This morning's unemployment level dropped to
5.9% as our economy added 248,000 jobs last month, we are still not operating at full capacity. So, while this morning unemployment numbers are encouraging, they do not take into account the unusually large number of discouraged workers who have given up even looking for work. These workers represent unused capacity we could be utilizing to improve our infrastructure providing a stimulus to our economy.
Paul Krugman of the New York Times warns us again that we are still stuck in a liquidity trap in his op-ed, Depression Denial Syndrome.
Most of your are familiar with this analysis.
Now, we normally think of deficits as a bad thing — government borrowing competes with private borrowing, driving up interest rates, hurting investment, and possibly setting the stage for higher inflation. But, since 2008, we have, to use the economics jargon, been stuck in a liquidity trap, which is basically a situation in which the economy is awash in desired saving with no place to go. In this situation, government borrowing doesn’t compete with private demand because the private sector doesn’t want to spend. And because they aren’t competing with the private sector, deficits needn’t cause interest rates to rise. ...
All this may sound strange and counterintuitive, but it’s what basic macroeconomic analysis tells you. And that’s not 20/20 hindsight either. In 2008-9, a number of economists — yes, myself included — tried to explain the special circumstances of a depressed economy, in which deficits wouldn’t cause soaring rates and the Federal Reserve’s policy of “printing money” (not really what it was doing, but never mind) wouldn’t cause inflation. It wasn’t just theory, either; we had the experience of the 1930s and Japan since the 1990s to draw on. But many, perhaps most, influential people in the alleged real world refused to believe us. ...
So is this an edifying tale in which bad ideas were proved wrong by experience, people’s eyes were opened, and truth prevailed? Sorry, no. In fact, it’s very hard to find any examples of people who have changed their minds. People who were predicting soaring inflation and interest rates five years ago are still predicting soaring inflation and interest rates today, vigorously rejecting any suggestion that they should reconsider their views in light of experience.
Krugman seems to assume that the average reader is going to take this insight to the next step and realize now is not the time for austerity economics and a contrained money supply but rather we need a good old fashion Keynesian economic stimulus of the sort advocated in President Obama's infrastructure investment proposal - although substantially larger. But, given Republican domination of the House we are stick in discussions of austerity and the "need" for less government spending.
Even if one granted for the sake of argument that government spending constituted too high a fraction of GDP, now is not the wisest time to try to reduce this ratio because reduced government spending adds even more downward pressure on the economy. But, our government spending is not too high compared to other modern industrial economies.
What will it take to get this message across to obstructionist Republicans? Probably little that we can realistically imagine, short of a major new world war.
So doesn't it seem the next most probable option would be to educate voters to help us replace recalcitrant Republicans in elections? It doesn't seem our Democrats are even attempting such a strategy. Why not? This should be one of strongest election arguments. Is this concept really too obscure to reach the middle 10% of swing voters?
It seems discouraging that we are about five weeks from the November elections and don't seem to be galvanized around major GOTV rallies to get our own voters out to the polls. My understanding is that the major reason we often fall back in off cycle elections is our Democratic voter participation rates often fall by 14% or more.
Shouldn't we be able to use such an argument, along with woman's issues, excess police militarization, and others to fire up our base to get higher election turnout?
So special kudos and appreciation for those readers who can think of creative ways to boil this message down to a campaign slogan that fires up our base. A problem is if we go back to James Carville's "It's the economy stupid!" a lot of Republicans will claim that's their angle and average voters may not get the twist that it is the Republicans who are holding us back.