Eponymous painting by Viktor Mikhailovich Vasnetsov in the Russian Museum in St. Petersburg.
Choice of Two Roads
Thanks to Wall Street bankers gone bonkers the entire world’s economy is in a tail spin ...which will not be fully ironed out until the last of $500 trillion worth of credit default swaps are unwound. But no one talks much about CDSs at the moment, because now is the time to do something that will at least pull the U.S. economy out of its present nose dive. Indeed, when an aircraft is in such dire straits the pilots don’t get into an argument as to whether the wings will come off if they pull back too hard on the stick...
In fact, bickering pilots in an out-of-control airplane is the perfect metaphor for the way Congress is delaying Obama’s economic stimulus plan. Republicans (and some Democrats) contend that “all deficits are bad” and therefore that any increased government spending to stimulate the private-sector economy should be offset by cuts in ongoing government programs ...like science. That’s right, science! Take a look at all the national science programs that Senators Ben Nelson (D-NE) and Susan Collins (R-ME) propose to strip from the Senate American Reinvestment and Recovery Act as a part of a $77.9 billion deficit reduction! And they propose this at a time when it has been projected that under present conditions in just 5 years 90% of all scientists and engineers will live in Asia! What are they thinking?
Even cave man didn’t take the road of eating his seed corn during the long ice-age winters ...or homo sapiens sapiens would already be extinct!
So exactly what road SHOULD Obama and the Congress be taking? Well, the best answer that anyone could hope for would be the recommendation of a Nobel-Prize-winning economist who is untainted by having worked either on Wall Street or at the Fed while these bodies were planting the seeds of the present economic melt-down. Of course, that economist is Paul Krugman, and fortunately he has written many columns on this very subject. Here is an earlier one, and here is his column from today’s New York Times ...from which I take the following excerpts:
Just to be clear, I’m not arguing that trying to reduce the budget deficit is always bad for private investment. You can make a reasonable case that Bill Clinton’s fiscal restraint in the 1990s helped fuel the great U.S. investment boom of that decade, which in turn helped cause a resurgence in productivity growth.
What made fiscal austerity such a bad idea both in Roosevelt’s America and in 1990s Japan were special circumstances: in both cases the government pulled back in the face of a liquidity trap, a situation in which the monetary authority had cut interest rates as far as it could, yet the economy was still operating far below capacity.
And we’re in the same kind of trap today — which is why deficit worries are misplaced.
One more thing: Fiscal expansion will be even better for America’s future if a large part of the expansion takes the form of public investment — of building roads, repairing bridges and developing new technologies, all of which make the nation richer in the long run.
Apropos of the absolute urgency for Congress to pass an un-watered-down stimulus bill ASAP, I call your attention to an excellent column by Joan Walsh on what Obama should be now telling the public...but hasn’t quite yet.
N.B. Here is a wonderful 11-min TV interview with (1) the whistleblower who tried to expose Madoff's $50-billion ponzi scheme to the hear-no-evil-see-no-evil-speak-no-evil SEC and (2) Paul Krugman regarding the current subject matter.