The Paradox of Thrift

If I were to teach a course on Economics, or American Politics--the two most likely courses for me to teach--I'd explain why cutting the debt and the deficit now, when we're in a jobless stagnation, is certainly not going to create jobs. It is a perfect example of the Paradox of Thrift. If one family, or a small proportion are thrifty, they will thrive, and others only less so. They will be saving in an expanding economy in which most people spend too much, or almost too much, and maintain demand for goods and services. The thrifty will save more.

When everyone is thrifty, or simply isn't spending because they don't have any money, even less will be sold; there will be fewer transactions of any kind. To cut spending by governments, laying off workers, closing parks, doubling up in classrooms, even laying off police, is only going to compound the problem: even more people who did have jobs, no longer have them. How is this going to create jobs?

Why would the investor class, what the GOP calls "job creators," hire more workers, when demand is sagging even further?

Perhaps it's counter-intuitive, but if government spends more money now, in targeted ways, to employ the unemployed--there's much to do with our crumbling infrastructure that's falling far behind the world standard, for example--it will more likely erase deficits sooner than if it cut back expenditures and reinforced the "beggar thy neighbor and thyself" process that Obama has caved to. His strength was not economics.

It's very simple: if people are already spending too little to maintain the kind of demand--for goods and services--that will employ the unemployed, then cutting jobs and programs in the government sector will only make things worse. This is especially true because the investor class ("job creators") are sitting on huge piles of cash, or are investing it in places like China, so it's not a lack of capital that stymies the US--and Europe; it's low demand.

Only the Federal Government can create money, and only the government can create demand when there is none: by employing people, and paying them. Despite all the anti-government sentiment in the US, governments do a lot of positive things, when it's creating demand. In the Depression, the CCC restored land destroyed by the dustbowl, roads were built, even, the WPA hired painters to paint murals for our central post offices; they are still there today. Now, a new WPA could build high-speed rail lines, or rehab neighborhoods blighted by defaults, install insulation in public or private buildings, teach smaller classes; there are lots of things the unemployed could do. Americans are among the most highly skilled of workers, but they will be decreasingly so, the longer large portions of the workforce remain out of work.

Rome tried the "beggar thy neighbor" policy in the 3rd Century: it never recovered.

Next Right-wing Target

They anticipate that their dirty deal with Obama is sealed, and will pass even in the Democratic House. Why Democrats will pass such a monster is another question.

So, right-wingers are pleased about the $700-800 billion in income tax breaks for those who don't need it--people earning over $250,000 a year. They also are moderately pleased with the Estate Tax deal, in which estates under $5 million will be exempt, and the rate above that is lowered to 35%. Actually, many right-wingers want to eliminate the estate tax altogether. They don't call it the "Death Tax" for nothing. Under Bush, they had put in place the budget-busting Medicare Part D, which is lavish to big Pharma, as well as the tax cuts now being renewed.

So, what is their next target? They are mobilizing to prevent the GOP from supporting "compromise" on the debt ceiling. It's currently at $14.3 trillion.

That looks like a large number, and it is, but the US keeps on bumping up against whatever ceiling is current law; it has been for years--except during Clinton's last two years.

Before the Great Recession, the biggest and fastest addition to the debt was during the Bush II administration. Trillions in debt were added from the two unjustified wars, the two rounds of tax cuts and the unfunded Medicare Part D.

The recession, as recessions always do, caused the debt to rise further, because the unemployed and/or defaulted homeowner is unlikely to pay income tax, but aid to both means the government has to borrow. Would it be better to let people starve in the streets? Or sink into a depression?

Right-wingers seem to think so. They don't expect to be the ones who do the starving. They apparently assume that if people don't have jobs, it's their own faults--after all, jobs are listed in newspapers and online, so why aren't people working? They have it too easy with unemployment insurance! Those stupid Democrats wanted unemployment benefits extended; it was the lever Republicans used to get their way.

However, if the government runs out of money, it won't pay unemployment. To stop the government from borrowing will, effectively, stop the government from operating.

Why do right-wingers want this?

There is much rhetoric in right-wing venues about the damage government does. Their assumption is that a coming period of stalemate will be a good thing: it will stop that African Socialist, Obama, from expanding government programs and regulations. It will also demonstrate what right-wingers believe: government can't do anything right. If they can hamstring government until the 2012 election, then right-wingers can regain power.

But they don't appear to care if, in the process, they drive the US into a depression. If they succeed, the US will lose the dollar's reserve status. Then, goodbye American Empire.

To the Barricades!

Unemployment is painfully high, huge numbers are unemployed long-term, and Congress struggles mightily just to pass an extension of unemployment benefits? "Conservative" Democrats (heartless perhaps) and almost all Republicans voted against. Why? Fear of the deficit.

It's large, but mostly because of the recession, two wars and the hungry military. So-called conservatives say they can't help the unemployed, because it will increase the deficit. But they say Congress should pass tax cut extensions for the wealthy--even though that would increase the debt many billions more than minimal unemployment aid.

Aid to the unemployed, means that people can stay in their homes or apartments, can eat regular meals, can minimally get by, and can look for jobs. That money is nearly all spent in the economy, just on survival. It not only keeps people surviving, it also keeps businesses alive, those providing the necessary goods and services for them.

To get the economy out of its demand trap--too little demand, too much supply--you need to pump up demand by the buyer of last resort: the government can either spend directly, or put money in people's pockets.

However, if taxes for the wealthy are cut, not only does that radically increase the deficit, it has only a weak effect on demand, and little on investment. Here's why: the wealthy spend only some of their money, and less in the United States, since they consume more imports, and travel more. They don't need to spend all the money; they can save it. But does that spark investment? Businesses invest when they foresee demand for their product or service, not because rich people have idle cash. Idle cash fuels speculation, as it did until 2007, and would if the economy continues in the doldrums with high unemployment.

The fear of growing deficits and rising interest on the debt and inflation are misplaced. Lowered interest rates boost growth, but they can go no lower; there is real danger of deflation, not inflation. Further, money spent to put people back to work is the best investment this nation could make.

In addition, there is a push to cut entitlements in order to balance the budget, even though the same "deficit hawks" are promoting lower taxes for the wealthy, and continuation of the war effort--or even escalation. They can all make money on a war with Iran. But doesn't entitlement mean you earned it?

The unemployed and long-term jobless, they don't matter. Just write them off. The stock market's doing fine, profits are up.

Just as in fifth century Rome, the political elite (represented by a 41% controlling minority of the Senate), control the empire with their money. Who said the US was a democracy?

We need a real, (hopefully bloodless) revolution in which the people reclaim their power. Everything will get worse, unless that happens.