Seth: Current approaches to the general fund budget deficit in California and
its various municipalities include: cutting payments/services, outsourcing
labor to the private sector (for increased flexibility!), offering some
employees golden handshakes and re-negotiating govt. labor union contracts.
As Jim writes, raising taxes is an alternative. There's a recent precedent,
too. CA voters approved a measure to increase the tax rate on millionaires by
one percent to add funds for mental health services in 2004.
Message: 4
Date: Thu, 6 Mar 2008 13:38:42 -0800
From: "Jim Devine" <[EMAIL PROTECTED]>
Subject: Re: [Pen-l] Roach and my comment
To: "Progressive Economics" <[email protected]>
Message-ID:
<[EMAIL PROTECTED]>
Content-Type: text/plain; charset=ISO-8859-1
In the article at
http://www.nytimes.com/2008/03/05/opinion/05roach.html, Steven Roach
says: > The Bank of Japan ran an excessively accommodative monetary
policy for most of the 1980s. In the United States, the Federal
Reserve did the same thing beginning in the late 1990s. In both cases,
loose money fueled liquidity booms that led to major bubbles.<
Why is it _excessively_ "accommodative monetary policy"? Without this
kind of monetary policy in the late 1990s, the US economy would likely
have stalled in 1996 or 1997 or thereabouts. The short period of
close-to-full employment at the end of the decade would not have
happened. Without this kind of monetary policy, the recession in 2001
would likely have been deeper and longer, with even more negative
impact on workers. It seems like the US economy cannot have
half-decent growth of demand without "excessively accommodative
monetary policy"!
What's the problem? To my mind, it's the way that the distribution of
income and wealth have steadilyly tilted to the right (since 1980 or
so), with the rich getting richer (and richer and richer...) and the
rest of us facing stagnant or even falling incomes. This has led to a
stagnation of mass consumption (absent expansion of credit) or what
I've termed the "underconsumption undertow."
Just as a strong swimmer can beat an undertow, an economy can enjoy
demand growth, roughly in step with its potential growth, despite an
underconsumption undertow. (For the mathematical condition that must
be met for this to happen, see my 1994 RESEARCH IN POLITICAL ECONOMY
article.) This can happen due to private nonresidential fixed
investment, as happened in the late 1990s. It can happen due to
investment in housing and credit-based expansion of consumer spending,
as has happened in the post-2001 period until recently. It can also
happen due to increased luxury spending, as has happened since about
1980 or so, accelerating in recent years. With stagnant underlying
consumer spending (sans credit expansion) in place, all of these but
perhaps the last (i.e., increasingly luxury spending) require what
Roach calls "excessively accommodative monetary policy."
The problem is that relying on any of these props makes the economy
increasingly unstable, i.e., prone to collapse. Fixed nonresidential
investment is notoriously less stable than consumer spending. So is
luxury spending -- since, after all, it's not really needed. Housing
investment is also unstable, fluctuating more than most. And
credit-based consumption spending leads to the accumulation of debt,
which is hard to sustain. In a time when the Federal government's
purchases (G) were shrinking as a percentage of GDP, these
private-sector sources of instability become increasingly important.
(Federal G shrank relative to GDP from 1991 to the present, with an
up-tick about 2001 to 2004 which did not cancel out the over-all
trend. The up-tick partly reflects the increase in military spending.
State & Local purchases are ignored because those governments behave
more like consumers, varying purchases with tax revenues.)
As Roach notes, the 2001 recession and the current one (if it ends up
being classified using that term) both involved bubbles popping:
underlying instability came to the top. He then suggests that
infrastructural investment (and if the US is lucky, export growth) can
fill the gap. Hopefully, it will be "green" investment. Julio adds
the Clintonesque point that the government could invest in "human
capital" (i.e. education). That's fine, but I would add in basic
research, public health, reconstruction after disasters (think New
Orleans), and the like. Then, the government should not try to fund
these investments out of a balanced budget but instead using credit.
After all, corporations don't run balanced capital budgets.
The increased role of government sure fits with the normal tendency of
capitalism that results from what Engels calls the contradiction
between socialized production and private appropriation (of profits).
That is, all else constant, the capitalist state tends to play a
bigger and bigger role (at least until things have settled down, the
way they did in (say) the 1950s). It socializes private losses.
But what about raising (after tax) wages, to strike a direct blow at
the underconsumption undertow? In theory, this could make bubbles
unnecessary to stable growth. This kind of solution seems totally
forgotten. That's likely because it involves reversing the one-sided
class war.
--
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) -- Karl, paraphrasing Dante.
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