Economic discussion in the US is appallingly primitive. Boehner says that the federal debt "is the real jobs killer". This is taken seriously, and he continues to be invited to talk shows to spread his economic wisdom. No one is there to say that he is lying.
What does a debt crisis really look like? It looks like Greece, which is on the verge of exiting the Euro and defaulting on its Euro debts [Ed.- This may have happened already by publication]. Greece does not print its Euros, but has to borrow (or beg) Euros to cover its deficits.
It is in the same position as a Lehman or other company that borrows the state currency of issue from private lenders, who only buy the debt on free market terms- i.e. dependent on the perceived risk of default and insolvency. Last I heard, Greece was facing interest rates of 25%- truly astronomical and already a functional form of default. Recently, the central Euro bank extended Greece several extra emergency loans, but this was just putting off the inevitable, since the fundamental rules were not changed.
How do we look in comparison? The US government has unlimited dollars, so we are never subject to insolvency risk (with the exception of political or policy idiocy, where our leaders decide to withold dollars and lead us over a cliff). We face the different risk of inflation, if more dollars are printed than the economic system can handle. We definitely faced inflation through the seventies, after a binge of social and military spending in the preceding decade. But now? Now we are facing deflation, and all the work of the Fed to raise the "money supply" has lain idle as unlent bank reserves, awaiting a revival of animal spirits.
So inflation is telling us that the US federal deficit is not a problem at all, let alone a jobs killer. Indeed, the surest way to create more jobs is to fund them directly by government spending (with or without higher debt), killing two birds with one stone- raising employment, and also raising the perceived inflation target that will discourage passive investments, encourage active investments, and shrink fixed debt burdens.
The Republican economic rhetoric has become ever more confident and shrill as its snow job on the American public has gained traction. Surely its CEO supporters think that high taxes are hurting them, that government regulation is hurting them, and that labor unionization is hurting them. But that is not why they are not hiring. They are not hiring for lack of business. Macroeconomics should never be left in the hands of businessmen- that only leads to depression.
The point of public policy is not the care and feeding of the plutocracy, but the care of the general public interest, especially that of the lower and middle classes, which have been so abused over the last decades.
To put our current unemployment situation into perspective, the Apollo space program employed about 400,000 people at its height. Now, with unemployment plus the rate of discouraged workers standing at about 16%, and a civilian labor force of about 154 million, this works out to 62 Apollo programs. Granted, not everyone who is unemployed is a rocket scientist. But truly mind-blowing amounts of talent and energy are lying wasted, a casualty of free markets that don't work, ideology based on lies, and a general failure of political and intellectual will. We are choosing decline in the US, not suffering it.
- Example of pure shilling.
- Long term decline is setting in.
- Skidelsky on indebtedness and Hayek.
- Egregious waste in the oil fields, and how to end it.
- Economics quote of the week Marriner Eccles, Chair of the Federal Reserve, 1933, via Bill Mitchell:
"We have a complete economic plant able to supply a superabundance of not only all of the necessities of our people, but the comforts and luxuries as well. Our problem, then, becomes one purely of distribution. This can only be brought about by providing purchasing power sufficiently adequate to enable the people to obtain the consumption goods which we, as a nation, are able to produce."
4 comments:
I agree, of course! Well put. People who mean well, but do not understand the vital differences between micro and macro thinking (and have political agendas, of course) are leading us into willful waste of our potential.
However, I was curious to see your quick description of inflation in the 70's as the result of war/social spending in the late 60's/early 70's. I have always thought of the money supply rising in the 70's because of the shrinking oil supply. Basically, sudden inflation ( a supply side shock courtesy of OPEC and the oil embargo of '73-'74)) led to a rise in the money supply, rather than the other way around. Central bankers slashed rates, trying to stimulate growth, despite an inability to create more oil, and inflation spread instead of growth.
I will have to research it further.
Hi, Steven-
I have been out of town.. will get to your other comment eventually as well. I flew over your state, I think!
I have to say that I don't claim to have a solid grasp of the 70's inflation episode yet. So I need to do some more work as well.
One issue is that inflation was rising in the late 60's before oil ever became an issue. Not very high, but problems were brewing and were widely recognized. It can take a long time for monetary inflation to translate into price inflation, since there is a lot of inertia in how prices and wages are set. Once everyone expects ongoing inflation, the same thing.. it takes a lot of effort to wring those expectations out of the system.
Here is a sample paper on the topic, arguing against oil effects.
I agree that in the later 70's oil had a large, even dominant effect, adding to the underlying imbalance. I just don't know what the relative contributions were. Your scenario is highly plausible, though one would think that in the face of recession, lending would be low rather than high, despite the low rates.
This has no relevance to your post, Burk, but I wondered if you saw that Bjork stole your name...
That's pretty funny! Some serious meme convergence going on. Some people called me Bork when I was young .. does that count?
If only I could have some of that hair... But what is the geode doing there? And moon, solstice, thunderbolt? ... I am afraid the theme is getting a bit dispersed. But mine is too, to be honest.
Thanks for the link!
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