In my college career I took one econ course, and I didn’t do well. l did get an A in a grad school course entitled the Economic History of Europe (bragging here), but that was more history than economics.
Even though I didn’t shine in my undergraduate course, I did learn a few things. Keynesian economics was the mainstream philosophy, and it was pretty simple. In a recession or depression, the government pumps money into the economy. It can do this by increasing the money supply by lowering interest rates. That’s monetary policy. It can also cut taxes or increase spending or both. That’s fiscal policy.
In the 1970s Keynesian economics was so mainstream that Richard Nixon announced at one point, “We are all Keynesians now.”
Here we are, 40 years later, and the economic laws have not changed. What has changed is the collective wisdom of the country. We are in the middle of a fragile recovery from the worst recession since the Great Depression. By cutting spending and laying off workers, this government could very easily throw the nation right back into negative territory.
I don’t think the Republicans particularly care. I believe they want the economy to tank. What I can’t understand is why the Democrats are buying into this narrative. We are doing exactly the wrong thing.
If employment goes down, tax revenues go down. The deficit would be increased because of decreased revenues. If people are laid off and programs are curtailed, the recession continues.
Why is this so hard to understand?
No comments:
Post a Comment