The politics of economic stupidity

[Dovahkiin]

This is a somewhat dated piece, but it's relevant none the less. Haven't seen it posted on this forum.
Joseph E. Stiglitz | The politics of economic stupidity

In 2014, the world economy remained stuck in the same rut that it has been in since emerging from the 2008 global financial crisis. Despite seemingly strong government action in Europe and the US, both economies suffered deep and prolonged downturns. The gap between where they are and where they most likely would have been had the crisis not erupted is huge. In Europe, it increased over the course of the year.

Today: U.S. Economy at a Glance

• 4th quarter 2015: 0.7 percent

Anyways, back to the piece:

Developing countries fared better, but even there the news was grim. The most successful of these economies, having based their growth on exports, continued to expand in the wake of the financial crisis, even as their export markets struggled. But their performance, too, began to diminish significantly in 2014.

The malaise afflicting today’s global economy might be best reflected in two simple slogans: “It’s the politics, stupid” and “Demand, demand, demand.”

The near-global stagnation witnessed in 2014 is man-made. It is the result of politics and policies in several major economies—politics and policies that choked off demand. In the absence of demand, investment and jobs will fail to materialize. It is that simple.

Demand is what matters. How do you create demand? Give people more dollars to spend. It's really that simple.

Nowhere is this clearer than in the euro zone, which has officially adopted a policy of austerity—cuts in government spending that augment weaknesses in private spending.

The euro zone’s structure is partly to blame for impeding adjustment to the shock generated by the crisis; in the absence of a banking union, it was no surprise that money fled the hardest-hit countries, weakening their financial systems and constraining lending and investment.

In Japan, one of the three “arrows” of Prime Minister Shinzo Abe’s programme for economic revival was launched in the wrong direction. The fall in gross domestic product that followed the increase in the consumption tax in April provided further evidence in support of Keynesian economics—as if there was not enough already.

Disagreement with the empirical success of keynesian economics coming in 3.. 2.. 1..

The US introduced the smallest dose of austerity, and it has enjoyed the best economic performance. But even in the US, there are roughly 650,000 fewer public-sector employees than there were before the crisis; normally, we would have expected some two million more.

Of course, people believe we need to shrink the public sector, for whatever reason. It's hysterical.

As a result, the US, too, is suffering, with growth so anaemic that wages remain basically stagnant.

Been this way for decades.. neoliberalism ring a bell?

the world should not expect China to shore up global aggregate demand in 2015. If anything, there will be an even bigger hole to fill.

So what does this mean?

For the past six years, the West has believed that monetary policy can save the day. The crisis led to huge budget deficits and rising debt, and the need for deleveraging, the thinking goes, means that fiscal policy must be shunted aside.

Monetary policy is a failure when done over fiscal policy. End of story.

The problem is that low interest rates will not motivate firms to invest if there is no demand for their products. Nor will low rates inspire individuals to borrow to consume if they are anxious about their future (which they should be).

Nail in the coffin.

This brings us back to politics and policies. Demand is what the world needs most. The private sector—even with the generous support of monetary authorities—will not supply it. But fiscal policy can. We have an ample choice of public investments that would yield high returns—far higher than the real cost of capital—and that would strengthen the balance sheets of the countries undertaking them.

Now I ask you.. how do we create demand? Spending and tax cuts.
The problem? We have one party that wants to spend and believes they need tax increases to "pay for it" which isn't how it works operationally since the us govt can create dollars from thin air to spend. Then we have a party that believes in tax cuts and spending cuts, with tax cuts that favor the rich. (Don't forget people like cruz essentially want a VAT which will greatly harm the poor, the people who tend to spend the most.)

 

[Dovahkiin]

I think this needs to be made very clear, considering the way we handle ourselves when not at full employment is laughable.
Yes, There Is Such Thing As A Free Lunch

With the presidential campaign season in full swing, a number of hopefuls have made a point of specifying the monetary cost of various government programs. Some have done so in the context of how they will finance their own ideas while others have used the opportunity to argue that we can’t afford to pay for the programs we already have in place. In both cases, however, they are missing a fundamental point: at the national level, money is not the issue, resources are. Furthermore, once this becomes clear, it is evident that not only can we can “afford” everything currently in place, we can do more. There is such thing as a free lunch when we have idle resources and how much money we have has absolutely no bearing on this.

1. If the economy is at full employment, then we cannot afford to add new activities (in either the private or public sector) without subtracting from others. There is no such thing as a free lunch.
2. If the economy is at less-than-full employment, then it is possible that we may be able to add new activities (in either the private or public sector) without subtracting elsewhere. There is such thing as a free lunch.

We're not at full employment. Let's get to work.

 

[JimBowie1958]

Giving people money to spend only grows the economy if the people are confident int he economy enough to go ahead and spend the money instead of burying it or hiding it in their mattress.