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Insanity of Deficit Hysteria

Aug 12, 2010 | By: Mr_Blue | Tags: budget deficit, deficit, stimulus, full employment

We got the Federal Reserve Bank punting on trying to help the economy. We have a private sector not willing to hire because a lack of demand for product/services. We have policymakers in DC paralyzed by a lack of courage and deficit hysteria. In the meantime, a new normal of high unemployment and low growth is settling in. This means more pain and misery for the rest of us.

Federal Open Market Committee of the Federal Reserve Bank announced on Tuesday that they were basically doing nothing to help the economy (despite a legal obligation to do something). Don’t be fooled the Fed is NOT “printing more money”. Quite the contrary - all they are doing is changing the make-up of its balance sheet - moving from mortgage backed securities to treasury securities. It’s a punt on further action.

Here we are August of 2010 - the official start of the Great Recession was December 2007. As of July, the economy is still shedding jobs - total non-farm payroll employment declined by 131,000. We have 14.6 million Americans unemployed. We have a labor underutilization rate (broadest measure of unemployment/underemployment) of 16.5% and holding steady. Basically, we have a private sector not hiring because a lack of demand for product and services.

What do we get out of policymakers in DC? A lack of courage (including the Obama Administration) and demented form of deficit hysteria. It’s not really deficit hysteria because the Repuglican Party and Wall Street Democrats are pushing hard for continuation of Bush tax cuts for top income brackets. This, in fact, would increase the deficit. These huge tax cuts for top incomes have already shown that they do very little for improving the economy or the job situation.

With the Federal Reserve punting and the private sector doing nothing, we need another stimulus. But not just any stimulus. We need a significant and better structured stimulus that focuses on job creation and should have the objective of achieving FULL EMPLOYMENT. Why not offer a direct jobs program and a Jobs Guarantee. Why not more significant investment in infrastructure, green technology and education.

The choices are simple - suffer through a ‘new normal’ of low economic growth and high unemployment and don’t forget all the social costs related to high unemployment or a more significant and better designed fiscal stimulus that focuses on job creation and FULL EMPLOYMENT.

Good luck.