Monday, April 13, 2009

A modest proposal: ignore macroeconomists

Much as I like Paul Krugman for his post-‘Sixties punk affect and basically good liberal heart, I think the country would be better off if the President and Congress ignored everything he and every other liberal macroeconomist said about fixing the economy and followed one simple principle instead:

Take care of the American people.

Now, conservatives do not subscribe, generally, when it comes to welfare or helping common people.  Historically they have favored welfare for the rich, usually through tax breaks for the highly compensated or through wars that expend the cannon fodder of the lower classes and line the pockets of the sultans of the military-industrial complex.

What I’m arguing is that given the fact that the country has more debt than it will be able to pay off all the talk about deficit spending to close output gaps is nonsense.  The last time debt/GDP got this high we had a Depression.  I don’t see why it should be different this time.  We achieved a level of output that was unsustainable.  The output gap is relative to a fiction.

Also, it is a fundamental truth that domestic aggregate demand begins with consumption, which drives investment demand.  Of course, there’s also government spending, but we’ll come to that.

So if you want to stimulate aggregate demand, give money to people who will spend it, like the unemployed.  We have about 15 million people who fall into that category.  Provide them with health benefits, so the stress of their situation doesn’t show up in health care costs in the future.  I favor a poverty level dole and free health care for the unemployed and working poor. 

One thing that doesn’t stimulate aggregate demand is buying bad loans from banks at inflated prices and putting it on the taxpayers’ tab.  A lot of that debt needs to be written of, the sooner the better.

What about lending?  Lending is slow because the economy is in a depressed state.  Bank commercial and industrial lending declined after the last two recessions and can be expected to do so this time.  But there are healthy banks out there who are still lending, and many smart businesses know who they are.  Look at who’s increasing lending to find out who these banks are.

Don’t need any tax cuts, but could probably raise taxes on incomes in the top 1% substantially without cramping their style much.  And get rid of the obscene “hedge fund exemption.”

We’re looking at some very rough times ahead, a decade of crises as bad or worse than the current one.  We’ve got to get our objectives right before we spend any more money. 

Take care of the people and the economy will take care of itself, will even self-organize.  It’s a “middle way” not likely to win support from either party.

No more macroeconomist philosopher kings arguing about stimulus packages that will go through corrupt contracting processes, no more Wall Street robber barons.  But this approach would require the American people to have more control over their government than have now.

Gotta have a dream.

1 comment:

  1. A good proposal but unfortunately it will remain a dream until the people decide to do something about it.