by Mike Whitney
January 8, 2010y
from
GlobalResearch Website
"Capitalism is the astounding belief
that the most wickedest of men will do the most wickedest of
things for the greatest good of everyone."
John Maynard Keynes
There's no denying that the economy is getting
better, but will it last? Many economists don't think so, including experts
at opposite ends of the ideological spectrum, like Paul Krugman and
Martin Feldstein.
They think the economy will begin to fizzle
sometime in the latter part of 2010 when Obama's $787 billion fiscal
stimulus runs out and consumers are forced to pick up the slack in demand.
That's a safe bet, too, considering that unemployment will still be
somewhere in the neighborhood of 9 percent and households will still be
digging out from the $13 trillion they lost during the crisis.
And the fact that the Fed is planning to end its
quantitative easing (QE) program in early April, doesn't help either.
That will just suck more liquidity out of the system and push long-term
interest rates higher. When that happens, housing prices will fall,
inventory will rise, and a surge in foreclosures will put more pressure on
the banks balance sheets.
That's why the pros are so glum, because they
know the economy needs a second dose of stimulus to stay on track, but the
politicos are dead-set against it. Congress is afraid of the backlash from
voters in the upcoming midterm elections.
They'd rather drive the economy back into
recession then risk losing their jobs. Despite the
propaganda in the media, stimulus works. In
fact, Goldman Sachs attributes all of last quarter's (positive)
growth to Obama's stimulus.
Here's how Nobel prize winning economist
Joseph Stiglitz sums it up in his China Daily article "Harsh
lessons we may need to learn again":
"Keynesian policies do work. Countries, like
Australia, that implemented large, well-designed stimulus programs early
emerged from the crisis faster. Other countries succumbed to the old
orthodoxy pushed by the financial wizards who got us into this mess in
the first place.
Whenever an economy goes into recession, deficits appear, as tax
revenues fall faster than expenditures. The old orthodoxy held that one
had to cut the deficit - raise taxes or cut expenditures - to 'restore
confidence.' But those policies almost always reduced aggregate demand,
pushed the economy into a deeper slump, and further undermined
confidence."
When consumers are forced to cut back on
spending, because they're too far in debt or worried about their jobs, the
government has to step in and make up the difference or the economy goes
into a tailspin.
The deficits need be big enough to maintain
aggregate demand while the private sector regains its footing. Otherwise,
consumer spending declines, which lowers earnings and forces businesses to
lay off more workers. It's a viscous circle. But if the stimulus is
distributed wisely, multipliers kick in and help to lift the economy out of
the doldrums.
Here's a good breakdown of how it works from an
article in the New York Times:
"Every dollar of additional infrastructure
spending means $1.57 in economic activity, according to Moody’s, and
general aid to states carries a $1.41 "bang" for each federal buck. Even
more effective are increases for food stamps ($1.74) and unemployment
checks ($1.61), because recipients quickly spend their benefits on goods
and services.
By contrast, most temporary tax cuts cost more than the stimulus they
provide, according to research by Moody’s. That is true of two tax
breaks in the stimulus law that Congress, pressed by industry lobbyists,
recently extended and sweetened - a tax credit for homebuyers (90 cents
of stimulus for each dollar of tax subsidy) and extra deductions for
businesses’ net operating losses (21 cents). "
("New
Consensus Sees Stimulus Package as Worthy Step " Jackie
Calmes and Michael Cooper, New York Times)
So far, the stimulus has done exactly what it
was designed to do; give the economy a big enough boost to get through a
deflationary rough patch.
Unemployment is flattening out, manufacturing is
expanding again, the stock market keeps climbing higher, and a recent survey
of individual investors shows the highest ratio of bulls-to-bears since
2007. That's a good start, but the economy is still weak and needs more
help.
So why are policymakers so eager to take the
patient off the ventilator before he can breathe on his own again?
Politics, that's why...
The congress is worried about voter rage at the ballot-box, but that doesn't
explain why
Obama has started moaning about
slashing deficits in the middle of a severe slump. The administration's
agenda is entirely different than congress's.
The White House economics team is trying to
garner support for policies that will strap the faltering economy into a
fiscal straightjacket and pound the green shoots into mush. All the railing
against deficits is just empty blather backed by junk economics.
