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Economics, politics

See this NY Times article about the effects zero-interest borrowing is actually having on the US economy.

Posted via m.livejournal.com.


Yes, I would do exactly what most of these corporations are doing.

But it's sorta disingenuous (a nice word for "bald-faced lying") to keep arguing for business tax cuts and investor tax cuts to spur the economy and create jobs, when what those people are actually doing with the money doesn't actually create any jobs.

Eventually the economy will recover, and businesses will want to invest and grow again. When that day comes, they'll have boatloads of cash to throw at it, so there will be a sudden explosion of investment, and somebody will make a lot of money in a hurry. There will also be a sudden surge of inflation. Can you say "speculative bubble"? I thought you could....

There are other things to do, economically if not politically. Hire a lot of people this year to do things that need doing anyway, like rebuilding infrastructure and teaching kids. That drops the unemployment rate immediately, puts dollars directly into the consumer economy (as opposed to the bank accounts of large corporations), persuades businesses that it's worth expanding and hiring (so you can end the jobs program as businesses pick up the slack), and incidentally makes some good long-term investments in the economy. Call it the "surge strategy for the economy".
You are preaching to the choir.

Well, this is LiveJournal....

directly stimulate demand at the lower level, but which we could reverse safely when the economy demands it.

The first part is easy: increase entitlement programs, as well as increasing support for families. But that quickly becomes a financial dependency that cannot be reversed.

"Entitlement programs" translates as "give money away to poor people," just as "tax cuts" translates as "give money away to rich people." I wasn't actually suggesting either of those, but rather hiring people: you get the same amount of money into circulation, but you get work done in exchange for it, and it has less of a dependency moral hazard.

The Iraq "surge" strategy really is a good analogy. The idea was to pour even more troops and money in, temporarily, to give the Iraqi government a little more time to build a functioning justice system, a functioning police system, a functioning military, etc., and then gradually pull the troops and money back out as the Iraqi government takes over. A lot of people (including me) were skeptical about it, but it seems to be working moderately well (in a part of the world where "working moderately well" is something of a triumph).

Similarly, one might reasonably argue for a bunch of government hiring, right now, to build the consumer economy and demand, and then gradually reduce this government hiring as the private sector takes over.

This faces political problems, of course: some Republicans will point out (rightly) that it's very difficult to shut down a government spending program once it's started. So it would need to have a scheduled taper-to-sunset written into the original bill.

The other problem, of course, is that the Republicans won't let anything pass with Obama's signature on it before the next election, especially if there's a chance that it might work.
what would you have these folks DO for their work?

There's plenty of construction to be done -- roads, bridges, mass transit, high-speed railways, fuel-efficient housing and school buildings.... And you could hire a bunch of public librarians and K-12 teachers (or, more likely, give the states a pile of money earmarked for hiring public librarians and K-12 teachers, whom they are currently laying off).

These are all "public goods" from which everybody benefits, but no one person benefits enough to pay for them.

If a private company derives most of the benefit from a particular project, and that company has money, that project will probably be done without government involvement. But if the benefit of a project is inherently broadly distributed, the "tragedy of the commons" tells us it won't happen without public funding.
I don't know that a WPA-like program would be a better way to do that, then for the US Government to just purchase new highways, new alternative fuel vehicles, and so forth.

Sure, in some cases you can just announce a government purchasing program, somebody will bid on it and will have to hire in order to fill the order. I have no problem with contracting some of this stuff out; I don't really care whether people get their paychecks from the government or from a company hired by the government, as long as they get paychecks for doing something useful.

Because They Are Fixing The Wrong Problem

If you conceive of the problem as a shortage of money, then it makes sense to lower the interest rate to zero. But you cannot stimulate demand through thesupply side, even by giving money away.