For those of us who are "either not thinking hard enough or a Republican running for office," former Secretary of Labor, Robert B. Reich, has an economics lesson for us; see
here.
I had a good chuckle over this:
You don't have to be an orthodox Keynesian to understand that as long as the private sector is deleveraging, the public sector has to borrow and spend to keep the economy moving forward.
You don't? Holy cow...this is essentially the defining characteristic of "orthodox" Keynesianism!
Look, maybe a case can be made for a deficit-financed government spending program. But surely, in making the case, we deserve better than this?
Do we not need to know first
why the private sector seems reluctant to spend? If we have just lived through a period of "excess,'' might it not be prudent to cut back on spending? Or is it the role of government to replace private excess with public excess?
The collapse in private spending is primarily in investment. Why are businesses holding back? I have heard business people say that they are afraid to invest right now because they are so uncertain about the future course of government policy. Given this uncertainty, it is probably prudent to withhold investment, until it becomes clear where it may be most profitably allocated. And if this is a reason for depressed investment activity, this is an example of government failure, not market failure.
Or is it, as the "spend your way to prosperity" crowd would have us believe, simply a matter of "irrational" psychology? The private sector is evidently afraid to spend, for no good reason at all. This calls for bold government action. The government evidently knows that the fundamentals have not changed. Just charge forward and spend...and all will be well.
O.K., well here is a question: Spend where? If what we are experiencing is really just a psychologically driven "negative aggregate demand shock" -- the "demand side hole" suggested by Reich -- then how to explain the following data?
I presume that Reich would recommend targeting government money to plastics, motor vehicle parts, furniture, printing, and textile mills. The presumption must be that these sectors are declining for no good reason at all. I'm not sure how he would explain the expansion in semiconductors, communications equipment, computers, electricity, and oil and gas. How did these sectors miss being dumped into the great demand-side hole?
