Unfortunately, business and the banks seem to be happy to sit on this money and not create jobs. And meanwhile, conservatives follow the deficit red herring to our undoing. When the economy is slumping, you do not practice austerity and try to reduce deficits; you do that when the economy is booming. According to Krugman, the stimulus package of early in the Great Recession was too small by at least a factor of 3.
Meanwhile, in recent news:
- the world's most famous Excel spreadsheet error invalidated the scholarly paper by Reinhart and Rogoff which (wrongly) concluded that growth suffered if a country's dept/GDP ratio exceeded 90%. With the data corrected, there is no correlation found. This paper was used world-wide to justify austerity policies.
- Most Austerian/Austrian economists have been predicting hyperinflation since 2008. But the Fed has tripled the amount of money in circulation, and inflation remains at 2% -- lower than Krugman thinks it should be.
- Latest figures show deficits shrinking faster than expected.
- Germany is talking about going from austerity to stimulus.
Krugman points out a possible reason that the business community wants austerity rather than than stimulus, from an essay by economist Michael Lakecki in 1943.
As long as there are no routes back to full employment except that of somehow restoring business confidence, he pointed out, business lobbies in effect have veto power over government actions: propose doing anything they dislike, such as raising taxes or enhancing workers' bargaining power, and they can issue dire warnings that this will reduce confidence and plunge the nation into depression. But let monetary and fiscal policy be deployed to fight unemployment, and suddenly business confidence becomes less necessary, and the need to cater to capitalists' concerns is much reduced.So it's about maintaining the power of business over public policy. And this is a great power. As Chomsky points out, no political party in the U.S. ever seriously opposes business. I mean, look at the Obama administration's "Too big to prosecute" attitude towards all the criminals in banking who apparently will never have to do any jail time, and will get to keep their $100Ms in bonuses. And, since everyone's 401-K's are so heavily invested in the stock market, we all want business to do well. But, as with their seemingly insatiable appetite for wealth, leaders of business seem to also have a healthy appetite for power. You've got to have power to make sure you can keep those channels of obscene wealth open, right? The money must flow!
Part of the reason that neo-Keynesians like Krugman get so much right is that Keynes got so much right.
The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes. -- John Maynard Keys, The General Theory of Employment, Interest and MoneyI think that this gets back to Economy of Plenty concepts. Business and the rich want to fight it because they like their current power. But is poverty anything other than political? To quote Matt Tiabbi, in this excellent article:
Here's a quick and easy rule: any time any politician, pundit, TV talking head or self-proclaimed financial expert starts comparing the U.S. federal budget to anything other than the U.S. federal budget, that person is automatically full of shit and should be instantly voted off the conversational island, if not outright beheaded.So when simpleton congressmen compare the US government and its debt to a family spending too much, or a corporation going bankrupt, they are dead wrong -- because the US government can print money, and the others can't. It is a fundamentally different animal, and simple-minded, wrong analogies definitely don't help anyone understand the problems or the possible solutions. And, possible solutions definitely include an Economy of Plenty
Finally, here's someone else trying to stop the stupid deficit tunnel vision that has greatly impeded the world's recovery: Robert Reich, Secretary of Labor under Clinton. Here's a post of his talking what the real problem facing us now is: jobs.