Here's ex-Treasury Secretary
Robert Rubin - one of the chief
architects of
the global financial crisis - articulating
the position of his protégés at 1600 Pennsylvania Ave.
Robert Rubin:
"Putting another major stimulus on top of
already huge deficits and rising debt-to-GDP ratios would have risks.
And further expansion of the Federal Reserve Board's balance sheet could
create significant problems... Today's economic conditions would
ordinarily be met with expansionary policy, but our fiscal and monetary
conditions are a serious constraint, and waiting too long to address
them could cause a new crisis...
First, there must be sound fiscal and monetary policies. The United
States faces projected 10-year federal budget deficits that seriously
threaten its bond market, exchange rate, economy, and the economic
future of every American worker and family.
Those risks are exacerbated by the context
of those deficits:
-
a low household-savings rate, even
after recent increases
-
large funding requirements for
federal debt maturities every year
-
heavy overweighting of
dollar-denominated assets in foreign portfolios
-
worsened fiscal prospects in the
decades after the current 10-year budget period
-
competing claims for capital to fund
deficits in other countries."
("Getting
the Economy back on track" Robert Rubin, Newsweek)
Interesting.
Rubin admits that the recession "would
ordinarily be met with expansionary policy", but suggests that he has a
better remedy than stimulus. Does that make sense?
After all, it was Keynes counter-cyclical public
spending (stimulus) that just produced positive GDP for the first time in 4
quarters, whereas, it was Rubin's deregulation of the financial system that
pushed the global economy to the brink of disaster. There's no question of
whose theory is more credible or likely to work.
Even so, it's worth considering what Rubin has
to say, because it clarifies the views of Obama's chief economics advisors
Geithner and Summers. After all, the trio is joined at the
hip.
Rubin again:
"The American people are growing
increasingly concerned about deficits, creating a public environment
more conducive to political action. And the Obama administration, in my
view, has a deep understanding of the critical importance of addressing
this issue... "
Indeed. So, Obama has already joined the ranks
of the deficit terrorists.
Rubin again:
"As President Obama and the other G20
leaders warned, restrictive trade measures in response to the current
crisis could lead to highly destructive trade wars. For the long run, we
should continue pursuing the open markets that the
Peterson Institute for International Economics,
a Washington think tank, estimates have added $1 trillion to America's
current GDP."
So Rubin is working for Peterson? That explains
everything.
Here's an excerpt from a Dean Baker
article which appeared in the UK Guardian this week:
"Peter Peterson is a Wall Street billionaire
and former Nixon administration cabinet member who has been trying to
gut Social Security payments and Medicare for at least the last quarter
of a century. He has written several books that warn of a demographic
disaster when the baby boomers retire. These books often include
nonsense arguments to make his case.
For example, in one of the books making his
pitch for cutting social security as matter of generational equity,
Peterson proposes reducing the annual cost of living adjustment."
(Guardian)
Ah ha! So, the real goal is to slash spending to
impose onerous austerity measures that will lay the groundwork for
dismantling critical social programs, like Social Security, Medicaid and
Medicare.
That's why Rubin is working hand-in-hand with
his allies in and out of the White House. It has nothing to do with what's
best for the country. It's another looting operation spearheaded by
the same band of Wall Street pirates who just blew up the financial
system.
Rubin again:
"For American workers, sustained growth is
the most powerful force for higher wages and greater personal economic
security... The dynamism of American society, its flexible labor and
capital markets, its entrepreneurial spirit and the sheer size of its
economy, are great strengths for succeeding in a rapidly transforming
global economy... Finally, in an increasingly interdependent world,
transnational issues key to all of us can only be addressed through
effective global governance."
Yada, yada, yada.
More free trade, more outsourcing, more
off-shoring, more lost jobs, more structural adjustment (at home, this time)
more privatization, more screwball globalist Utopianism. It's all right out
of the Neoliberal playbook, corporate America's sacred text. And it looks
President Moonbeam is marching in lockstep with the rest of the
hucksters.
Face it;
the Obama administration is less interested in engineering a
strong recovery than they are with micromanaging a protracted downturn.
That's because a long drawn-out mini-Depression
puts the Rubin troupe right where they want to be - with one hand choking
the life out of the economy while the other steals whatever is left in the
national vault.