Monday, May 07, 2012
Yes we are ruled by idiots
It's apparently too technical for the general public or Columbia-educated journalists to grasp, but if you follow Brad DeLong and/or The Shrill One you have probably gotten the idea that the elite consensus about the economy in Europe and the United States is completely insane.
I've been thinking about a simple, non-technical way to explain our situation that a smart politician such as, say, president Obama could use if he had the courage. The reason there aren't enough jobs is not because rich people have to pay taxes or companies are worried about "regulatory uncertainty." The reason is that companies can't sell enough stuff to expand output, and therefore to hire more people. The reason they can't sell more stuff is that there are too many people out of work or stuck in crappy jobs. That's why investors aren't putting their cash to work building up companies, they're sticking it in the equivalent of the mattress, i.e. U.S. treasury bonds that currently are providing a negative rate of interest, that is less than the rate of inflation -- which is also very low. So that cash is just sitting there.
The way to put people back to work, and therefore cause them to have money with which to buy stuff and therefore cause companies to sell more stuff and therefore hire more people, is to spend that money. You could actually spend it to pay people to dig holes and fill them in again, but even better to invest it in stuff that will also do good in the world, such as mass transit projects, fixing bridges, educating folks, modernizing the electrical grid, energy conservation and sustainable energy production, you name it.
The government has to do it this, using that money it can borrow extremely cheaply. That will also cause tax revenues to go up and make it possible to pay the debt in the future and reduce the deficit without having to do horrible damage to society.
This is the simple truth. Department of stupid questions: will we hear this simple truth discussed in the next six months?