[OPE] David Harvey on stimulus failure

WHY THE U.S. STIMULUS PACKAGE IS BOUND TO FAIL
 
DAVID HARVEY

(....) The problem for the United States in 2008-9 is that it starts from a
position of chronic indebtedness to the rest of the world (it has been
borrowing at the rate of more than $2 billion a day over the last ten
years or more) and this poses an economic limitation upon the size of
the extra deficit that can now be incurred. (This was not a serious
problem for Roosevelt who began with a roughly balanced budget). There
is also a geo-political limitation since the funding of any extra
deficit is contingent upon the willingness of other powers
(principally from East Asia and the Gulf States) to lend. On both
counts, the economic stimulus available to the United States will
almost certainly be neither large enough nor sustained enough to be up
to the task of reflating the economy. This problem is exacerbated by
ideological reluctance on the part of both political parties to
embrace the huge amounts of deficit spending that will be required,
ironically in part because the previous Republican administration
worked on Dick Cheney's principle that "Reagan taught us that deficits
don't matter." As Paul Krugman, the leading public advocate for a
Keynesian solution, for one has argued, the $800 billion reluctantly
voted on by Congress in 2009, while better than nothing, is nowhere
near enough. It may take something of the order to $2 trillion to do
the job and that is indeed excessive debt relative to where the US
deficit now stands. The only possible economic option, would be to
replace the weak Keynesianism of excessive military expenditures by
the much stronger Keynesianism of social programs. Cutting the US
defense budget in half (bringing it more in line with that of Europe
in relation to proportion of GDP) might technically help but it would
be, of course, political suicide, given the posture of the Republican
Party as well as many Democrats, for anyone who proposed it.
 
The second barrier is more purely political. In order to work, the
stimulus has to be administered in such a way as to guarantee that it
will be spent on goods and services and so get the economy humming
again. This means that any relief must be directed to those who will
spend it, which means the lower classes, since even the middle
classes, if they spend it at all, are more likely to spend it on
bidding up asset values (buying up foreclosed houses, for example),
rather than increasing their purchases of goods and services. In any
case, when times are bad many people will tend to use any extra income
they receive to retire debt or to save (as largely happened with the
$600 rebate designed by the Bush Administration in the early summer of
2008).
http://grupodapiedade.posterous.com/radical-europe-fwd-moneybanksc

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Received on Wed Feb 11 11:48:04 2009