"Depression Economics," Recovery and Socialist Transition

[IndianaGreen]

JOHN CASE: “Depression economics” is a term that Krugman came up with over a decade ago. His main point is that monetary policy, once you get into a depression, becomes ineffective, and the only possible way to manage the economy or influence its direction once interest rates have reached zero – which, coincidentally, they are pretty close to right now – is by means of very aggressive financial intervention by the federal government, not just in terms of liquidity, but by employing people directly or indirectly so they have the power to purchase things. This is the only way, according to depression economics, that you can effect a recovery in the economy.


"Depression Economics," Recovery and Socialist Transition

By Political Affairs

PA: Are there limits to what depression economics can do in terms of the liberation and empowerment of the working class?

CASE: I think the limitation is that, from a socialist perspective, depression economics maybe gets us out of the depression, but it doesn’t tell you where you are going from there. When societies have a shared sense of purpose, a direction in which they want things to go (such as the communist ideal and the principles of socialism), then the most important thing, in order to move society forward, is for the income of workers to increase relative to their share of the national wealth and in proportion to worker productivity. In the US, however, the income of working people has been flat or falling for the past 30 years. In this new period, what are the guarantees that this gets corrected? It is not something that is necessarily guaranteed by a stimulus package. You hope you are going to influence employment, but until and unless that is corrected, then you are not going to have a true recovery. I think that the traditional Keynesian approach tends to skirt that issue a little.

There is a strong group of economists, that focuses on employment. They are called the post-Keynesians. Hyman Minsky is one, and he has a strong argument that full employment, using the government as a last-resort employer, is a non-inflationary and stabilizing policy that should be adopted in place of the ones that we currently have, which is basically involves transfer payments, unemployment benefits, etc. Transfer payments are only for folks who are not actually working, but the national service program proposed by Obama, however, of which a huge expansion is being planned, could provide a path to implementing a full-employment program.

This is an important direction to move in, and it may even be one that is absolutely necessary to get us out of the recession/depression we are in. Nobody knows how big unemployment is going get. The people doing the forecasting are now generally predicting a 10, 11 or 12 percent official unemployment rate, which really means in the 20+ range, because the official figures don’t count discouraged workers and people only working part-time, etc. So we need a serious full-employment program. Krugman’s depression economics doesn’t quite address that. It also doesn’t go into exactly how the automobile industry is going to be restructured. Yes, we are going to fund it – it has to be done – but how precisely are we going to do it? And the bailout of the financial industry? What are we talking about here really? You hear a lot of money being talked about, but where are all those billions going to go. Right now, the executive authority is basically totally in the hands of the Treasury Secretary Henry Paulson, formerly of Goldman Sachs. so both with the automobile and financial bailouts there are a lot of how-tos and where-tos involved.

In addition to these questions, another important point to remember is that no single nation can solve this crisis on its own. There is a real chance, even if you put forward a gigantic stimulus program, that the imbalances in world current accounts (who is in debt and who is holding the notes and the reserves) will grow even worse. In this case it is the emerging countries that are mostly holding the reserves, and actually the US, the UK and EU are holding most of the debt. And if you pile on tons and tons more debt in stimulus efforts trying to revive the US economy, that just increases the imbalances. Maybe it does return some growth, but it doesn’t do anything about the imbalances – it makes them worse, so there is the potential that things could crash again without a coordinated effort.

There is a lot more to it, I think, than just depression economics, but as a way of pointing out some constructive alternatives to current neoliberal fundamentalist free-market thinking about both theoretical and practical economic policy, I think depression economics is an excellent contribution to the current debate, and it also raises important questions for social-democrats, socialists and communists.

http://www.politicalaffairs.net/article/articleview/8037/

[Jackpine Radical]

1. John Maynard Keynes understood this. Too bad so many modern economists

have made careers out of failing to understand Keynes.

I'm glad Obama only taught at Chicago, that he didn't study econ there.

[liberal N proud]

2. Obama's plan partially understands this but the damn GOP and their

fucking tax cut economics is a threat.

The stimulus package has things in it for infrastructure and other funding that will directly drive jobs growth.

In my opinion far too much of the package was delegated to pacify the babies who call themselves conservatives. And the whiny Republicans chose partisan politics over fixing the economy anyway.