Invest In America

Economic recovery, the primary subject of this posting has been analyzed in depth by numerous economists (I do not pretend to be an economist).  For a much better explanation than I am able to provide, one of the best books I have read is End This Depression NOW! by Nobel Laureate Paul Krugman[i].

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It seems to me…

The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelope our future.”  ~ John Maynard Keynes.

While the U.S. eventually will fully recover from the recent recession, measures are possible that would increase the recovery rate.  It isn’t that these measure are not well understood by economists, they were spelled out by John Maynard Keynes following the depression of 1929 and repeatedly shown to be the only viable policies for financial recovery following “a chronic condition of subnormal activity”[ii].  Subsequent research and analysis has confirmed Keynesian basic principles.  Conservatives attempting to maintain ideological and political consistency reject Keynesian economics and advocate alternate policies that never have been successful in the past but they continue to sing the same stale chant hoping this time for a different outcome – if something doesn’t work; don’t repeatedly continue trying it.  Too many people are affected by higher than necessary unemployment and slow economic growth; additional financial stimulus is necessary to revive the economy.

Now is not the time for austerity.  The public-sector must invest additional financial resources into the economy until the private-sector is once again ready to shoulder the burden of the economy[iii].  Instead, conservatives continue to demand ever more stringent austerity measures strangling economic recovery.  As Keynes noted, the time for austerity is during prosperity.

The budget deficit definitely is a cause for concern but it preferably should be reduced through GDP growth and low inflation.  The time for reduction of our national debt was when we had a budget surplus rather than squander that opportunity as under President Bush with ill-advised tax reductions (and two unfunded wars).

While the problems confronting the U.S. are different from those in much of Europe; Portugal, Ireland, Italy, Greece, Spain; austerity programs implemented there to restore financial confidence have instead resulted in additional deficits and increased unemployment.  The path they have taken has failed to lead to economic recovery.  Learn the lesson – now is not the time for austerity.

During a recession, long-term unemployment results from macroeconomic events and policy failures beyond individual control.  Extended unemployment, a condition in which numerous U.S. citizens now find themselves trapped, is more than just the lack of income – it is demoralizing, increases anxiety, and can lead to psychological depression[iv].  Regrettably, the U.S. social safety net is less supportive than that in any other advanced nation and can lead to a cascade of additional problems: job loss can result in a loss of health insurance and a breakdown in household finances – savings depletions, unpaid bills, loss of homes…  The long-term unemployed, regardless of skill or ability, frequently are considered unemployable.  Roughly 25 percent of recent college graduates are either unemployed or have not been able to find full-time employment; many of them are living with parents out of necessity[1].

Conservatives wrongfully are critical of the financial stimulus acts approved under President Bush in 2008 and President Obama in 2009 which prevented a 1929-style economic meltdown.  The primary reason we should be critical of those stimulus appropriations is that they were insufficient to affect an economy the size of the U.S’s.  Instead, we have an extended weak recovery unnecessarily penalizing a high percentage of people.  In addition to the impact on individuals, it is estimated that the U.S. economy lost at least $5-7 trillion that never will be recovered.

There are numerous additional effects of delaying the recovery longer than necessary.  Manufacturing capacity has declined about 5 percent since the beginning of the recession.  Conservatives blame low business investment in manufacturing capacity on future uncertainty when the actual cause is insufficient demand to fully utilize current capacity.  This failure to invest will limit future production capacity when demand is restored.

In addition to spending reductions at the federal level, state and local governments also have been forced to reduce spending.  Over 300,000 schoolteachers have been laid off.  Numerous infrastructure investments have been postponed or cancelled.  Delayed or reduced investments also impact long-term future growth and employment prospects shifting the economy to a permanently lower level[v].

Now is the time for an additional stimulus: the Presidential election is over.  The cost of borrowing minus inflation is less than the interest rate on that money.  As for the myth of excessive debt to foreign governments, China holds less than 8 percent of our national debt, the largest percentage of our national debt is owned by the Federal Reserve – it is money we owe to our selves.  It is time to put the recession behind us and get our nation moving again.

That’s what I think, what about you?

