -- we would see that inequality itself is reducing our nation's well being, and the power of big corporations is allowing the degradation of our communities and environment.