It seems to me…
“But while they prate of economic laws, men and women are starving. We must lay hold of the fact that economic laws are not made by nature. They are made by human beings.” ~ Franklin D. Roosevelt.
I am not an economist and will not pretend to be. Still, there seems to be a considerable amount of what clearly seems like hogwash, to label it politely, being preached by budgetary conservatives. The U.S. is still recovering from the past recession but at a much slower rate than would have been possible entirely due to their ideological and politically motivated refusal to approve measures necessary to affect more rapid recovery.
Economics at a basic ECON-101 level seems rather uncomplicated: One person’s spending is another person’s income. Given a hypothetical constant amount of money in circulation, if someone decides to increase their savings rather than spending the same amount of money, that money is removed from circulation and someone else’s income must decrease by a corresponding amount. The same decrease in income occurs regardless of how the supply of money is decreased: unemployment, lower property values…
Current U.S. economic doldrums resulted from a liquidity trap. The Federal Reserve increased funds available to banks so as to lower interest rates and make borrowing more attractive. The intent was to increase the amount of money in circulation but in this case, due to low consumer spending and declines in home values, lowering the interest rate to essentially zero had no effect on the economy. Business investment remained low regardless of interest rate levels since expansion clearly was not warranted if it did not increasing sales, which has resulted in continued elevated unemployment levels. As a result of private debt-overhang, debtors have reduced their spending but creditors have not increased theirs – all of which has resulted in a decrease in the amount of money in overall circulation.
Some people who should know better argue that the federal government should adhere to the same rules that apply to everyone else; namely, that expenditures never should exceed income. This clearly is not reasonable at the Federal level (and probably not for some of the larger states) where priorities require fiscal averaging over a longer period than a single budget cycle. Our present economic difficulties are attributable not to excessive debt but rather to insufficient spending. Further reductions in spending will only result in additional economic depression. Austerity, as demanded by conservatives, is never an appropriate response during an economic downturn (as is clearly demonstrated by the application of that policy in Europe).
If an inadequate supply of money in circulation is the problem, the solution should be obvious. What finally brought an end to the depression of 1929 also is applicable for the current recession: public-sector infusion of currency in the form of a stimulus program sufficiently large to increase demand to where the private-sector is experiencing sufficient demand to once again begin investing in production capacity.
Hopefully, it will not require another war to persuade fiscal conservatives of the necessity to increase investments capable of high future returns; e.g., infrastructure, education, research, and development. Admittedly, there are important concerns that should not be minimized including the national debt, monetary policies, and program duration. Given the political will to act, these concerns can be resolved.
Though large, U.S. debt levels as a percentage of annual GDP are not excessive, our “net international investment position” (overseas assets minus liabilities), the amount owed to foreign countries (such as China) is only about $2.5 trillion – the U.S. produces about $15 trillion in goods and services every year[i].
It should be obvious that something has to be done. The Congressional Budget Office projects only a 2.4 percent annual growth in GDP through the year 2022 though any annual-growth less than 3 percent is considered insufficient to keep up with current levels of national wealth and well-being[ii]. What needs to be done is fairly obvious; what is needed is the political will to actually do it.
It is time to restore our nation to its leadership position in education, infrastructure, healthcare, and opportunity. Isn’t it time our elected representatives got down to the task to which they were elected – actually governing?
That’s what I think, what about you?
[i] Krugman, Paul. End This Depression Now!, W.W. Norton & Company, Inc,. New York, 2012, p44.
[ii] Foroohar, Rana. Why Stocks Are Dead, Time, 28 November 2012, pp40-44.