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[i] Krugman, Paul.  End This Depression Now!, W.W. Norton, New York, 2012.
[ii] Keynes, John Maynard.  The General Theory of Employment, Interest, and Money, 1936.
[iii] Kannan, Prakash, Alasdair Scott, and Marco E. Terrones.  From Recession to Recovery: How Soon and How Strong, International Monetary Fund, http://www.imf.org/external/np/seminars/eng/2012/fincrises/pdf/ch8.pdf.
[iv] See my previous comments regarding unemployment at Unemployment Reduction, https://lewbornmann.wordpress.com/2012/08/31/unemployment-reduction/, 31 Aug 2012.
[v] Ball, Laurence, Daniel Leigh, and Prakash Loungani.  Painful Medicine, Finance & Development, International Monetary Fund, http://www.imf.org/external/pubs/ft/fandd/2011/09/ball.htm, Vol. 48, No. 3, September 2011.  

About lewbornmann

Lewis J. Bornmann has his doctorate in Computer Science. He became a volunteer for the American Red Cross following his retirement from teaching Computer Science, Mathematics, and Information Systems, at Mesa State College in Grand Junction, CO. He previously was on the staff at the University of Wisconsin-Madison campus, Stanford University, and several other universities. Dr. Bornmann has provided emergency assistance in areas devastated by hurricanes, floods, and wildfires. He has responded to emergencies on local Disaster Action Teams (DAT), assisted with Services to Armed Forces (SAF), and taught Disaster Services classes and Health & Safety classes. He and his wife, Barb, are certified operators of the American Red Cross Emergency Communications Response Vehicle (ECRV), a self-contained unit capable of providing satellite-based communications and technology-related assistance at disaster sites. He served on the governing board of a large international professional organization (ACM), was chair of a committee overseeing several hundred worldwide volunteer chapters, helped organize large international conferences, served on numerous technical committees, and presented technical papers at numerous symposiums and conferences. He has numerous Who’s Who citations for his technical and professional contributions and many years of management experience with major corporations including General Electric, Boeing, and as an independent contractor. He was a principal contributor on numerous large technology-related development projects, including having written the Systems Concepts for NASA’s largest supercomputing system at the Ames Research Center in Silicon Valley. With over 40 years of experience in scientific and commercial computer systems management and development, he worked on a wide variety of computer-related systems from small single embedded microprocessor based applications to some of the largest distributed heterogeneous supercomputing systems ever planned.
This entry was posted in Austerity, Budget, Conservatives, Deficit, Deficit, Depression, Economic, Economy, Employment, Europe, Federal Reserve, Funding, GDP, Greece, Growth, Ireland, Italy, John Maynard Keynes, Keynes, Long-Term, Obama, Portugal, Private-Sector, Public-Sector, Recession, Recovery, Recovery, Spain, Stimulus and tagged , , , , , , , , , , , , , , . Bookmark the permalink.

9 Responses to Invest In America

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    • lewbornmann says:

      Thank you. Subscriptions are handled by the provider you are using to view the posting. E.g., if you are reading them on WordPress, there is a subscribe button on each page (at one time it was at the upper right but I know their format has changed). Google, Internet Explorer, and other search engines typically display the article in whatever original format was used to post it.

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  3. auntyuta says:

    “Now is not the time for austerity.” It makes complete sense to me that the public sector should invest to increase activity in times of too great a slowdown. Very important I think is that investments are made for things that are really needed and beneficial for the community long-term. These beneficial investments should pay off eventually even if government has to accumulate some debt to do them. There’s a bit of courage required here but also some prudence so the investments don’t go through the roof so to speak. The trick is to keep some kind of a balance, isn’t it? It is regrettable if the party who isn’t in government tries to rubbish every investment by the public sector. I am not speaking as an American but an Australian. But I think the problems in Australia are often similar.

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    • lewbornmann says:

      Yes, those aspects of party politics are endemic to all countries and reflect the desire to either retain or obtain access to power. In this, politics is not oriented toward the benefit of ordinary citizens but for those able to exploit access to and control of that system.

      Great Britain is an excellent example of inappropriate austerity (Greece, Italy, etc. are not as they do not have control of their own currency). Their economy has spiraled downward resulting in increased debt and negative growth. Even the U.S. could benefit from additional stimulus. The usual measure of monetary policy used for investment decisions is the real Federal fund rate which is the interest rate minus the inflation rate. The current U.S. real Federal fund rate is below zero meaning the government would essentially be paid to use someone else’s money (though in this case that money actually is our own).

      It is impossible for conservatives to see past their politically motivated ideology and accept what would be beneficial to our nation.

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