[Peace-discuss] The money was there all along

[C. G. Estabrook]

	The New York Times
	October 17, 2008
	Op-Ed Columnist
	Let’s Get Fiscal
	By PAUL KRUGMAN

The Dow is surging! No, it’s plunging! No, it’s surging! No, it’s ...

Nevermind. While the manic-depressive stock market is dominating the headlines, 
the more important story is the grim news coming in about the real economy. It’s 
now clear that rescuing the banks is just the beginning: the nonfinancial 
economy is also in desperate need of help.

And to provide that help, we’re going to have to put some prejudices aside. It’s 
politically fashionable to rant against government spending and demand fiscal 
responsibility. But right now, increased government spending is just what the 
doctor ordered, and concerns about the budget deficit should be put on hold.

Before I get there, let’s talk about the economic situation.

Just this week, we learned that retail sales have fallen off a cliff, and so has 
industrial production. Unemployment claims are at steep-recession levels, and 
the Philadelphia Fed’s manufacturing index is falling at the fastest pace in 
almost 20 years. All signs point to an economic slump that will be nasty, 
brutish — and long.

How nasty? The unemployment rate is already above 6 percent (and broader 
measures of underemployment are in double digits). It’s now virtually certain 
that the unemployment rate will go above 7 percent, and quite possibly above 8 
percent, making this the worst recession in a quarter-century.

And how long? It could be very long indeed.

Think about what happened in the last recession, which followed the bursting of 
the late-1990s technology bubble. On the surface, the policy response to that 
recession looks like a success story. Although there were widespread fears that 
the United States would experience a Japanese-style “lost decade,” that didn’t 
happen: the Federal Reserve was able to engineer a recovery from that recession 
by cutting interest rates.

But the truth is that we were looking Japanese for quite a while: the Fed had a 
hard time getting traction. Despite repeated interest rate cuts, which 
eventually brought the federal funds rate down to just 1 percent, the 
unemployment rate just kept on rising; it was more than two years before the job 
picture started to improve. And when a convincing recovery finally did come, it 
was only because Alan Greenspan had managed to replace the technology bubble 
with a housing bubble.

Now the housing bubble has burst in turn, leaving the financial landscape strewn 
with wreckage. Even if the ongoing efforts to rescue the banking system and 
unfreeze the credit markets work — and while it’s early days yet, the initial 
results have been disappointing — it’s hard to see housing making a comeback any 
time soon. And if there’s another bubble waiting to happen, it’s not obvious. So 
the Fed will find it even harder to get traction this time.

In other words, there’s not much Ben Bernanke can do for the economy. He can and 
should cut interest rates even more — but nobody expects this to do more than 
provide a slight economic boost.

On the other hand, there’s a lot the federal government can do for the economy. 
It can provide extended benefits to the unemployed, which will both help 
distressed families cope and put money in the hands of people likely to spend 
it. It can provide emergency aid to state and local governments, so that they 
aren’t forced into steep spending cuts that both degrade public services and 
destroy jobs. It can buy up mortgages (but not at face value, as John McCain has 
proposed) and restructure the terms to help families stay in their homes.

And this is also a good time to engage in some serious infrastructure spending, 
which the country badly needs in any case. The usual argument against public 
works as economic stimulus is that they take too long: by the time you get 
around to repairing that bridge and upgrading that rail line, the slump is over 
and the stimulus isn’t needed. Well, that argument has no force now, since the 
chances that this slump will be over anytime soon are virtually nil. So let’s 
get those projects rolling.

Will the next administration do what’s needed to deal with the economic slump? 
Not if Mr. McCain pulls off an upset. What we need right now is more government 
spending — but when Mr. McCain was asked in one of the debates how he would deal 
with the economic crisis, he answered: “Well, the first thing we have to do is 
get spending under control.”

If Barack Obama becomes president, he won’t have the same knee-jerk opposition 
to spending. But he will face a chorus of inside-the-Beltway types telling him 
that he has to be responsible, that the big deficits the government will run 
next year if it does the right thing are unacceptable.

He should ignore that chorus. The responsible thing, right now, is to give the 
economy the help it needs. Now is not the time to worry about the deficit.


John W. jbw292002 at gmail.com wrote:

The only flaw in Chris Floyd's argument is a lethal one.  With our ongoing
trade deficit, we'd have to BORROW the money for better schools,
infrastructure, health care, etc., just as we've had to BORROW it for the
war in Iraq and for the Wall Street sellout...errr, bailout.  We'd have to
live even further beyond our means, and leave it to our children and
grandchildren to pay it back somehow.

Chris Floyd seems to think this was money that was just lying around.  He
sounds for all the world like Tim Johnson the time I got into an argument
with him at Steak and Shake.  "We can do it ALL!" Tim shouted.  "I've seen
the figures and I KNOW!"

John Wason

On Wed, Oct 15, 2008 at 9:12 PM, C. G. Estabrook <galliher at uiuc.edu> wrote:

[From the excellent Chris Floyd, a text that might make up one side of a
 > Main Event flyer.  --CGE]
 >
 > *The money was there all along.*
 > [...]
 >
 > <http://www.counterpunch.org/floyd10132008.html>