Still not getting it
by digby
Robert Kuttner has written a good piece in Huffington Post today about the European rebellion against Angela Merkel’s austerity program. But as he points out, it isn’t just them. We suffer from the same malady, even if it’s less intense:
Last fall, there was an interesting debate about whether the economies of the U.S. and Europe were in a period of what economists call “secular stagnation.” The term means that the economy gets stuck in an equilibrium well below its potential. Economists such as Larry Summers and Paul Krugman considered whether the post-collapse stagnation revealed perhaps that the economy had become dependent on consumer borrowing and bubbles, or whether technology and changing demographics might be implicated.
Similar worries were voiced in economists in the late 1930s, when the Great Crash was already a decade old yet the economy seemed stubbornly unable to reach its potential and unemployment remained very high. Then World War II intervened.
The government borrowed money at levels previously unthinkable. Government spending recapitalized U.S. industry, and put people back to work. “Secular stagnation” vanished overnight. Oh, and the government also leashed the private money market for the duration of the war and several years beyond — the Federal Reserve simply bought bonds in the quantity necessary to keep interest rates (and war finance costs) extremely low.
Ever since the great experiment of the Good War as an accidental recovery program, economists should understand that “secular stagnation” is never something that must be lived with. It is optional. Public investment and the leasing of private speculative finance are always available as a road not taken. But World War II as a public investment led recovery program is typically treated as an anomaly, not as an alternative path.
Neither in Europe nor in the U.S. are the political stars in alignment for the recovery led by social investment — that our economies on both sides of the Atlantic need. Barring a much more robust political revolt, stagnation and human suffering are likely to continue — and continue to be political gifts to the far right.
This is the tyranny of orthodox thinking and of governments still in thrall to the financial industry — fully six years after the collapse should have discredited such thinking. It is encouraging that there are some stirrings of dissent, but they need to imagine on a much grander scale.
It never fails to amaze me just how short sighted we are about this. There is a huge challenge ahead of us with climate change and our country’s physical infrastructure is falling apart. And yet we just can’t get it together to spend big on these projects and truly work our way out of this slump. It will probably take horrible, destructive war to do it. And that’s just sad.
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