| For those of you who think we should refuse federal stimulus money or that there should have been no stimulus, I have two words: Great Depression, or possibly Greater Depression. Don't feel you should believe me, but do go read Deficits saved the world by Paul Krugman, a guy who won a Nobel Prize for economics. He begins with a quote from Jan Hatzius of Goldman Sachs: The private sector financial balance—defined as the difference between private saving and private investment, or equivalently between private income and private spending—has risen from -3.6% of GDP in the 2006Q3 to +5.6% in 2009Q1. This 8.2% of GDP adjustment is already by far the biggest in postwar history and is in fact bigger than the increase seen in the early 1930s.
That’s an interesting way to think about what has happened — and it also suggests a startling conclusion: namely, government deficits, mainly the result of automatic stabilizers rather than discretionary policy, are the only thing that has saved us from a second Great Depression.
It's a short piece, written so that even non-economists can follow along, and well worth the time to read. There's even a picture. The other economic piece I want to highlight is The American Choice: Break up and regulate companies or suffer another crisis, by Ian Welsh. Just the highlights: Too big to fail means to big to live. ... in order to work, capitalism requires that those who lose, lose. Fundamentally the last 9 years didn't happen, in economic terms. The banks, on aggregate, made no money. The economy, on aggregate, added no jobs (they've all been wiped out and by the end of this most of the gains of the 90's will be gone too.) When you screw up that badly, the discipline of markets requires that you lose everything. ... If you're big enough to set prices, you're too big to live, or at least to live free.
Yeah, if you're so big your failure will throw the economy into a Great Depression, you know someone will bail you out when push comes to shove. I'm going to suggest a new term today: Corporatist: Capitalist when the markets are good; socialist when the markets are bad. Or "I keep all the profits, the taxpayers eat all the losses." This is a bad situation. None of us like the government bailouts or enlarging the national debt (esp. not on the heels of the George W. Bush Memorial Spending Spree) but the alternative is even worse. So, the government is, and has been, spending to keep a bad situation from tipping over into meltdown. But we don't want to end up in this situation again. Let's fix it. Smarter regulation is the solution - No, scratch that. We've had smart people making regulations all along, too often those smart regulations have been tailored to benefit the very entities they are supposed to be regulating, with little regard for the public good. Smart regulation on behalf of the public good is the solution. |
