The New York Times columnist David Brooks wrote on May 8:
“We structuralists do not believe that the level of government spending is the main factor in determining how fast an economy grows. If that were true, then Greece, Britain and France would have the best economies on earth. (The so-called European austerity is partly mythical.) We believe that the creativity, skill and productivity of the work force matter most, and the openness of the system they inhabit. Running up huge deficits without fixing the underlying structure will not restore growth.”
Two days later, on May 10, David Brooks’ fellow-columnist, the Nobel laureate Paul Krugman wrote in The New York Times:
“…So what’s with the obsessive push to declare our problems ‘structural’? And, yes, I mean obsessive. Economists have been debating this issue for several years, and the structuralists won’t take no for an answer, no matter how much contrary evidence is presented.
“The answer, I’d suggest, lies in the way claims that our problems are deep and structural offer an excuse for not acting, for doing nothing to alleviate the plight of the unemployed.
“Of course, structuralists say they are not making excuses. They say that their real point is that we should focus not on quick fixes but on the long run – although it’s usually far from clear what, exactly, the long-run policy is supposed to be, other than the fact that it involves inflicting pain on workers and the poor.
“Anyway, John Maynard Keynes had these peoples’ number more than 80 years ago. ‘But this long run,’ he wrote, ‘is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the sea is flat again.’
“I would only add that inventing reasons not to do anything about current unemployment isn’t just cruel and wasteful, it’s bad long-run policy, too. For there is growing evidence that the corrosive effects of high unemployment will cast a shadow over the economy for many years to come. Every time some self-important politician or pundit starts going on about how deficits are a burden on the next generation, remember that the biggest problem facing young Americans today isn’t the future burden of debt – a burden, by the way, that premature spending cuts probably make worse, not better. It is, rather, the lack of jobs, which is preventing many graduates from getting started on their working lives.
“So all this talk about structural unemployment isn’t about facing up to our real problems; it’s about avoiding them, and taking the easy, useless way out. And it’s time for it to stop.”
I think I said this once before. Government spending should be focused on creating well paying jobs and economic activity that will generate more tax dollars than was the original stimulus spending. If a government is hell bend on getting wages down it will make a few people very rich, but in the end destroys the domestic economy. Governments are so focused on being globally competitive, but forget that 70% of GDP is domestic. In Brazil it is 90%.
I do not understand Keynes to have advocated unlimited or perpetual (deficit-causing) government stimulus, but rather to have suggested that temporary deficit spending was permissible, even desirable, to restart growth which would generate government revenue sufficient to eliminate deficits and, in due course, debt.
It appears that Greece’s problems are rather past the point where they can be solved by classic Keynesian stimulus. First, the supply of willing lenders to support further stimulus spending has pretty much dried up. Second, even if the Greek economy should miraculously recover, Greek taxpayers lack the will to pay, and the government the means to collect, the necessary levies to lower deficit/debt.
Europe collectively kicked this can down the road last summer, but it looks like it won’t work this time. There will be a great disruption, the ramifications of which are uncertain but not positive, possibly excepting the prospect of low-cost tourism to the Greek Islands.
The best answer I’ve seen to your title question is a piece by Robert Kuttner in today’s HuffPost:
http://www.huffingtonpost.com/robert-kuttner/fiscal-futility_b_1513573.html
Here are some highlights, with my >b>emphasis added: “On Tuesday, the Peter G. Peterson Foundation will hold its third annual fiscal summit. We need this event like we need a mass outbreak of sado-masochism… If you wonder why all right-thinking people seem to have concluded that austerity is the royal road to economic recovery from a severe financial collapse made on Wall Street, look no further than the Peterson Foundation….The Washington Post’s Lori Montgomery faithfully echoes Peterson’s line, as do one tedious column after another by the likes of Tom Friedman on the center-left and David Brooks on the center-right…. [A]t a time when Democrats and Republicans agree on nothing else, they bizarrely agree on belt-tightening in a recession…. [T]he fact remains that the very idea [t]hat we can specify budget cuts in a deflationary recession, and imagine that they will lead…to a predictable debt ratio, is economic fantasy. Why? Because the budget cuts themselves will reduce the economy’s overall purchasing power, leading to slower growth and reduced revenues — and larger deficits. (That’s the real analogy with Greece.) The reduced debt ratio thus is a mirage…. What you don’t get to say at a Peterson Foundation summit is that the whole premise is insane [or, in David Brooks' memorable phrase, “The whole thing has gone kablooey”]; that we need to target growth and jobs first, with larger deficits as necessary, and that deficit reduction will eventually follow as the economy recovers….America today is contending with not one but two brands of know-nothing conservatism. We have the populist right in the form of the Tea Parties, and we have the Wall Street right parading as sensible centrists who want the economy to deflate its way to recovery. The former, at least, denies science, promotes gun-toting, savages gays, and craves theocracy. It wears its extremism on its sleeve. The Peterson right, if anything, is far more insidious because it masquerades as a disinterested, statesmen-like solution to partisan deadlock and economic crisis.”
