In the rush to come up with a plan of spending cuts and tax hikes, both democrats and republicans have missed the essential detail that makes our current economic circumstances different from any we have previously experienced since World War II–it’s a trap. A liquidity trap, that is, and it’s going to make any spending cuts and tax hikes the US government enacts mean serious pain for millions of people.
Tag: Inflation
Occupy Wall Street and the Rolling Jubilee
I have been a long-time sceptic of the Occupy Wall Street movement–its reluctance to coalesce around any specific issues or solutions to said issues, its lack of structure, hierarchy, and organisation, and its fondness for Rousseauian direct democracy all have been and remain major turn-offs for me. There’s reason we remember Gandhi, Martin Luther King Jr., and Mandela; good protest movements require good leadership, specific goals, and specific means. However, I have discovered one strand of OWS that is not completely useless. In fact, it may provide an answer to one of the most serious problems afflicting our economy–high levels of household debt and governments unwilling to do anything about it.
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The Mother of All Output Gaps
There’s an interesting assumption going on behind the estimation of the output gaps (the difference between the economy’s current output and the economy’s estimated maximum potential output)–that not only did the economy decline during the recent crisis, but that the economy’s potential declined as well. This assumption leads to governments believing that their economies are less capable than perhaps they are, that the output gaps are not especially large, and that there is little revenue to be raised to offset stimulus spending, but what if it is not true? The idea comes from Capital Economics, a macroeconomics research company, has received attention from the Financial Times and Paul Krugman, and now it will receive attention from me as today’s topic.
Fed-Bashing Tomfoolery
It has become fashionable on the political right to attack the Federal Reserve and its policy of quantitative easing, the process by which the Federal Reserve increases the money supply by purchasing assets owned by the private sector with cash that it prints. The right argues that quantitative easing encourages inflation and makes it easier for the government to borrow money, that it discourages saving, and that these are bad things. In contrast, these are very good things, and I shall endeavour to argue as to why.
Back to Britain
Today I find myself preparing to board plane to resume my final undergraduate year at the University of Warwick in Britain. But what sort of country am I coming back to? Has Britain’s government managed to turn around the country’s economic situation, buoyed by the Olympics, or does Britain remain stuck in the doldrums? That is today’s topic.
Benjamin Studebaker 