Posted by: Donna
Paul Krugman has been even more excellent than usual lately at debunking the Beltway conventional economic wisdom. Here he is breaking it down in the New York Review of Books:
The truth is that recovery would be almost ridiculously easy to achieve: all we need is to reverse the austerity policies of the past couple of years and temporarily boost spending. Never mind all the talk of how we have a long-run problem that can’t have a short-run solution—this may sound sophisticated, but it isn’t. With a boost in spending, we could be back to more or less full employment faster than anyone imagines.
But don’t we have to worry about long-run budget deficits? Keynes wrote that “the boom, not the slump, is the time for austerity.” Now, as I argue in my forthcoming book*—and show later in the data discussed in this article—is the time for the government to spend more until the private sector is ready to carry the economy forward again. At that point, the US would be in a far better position to deal with deficits, entitlements, and the costs of financing them.
Meanwhile, the strong measures that would all go a long way toward lifting us out of this depression should include, among other policies, increased federal aid to state and local governments, which would restore the jobs of many public employees; a more aggressive approach by the Federal Reserve to quantitative easing (that is, purchasing bonds in an attempt to reduce long-term interest rates); and less timid efforts by the Obama administration to reduce homeowner debt.
But some readers will wonder, isn’t a recovery program along the lines I’ve described just out of the question as a political matter? And isn’t advocating such a program a waste of time? My answers to these two questions are: not necessarily, and definitely not. The chances of a real turn in policy, away from the austerity mania of the last few years and toward a renewed focus on job creation, are much better than conventional wisdom would have you believe. And recent experience also teaches us a crucial political lesson: it’s much better to stand up for what you believe, to make the case for what really should be done, than to try to seem moderate and reasonable by essentially accepting your opponents’ arguments. Compromise, if you must, on the policy—but never on the truth.
The rest of the article is as awesome as that snip so be sure to read it all. But I’m a little more skeptical than Krugman is about there being the political will anytime soon to do the obvious and sensible thing to fix the economy – increase government spending to create jobs. The current deficit mania isn’t about the deficit at all – remember that most of the people squawking the loudest about it now were happily pushing the tax cuts, bloated “national security” budgets, and the Medicare Part D gift to the pharmaceutical industry that transformed Clinton’s surplus into Bush’s deficit. Notice how the Ryan budget that all the Very Serious People are creaming over holds rich people and defense spending harmless. They’re also eager to “reform” so-called “entitlements”, especially Social Security, which has nothing to do with the deficit but is a giant pile of money that a cabal of stupefyingly rich greedbags want to get their hands on. Then you have to consider that right wingers and greedbags alike share a deep and abiding love for economic inequality. Which is really why they love austerity so, which includes low wages for the vast majority of the workforce. But they can’t up and admit that as it would be what we tend to call “widely disliked”. Unfortunately for all us reality-based people, many successful politicians are dependent upon greedbags for contributions and practically all of the successful pundits dispensing conventional wisdom are wholly owned by them.
One overfed greedbag getting a lot of attention lately is Mitt Romney’s top economic adviser and former Bain Capital partner, Ed Conard, who has a new book out called Suck It, Paupers, or something like that. Economist Dean Baker skewered Conard’s oeuvre in a recent blog post:
But the real meat of Conard’s piece is the glorification of those who have gotten incredibly rich, like him. Conard’s celebration of the rich and his airbrushing of what they did to get there is sufficiently out of touch with reality to be scary.
Did Conard really miss the story of Fabrice Tourre (a.k.a. “Fabulous Fab”) the Goldman Sachs mortgage trader who put together collaterized debt obligations that were designed to fail and then hawked them off on unsuspecting clients? Does he not know about the flash traders who make fortunes by designing sophisticated programs that allow them to front-run major trades? (This means that they can detect major trades and jump in ahead, thereby capturing some of the profit.) How about the clever character who invented “dead peasant” insurance policies? These are insurance policies that corporations buy on their line workers, usually without their knowledge, making the company the beneficiary. The purpose is to allow the company to time its earnings and minimize its tax obligations.
The financial sector is chock full of people who have made great fortunes on gimmicks that have no obvious social value but allow their inventors to gain at the expense of others. And, the financial sector is not the only place where the big money often comes from economic rents rather than genuine innovations.
Does anyone who has ever used a Microsoft product think that Bill Gates became the world’s richest person because of the quality of the software he produces? Microsoft gained its preeminence because of Bill Gates’ sharp elbows. Clearly Gates is a highly motivated and intelligent person, but society did not benefit from his success at propelling his inferior software to market dominance.
How much has the pharmaceutical industry profited from using its political power to get Congress to give it ever longer and stronger patent monopolies? We now spend almost $300 billion a year on prescription drugs that would cost us around $30 billion in a free market. The $270 billion a year difference is about five times the size of the Bush tax cuts to wealthy.
So we’re talking about people who not only wrecked the global economy and want to starve grandmas so they can wreck it some more and because they get their jollies from starving grandmas, but they want to be admired for it. Yeah, we should definitely listen to them about the deficit.
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