Econ Lessons: Stimulus Package is Bound to Fail
It is very important for us all to understand the economic shit that is going down as best we can. It is often intentionally presented in ways too heavy for the average person to understand... especially a person not drinking the Kool Aid off the tit of capitalism.
I came across Why the U.S. Stimulus Package is Bound to Fail by David Harvey.
Part 1 is mainly historical. Part 2 is where it gets juicy.
I suggest reading it.
Here are some highlights:
In order to work, the stimulus has to be administered in such a way as to guarantee that it will be spent on goods and services and so get the economy humming again. This means that any relief must be directed to those who will spend it, which means the lower classes, since even the middle classes, if they spend it at all, are more likely to spend it on bidding up asset values (buying up foreclosed houses, for example), rather than increasing their purchases of goods and services. In any case, when times are bad many people will tend to use any extra income they receive to retire debt or to save (as largely happened with the $600 rebate designed by the Bush Administration in the early summer of 2008).
What appears prudent and rational from the standpoint of the household bodes ill for the economy at large (in much the same way that the banks have rationally taken public money and either hoarded it or used it to buy assets rather than to lend). The prevailing hostility in the United States to “spreading the wealth around” and to administering any sort of relief other than tax cuts to individuals, arises out of hard core neoliberal ideological doctrine (centered in but by no means confined to the Republican Party) that “households know best.” These doctrines have broadly been accepted as gospel by the American public at large after more than thirty years of neoliberal political indoctrination. We are, as I have argued elsewhere, “all neoliberals now” for the most part without even knowing it. There is a tacit acceptance, for example, that “wage repression” – a key component to the present problem – is a “normal” state of affairs in the United States. One of the three legs of a Keynesian solution, greater empowerment of labour, rising wages and redistribution toward the lower classes is politically impossible in the United States at this point in time. The very charge that some such program amounts to “socialism” sends shivers of terror through the political establishment. Labour is not strong enough (after thirty years of being battered by political forces) and no broad social movement is in sight that will force redistributions toward the working classes.
...collective goods do have the potential to generate multipliers for employment as well as for the effective demand for further goods and services. But the presumption is that these collective goods are, at some point, going to belong to the category of “productive state expenditures” (i.e. stimulate further growth) rather than become a series of public “white elephants” which, as Keynes long ago remarked, amounted to nothing more than putting people to work digging ditches and filling them in again... preference for tax cuts rather than infrastructural transformations makes the pursuit of a full-fledged Keynesian solution all but impossible in the United States.
But in China the emergence of mass unemployment (at last report there were thought to be some 20-million unemployed as a result of the slow-down) and signs of widespread and rapidly escalating social unrest will almost certainly push the Communist Party to massive redistributions whether they are ideologically concerned to do so or not.
If China uses more of its financial reserves to boost its internal market, as it is almost certainly bound to do for political reasons, so it will have less left over to lend to the United States. Reduced purchases of U.S. Treasury Bills will eventually force higher interest rates and impact U.S. internal demand negatively and, unless managed carefully, could trigger the one thing that everyone fears but which has so far been staved off: a run on the dollar... The supreme irony, of course, is that the political and ideological barriers in the United States to any full-fledged Keynesian program will almost certainly hasten loss of U.S. dominance in global affairs...
David Harvey's blog
(thanx to Kasama)
I came across Why the U.S. Stimulus Package is Bound to Fail by David Harvey.
Part 1 is mainly historical. Part 2 is where it gets juicy.
I suggest reading it.
Here are some highlights:
In order to work, the stimulus has to be administered in such a way as to guarantee that it will be spent on goods and services and so get the economy humming again. This means that any relief must be directed to those who will spend it, which means the lower classes, since even the middle classes, if they spend it at all, are more likely to spend it on bidding up asset values (buying up foreclosed houses, for example), rather than increasing their purchases of goods and services. In any case, when times are bad many people will tend to use any extra income they receive to retire debt or to save (as largely happened with the $600 rebate designed by the Bush Administration in the early summer of 2008).
What appears prudent and rational from the standpoint of the household bodes ill for the economy at large (in much the same way that the banks have rationally taken public money and either hoarded it or used it to buy assets rather than to lend). The prevailing hostility in the United States to “spreading the wealth around” and to administering any sort of relief other than tax cuts to individuals, arises out of hard core neoliberal ideological doctrine (centered in but by no means confined to the Republican Party) that “households know best.” These doctrines have broadly been accepted as gospel by the American public at large after more than thirty years of neoliberal political indoctrination. We are, as I have argued elsewhere, “all neoliberals now” for the most part without even knowing it. There is a tacit acceptance, for example, that “wage repression” – a key component to the present problem – is a “normal” state of affairs in the United States. One of the three legs of a Keynesian solution, greater empowerment of labour, rising wages and redistribution toward the lower classes is politically impossible in the United States at this point in time. The very charge that some such program amounts to “socialism” sends shivers of terror through the political establishment. Labour is not strong enough (after thirty years of being battered by political forces) and no broad social movement is in sight that will force redistributions toward the working classes.
...collective goods do have the potential to generate multipliers for employment as well as for the effective demand for further goods and services. But the presumption is that these collective goods are, at some point, going to belong to the category of “productive state expenditures” (i.e. stimulate further growth) rather than become a series of public “white elephants” which, as Keynes long ago remarked, amounted to nothing more than putting people to work digging ditches and filling them in again... preference for tax cuts rather than infrastructural transformations makes the pursuit of a full-fledged Keynesian solution all but impossible in the United States.
But in China the emergence of mass unemployment (at last report there were thought to be some 20-million unemployed as a result of the slow-down) and signs of widespread and rapidly escalating social unrest will almost certainly push the Communist Party to massive redistributions whether they are ideologically concerned to do so or not.
If China uses more of its financial reserves to boost its internal market, as it is almost certainly bound to do for political reasons, so it will have less left over to lend to the United States. Reduced purchases of U.S. Treasury Bills will eventually force higher interest rates and impact U.S. internal demand negatively and, unless managed carefully, could trigger the one thing that everyone fears but which has so far been staved off: a run on the dollar... The supreme irony, of course, is that the political and ideological barriers in the United States to any full-fledged Keynesian program will almost certainly hasten loss of U.S. dominance in global affairs...
David Harvey's blog
(thanx to Kasama)
posted by shane at 6:54 PM
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