JAMES GALBRAITH ON THE VIRTUES OF DEFICITS
John Hanrahan, Neiman Watchdog - Economist James Galbraith says there are "a lot of things that drive me not to read the press," because of "the confused and ignorant positions of most of the news media" on the issues of deficits and fiscal policy. The worst offender in this regard, Galbraith said in an interview with Nieman Watchdog, is The Washington Post editorial page.
"Their editorials reveal a lack of understanding of the structure of the economy...and an indifference to basic accounting," Galbraith said. "To put the point firmly, they say that the economy is recovering but the deficits are a problem. But the economy is recovering because of the budget deficits. Without these budget deficits, there would be no recovery, because it is the deficits that are helping to put more money into households' pockets. To talk of recovery but to criticize the deficits is ridiculous. The whole point of this thing [stimulus spending] is to add to the deficit. The patient is recovering from a deadly illness and yet the press is attacking the medicine.". . .
Galbraith criticized news and editorial coverage that unquestioningly reports the notion "of the relationship of the present to the future, the idea that the public debt puts the debt on our children and grandchildren. This is not true. If I incur a debt personally and die, it comes out of my estate or the pockets of my children. The public debt is not like that. There is the debt, yes, but there are also assets, namely the benefits that accrue to households today [through government stimulus spending]. Without deficits, people today will have no assets to pass down to their children and grandchildren."
Galbraith said that instead of holding the line on spending following the passage of the $780 billion stimulus measure earlier this year, "we need more recovery bills" that are larger and reflect "the true scale of the emergency." In a Washington Monthly article last spring, he outlined an ambitious recovery spending program including public projects, open-ended aid to state and local governments, increases in Social Security and Medicare benefits, and comprehensive foreclosure relief, among other items. Alluding to the cost of such a program, Galbraith wrote:
"The chorus of deficit hawks and entitlement reformers are certain to regard this program with horror. What about the deficit? What about the debt?. . . First, the deficit and the public debt of the U.S. government can, should, must, and will increase in this crisis. They will increase whether the government acts or not. The choice is between an active program, running up debt while creating jobs and rebuilding America, or a passive program, running up debt because revenues collapse, because the population has to be maintained on the dole, and because the Treasury wishes, for no constructive reason, to rescue the big bankers and make them whole."
Galbraith further said that "so long as the economy is placed on a path to recovery, even a massive increase in public debt poses no risk that the U.S. government will find itself in the sort of situation known to Argentines and Indonesians." This is so, he wrote, "Because the rest of the world recognizes that the United States performs certain indispensable functions, including acting as the lynchpin of collective security and a principal source of new science and technology. So long as we meet those responsibilities, the rest of the world is likely to want to hold our debts."
As Galbraith said on another occasion, in support of more stimulus: "Government spending -- that is absolutely the reason why this has not turned into the [second] Great Depression.". . .
Galbraith likewise faulted a prevalent view in the press that "getting credit flowing from the banks" will spur recovery. This is exactly backward, he said. "First, comes household recovery and then the credit will flow," he said.
Right now, Galbraith said, tens of millions of Americans are in no position to seek loans because they lack collateral to borrow against, having lost jobs, lost value in their houses, lost value in stock holdings and retirement plans, etc. For the first time since the 1930s, he said, "millions of American households are financially ruined."
"Borrowers are as important as the lenders," in bringing about recovery, and currently there is a paucity of borrowers because of the economic collapse. . .
"Their editorials reveal a lack of understanding of the structure of the economy...and an indifference to basic accounting," Galbraith said. "To put the point firmly, they say that the economy is recovering but the deficits are a problem. But the economy is recovering because of the budget deficits. Without these budget deficits, there would be no recovery, because it is the deficits that are helping to put more money into households' pockets. To talk of recovery but to criticize the deficits is ridiculous. The whole point of this thing [stimulus spending] is to add to the deficit. The patient is recovering from a deadly illness and yet the press is attacking the medicine.". . .
Galbraith criticized news and editorial coverage that unquestioningly reports the notion "of the relationship of the present to the future, the idea that the public debt puts the debt on our children and grandchildren. This is not true. If I incur a debt personally and die, it comes out of my estate or the pockets of my children. The public debt is not like that. There is the debt, yes, but there are also assets, namely the benefits that accrue to households today [through government stimulus spending]. Without deficits, people today will have no assets to pass down to their children and grandchildren."
Galbraith said that instead of holding the line on spending following the passage of the $780 billion stimulus measure earlier this year, "we need more recovery bills" that are larger and reflect "the true scale of the emergency." In a Washington Monthly article last spring, he outlined an ambitious recovery spending program including public projects, open-ended aid to state and local governments, increases in Social Security and Medicare benefits, and comprehensive foreclosure relief, among other items. Alluding to the cost of such a program, Galbraith wrote:
"The chorus of deficit hawks and entitlement reformers are certain to regard this program with horror. What about the deficit? What about the debt?. . . First, the deficit and the public debt of the U.S. government can, should, must, and will increase in this crisis. They will increase whether the government acts or not. The choice is between an active program, running up debt while creating jobs and rebuilding America, or a passive program, running up debt because revenues collapse, because the population has to be maintained on the dole, and because the Treasury wishes, for no constructive reason, to rescue the big bankers and make them whole."
Galbraith further said that "so long as the economy is placed on a path to recovery, even a massive increase in public debt poses no risk that the U.S. government will find itself in the sort of situation known to Argentines and Indonesians." This is so, he wrote, "Because the rest of the world recognizes that the United States performs certain indispensable functions, including acting as the lynchpin of collective security and a principal source of new science and technology. So long as we meet those responsibilities, the rest of the world is likely to want to hold our debts."
As Galbraith said on another occasion, in support of more stimulus: "Government spending -- that is absolutely the reason why this has not turned into the [second] Great Depression.". . .
Galbraith likewise faulted a prevalent view in the press that "getting credit flowing from the banks" will spur recovery. This is exactly backward, he said. "First, comes household recovery and then the credit will flow," he said.
Right now, Galbraith said, tens of millions of Americans are in no position to seek loans because they lack collateral to borrow against, having lost jobs, lost value in their houses, lost value in stock holdings and retirement plans, etc. For the first time since the 1930s, he said, "millions of American households are financially ruined."
"Borrowers are as important as the lenders," in bringing about recovery, and currently there is a paucity of borrowers because of the economic collapse. . .
posted by TPR | 12:08 AM
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