Over $3 *TRILLION* in assets and spending disappeared from the economy last year. Clearly the Obama stimulus, at only $800B, was woefully insufficient. So what's the argument against more stimulus? The argument appears to be, "we can't keep doing this forever!"
But we don't need to do it forever. We need to do it until we create enough jobs building bridges and roads and highways to jumpstart the rest of the economy as those people go out and spend the money they're getting building bridges and roads and highways. As long as a) people are willing to buy U.S. government bonds (right now they're rushing to buy at effective 0% interest rates, so clearly we're nowhere near exhausting the demand for U.S. bonds), and b) people are willing to accept freshly-printed U.S. dollars in exchange for their goods (and since dollars are the default currency of oil clearly that will take a while), the U.S. government can effectively run unlimited deficits. I agree there is a limit at some point in the future, but given that over $3 TRILLION disappeared out of the economy as a result of the collapse of the real estate bubble, we know that the USG can print at LEAST $3T before people start looking askance at the dollars they're getting in exchange for their goods... ah yes, the printing press, that thing which the right wing appears to be unacquainted with!
One thing I *do* say is that right now would be a *very* good time for at least a one-time tax on the wealthy to fund the stimulus. Right now the wealthy are basically stashing their wealth under mattresses rather than use it to buy goods and services, thereby failing to employ people since they're not buying or investing in productive enterprises. I.e., they're buying those U.S. bonds at effectively 0% interest rather than using the money in ways that would create employment. The problem is that we have to re-pay those bonds at some point in the future. Taxing the wealthy right now would basically not change the current money flows -- the money would still be moving from the wealthy to the U.S. government just as it is today -- but would solve the future money flows problem where at some point in the future the USG is going to have to drastically hike interest rates in order to "roll over" the bonds currently being sold. That drastic hike in interest rates would hit just as inflation from printing all that money hit. Can anybody say "stagflation"? Yeah, I knew you could!
-- Badtux the Economics Penguin
The wealthy became enormously wealthier during the Bush II years - merely accelerating what had been going on since the Reagan years.
ReplyDeleteIt's going to take more than a one time tax to bring things back into some sort of a balance.
We need the tax plan that was in effect during the socialist Eisenhower presidency.
Cheers!
JzB the yeah we might as well eat the rich trombonist
As I remember that tax rate was 90% plus.
ReplyDeleteWonder how many Rethugs look back at Eisenhower as a good Republican.
Just sayin'.
S
I don't have to pay for a damn thing, I'm under the radar of it all.
ReplyDeleteEverything is free and clear and even if I lose my SS money I'll still get along okay because I know how to get by on little.
I won't be able to afford to be on the internut unless I can find free access but big deal, I'm never on it when camping anyway.
As for the wealthy, screw them, and the wanna be wealthy.
Don't get to thinking that you understand politics, no one does.
I wouldn't be so upbeat about the strength of the dollar and the government's ability to sell bonds. Didn't we go through this before? We thought that real estate and it's derivatives would last forever. There was no end to credit you could get from real estate. But the day of reckoning came. And it same swiftly. Bubbles have a way of popping when you least expect, and the same will be true of the dollar.
ReplyDeleteThat said, why would you want to return that 3 trillion in liquidity to a society that was living too high on the hog in the first place? That 3 trillion disappeared for a darn good reason: it wasn't real value. When people are taking out 2nd mortgages to go on expensive vacations, you know the liquidity is unjustified.
I'm of the camp that says the TARP program was necessary, but after that, we've just been delaying the day when people can be confident that the real "bottom" has been reached. As long as people believe that the economy is only improving because of temporary stimulus programs, they won't make the necessary changes for a real turn around. You know, like a junkie addicted heroin who delays the day of true recovery.
Nathan, the government possesses that wondrous invention, the PRINTING PRESS, and can actually PRINT money if needbe.
ReplyDeleteRegarding your notion "we're better off without that $3T", I've already pointed out that deflation means wages fall, which means you can't pay your debts, which causes banks to fail, which causes deflation, which causes wages to fall further, wash, rinse, repeat. Deflation is *BAD*. We have plenty of data about the effects of deflation, plenty of models that fit the data about the effects of deflation, and all of them say that deflation, if allowed to continue its spiral downwards, is the end of capitalism. Given that capitalism is the *only* economic system proven to be able to produce goods with complex intermediaries (such as these computers that you and I are using), that's something to avoid, because without capitalism we all live much poorer and misery-filled lives.
- Badtux the Economics Penguin