Underlying the Kuttner view is the seemingly untouchable thesis that we (or the Greeks, or the Americans) can get to a desirable place by economic growth. If we accept the attraction of growth as incontrovertible, then the present debate is at least logical, and sometimes even rational.
But growth is not the panacea it used to be. Paul Gilding demonstrates this persuasively in “The Great Disruption” a title too apt not to crib as I did above.
The sooner we accept that it’s over for growth as the classic economic engine, the better.
I’ve way out of my depth here, but foolish enough to speak up anyway. The limits to growth have been in the public eye at least since the 1972 book commissioned by the Club of Rome. It’s no longer true (if it ever was) that aiming for ever-increasing growth is the best way to ensure the well-being of the planet and its inhabitants, including humans. Growth per se is cancer. What is missing, and sorely needed, is some other economic engine which does the job better. I have no idea what that might be. In the meanwhile, Kuttner makes more sense to me as a prescription for the here-and-now than austerity and deficit-cutting at all cost. Notice that his first target is “growth and jobs“– which I take to mean growth “with a human face”. A “jobless recovery” is no recovery at all, and if that’s what happens in the US, Obama will likely lose in November and then all bets are off.
It seems to me that Krugman is saying that we need what might be termed “a sharing society”. We’ve had LBJ’s Great Society and Pierre Trudeau’s Just Society so why not such another sloganized policy goal. Of course “The Sharing Society” would never serve politically because it very definitely implies a higher level of taxation for everyone – not just the rich. And it is not just the Greek taxpayer who “lacks the will” to pay. Ever since Bush the elder intoned “read my lips” “no new taxes”, North Americans have been obsessed with taxes. Yet in Canada many decades ago we embraced the principle of a “sharing society” with the Rowell-Sirois report and the introduction of transfer payments to bring regions of the country into rough equality of services delivered by provincial governments. That principle is now being eroded, but it is worth remembering as a symbol of an aspiration to national community. In the U.S. the story has been different. Their unifying symbols, the flag and the military still command bipartisan allegiance as little else does. But, as Mark Shields pointed out in his most recent conversation with David Brooks on PBS, even Ronald Reagan raised taxes to pay for military expansion. Very few on any side of the current discussion would advocate increasing national debts, but new employment initiatives (e.g.. large programs to repair or replace crumbling elements of our basic infrastructures) will require huge expenditures of public money i.e. increased taxes. Until the majority of our American or Canadian citizenries vote for politicians who are willing to bite that bullet there is really no relief from austerity and its attendant paring down of the health and social programs which stand for as much of the sharing society we have been willing so far to put in place.
It seems to me that Krugman is saying that we need what might be trmeed a sharing society . We’ve had LBJ’s Great Society and Pierre Trudeau’s Just Society so why not such another sloganized policy goal. Of course The Sharing Society would never serve politically because it very definitely implies a higher level of taxation for everyone not just the rich. And it is not just the Greek taxpayer who lacks the will to pay. Ever since Bush the elder intoned read my lips no new taxes , North Americans have been obsessed with taxes. Yet in Canada many decades ago we embraced the principle of a sharing society with the Rowell-Sirois report and the introduction of transfer payments to bring regions of the country into rough equality of services delivered by provincial governments. That principle is now being eroded, but it is worth remembering as a symbol of an aspiration to national community. In the U.S. the story has been different. Their unifying symbols, the flag and the military still command bipartisan allegiance as little else does. But, as Mark Shields pointed out in his most recent conversation with David Brooks on PBS, even Ronald Reagan raised taxes to pay for military expansion. Very few on any side of the current discussion would advocate increasing national debts, but new employment initiatives (e.g.. large programs to repair or replace crumbling elements of our basic infrastructures) will require huge expenditures of public money i.e. increased taxes. Until the majority of our American or Canadian citizenries vote for politicians who are willing to bite that bullet there is really no relief from austerity and its attendant paring down of the health and social programs which stand for as much of the sharing society we have been willing so far to put in place.