In the course of researching yesterday’s column that explains why Tyler Cowen’s faux “hyper-meritocracy” endangers our world I read a number of articles discussing the Northwestern University study on the public policy views of the wealthy. One of those columns was published by UPI on February 24, 2013.
One of the central points that the scholars who conducted the study made was that the wealthy use their political clout to try to cause the American public to adopt the belief of the wealthy that reducing the federal budget deficit, in response to the Great Recession, was the most important problem facing America. In my column yesterday I noted that the scholars pointed out the logical incoherence of that position given the wealthy’s strong support for the policy view that the federal government should run budget deficits as a counter-cyclical fiscal policy to a recession.
By Michael Hudson
(Remarks by Prof. Michael Hudson at The Atlantic’s Economy Summit, Washington DC, Wednesday, March 13, 2013)
There are two quite different perspectives in the set of speeches at this conference. Many on our morning panels – Steve Keen, William Greider, and earlier Yves Smith and Robert Kuttner – have warned about the economy being strapped by debt. The debt we are talking about is private-sector debt. But most officials this afternoon focus on government debt and budget deficits as the problem – especially social spending such as Social Security, not bailouts to the banks and Federal Reserve credit to re-inflate prices for real estate, stocks and bonds.
FROM the latest cuts to the economic forecasts to the Italian elections to the gathering debate about how George Osborne should play this year’s Budget, all discussions about the financial system now lead swiftly back to the world’s sovereign debt problem. It towers over every effort to get back to prosperity, threatening to take decades at best before it can be resolved, very possibly with an almighty crash along the way.
But maybe that is because we are looking at a 21st-century problem in a 20th-century light. My research at University College London indicates that the answers might lie in modern versions of legal structures and instruments which pre-date the modern financial system and even the incorporating Union of England and Scotland in 1707. But before I explain this “back to the future” proposal for recovery, a warning: we’ll need to turn much of the received wisdom that underlies modern economics and politics upside down as we proceed.
The lamentable state of American political parties has become common sport amongst the chattering classes in DC and beyond. Although, one wonders whether this dysfunction has really been such a bad thing, when considering how united bipartisan “responsible” action always seems to result in yet more budget cuts.
By virtue of the fact that Congress and the Obama Administration couldn’t agree on much for the past few years, America’s deficits got large enough to put a floor on demand. The transfer payments via the automatic stabilisers worked to stabilise private sector incomes and allowed a general, albeit tepid, recovery in the economy.
L. Randall Wray recently presented at the Steinhardt Lecture at Lewis & Clark College in Oregon. The title of his presentation was: “Fiscal Cliffs, Debt Limits, and Unsustainable Deficits: Can the US Really Run Out of Dollars?”
The video and matching slide presentation are provided below. Media Roots created a transcript of the presentation. You can access it via this link. Continue reading →
In yesterday’s NY Times, Nobel winner Robert Solow tackled the US debt debate, proclaiming that while it is a serious issue, many Americans are not aware of the facts.
Solow is a “neoclassical synthesis” Keynesian, the type of Keynesian economics that used to be taught in the textbooks. He was also on the wrong side of the “Cambridge controversy,” as the main developer of neoclassical growth theory. Still, he’s often on the “right side” when it comes to macro policy questions. And at least part of what he says about the US national debt is on the right track. But he gets enough confused that it is worthwhile to correct the errors.
The CBO’s post-election report released a couple of days ago (apparently in support of advancing the prospects for a Grand Bargain, aka the Great Betrayal) is grounded in relatively pessimistic projections with regard to federal deficit and debt growth. (See this powerful critique of CBO’s methodology by Follette and Sheiner) In assessing just how much credibility these projections deserve to be accorded in our policy debate, it might also instructive to remember how wildly optimistic the CBO projections were not so very long ago with regard to complete elimination of the federal debt. Continue reading →