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].
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.
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?