By for now,
Hans

Thanks for the comment! I think we agree on a lot of things. One of them is that Obama is an honest man who cares for you and me. Also that he is on the right track.

My point, I think – without reiterating – is that the US has less freedom to act due to the giant debt, and that government intervention and stimulation is costly, at least in the short and medium term. The blame for this lies mostly with the Bush administration. Even so, it is a cost the American people will have to pay. And interest payments will restrict the government’s ability to act in the future.

On the other hand, I don’t see bankruptcy as quite as bad as the Fed or the talking heads do. If Citigroup or GM fell, that would not be the end of the world as we know it. Shareholders and debtors would lose their money, and rightfully so, but the parts of GM that are attrative and sound would be bought by somebody and continue to run. Same with Citigroup. So I think the rescue operations so to a large extend have wasted precious resources (and protected owners while unemployed, houseowners, and the average American has paid and will pay the price). I sincerely hope there will be now more bailouts like that, but fear that the bad bank idea being currently discussed will be more of the same.

Wipe shareholders and lenders out first, sell out the viable parts, and keep the rest till times change, I’d say! That’s fair, as it lets those that have taken the risk suffer, not the average American who never concented to the risks taken by for example GM or Citigroup or B of A.

So, to some extent, what I have been trying to with these last two posts, have been to point to the important role of redistribution (especially when contrained by debt), and the facilitating role of bankruptcies in income redistribution. I think we can both agree that income redistrution to stimulate effective demand is just as important in J.M. Keynes’ thinking as government spending.

Oh well. Again – thanks, and may luck be with you!

While it is true that the U.S. is running a huge deficit, and that it will grow considerably over the next few years, the key thing is not the number per se (within reason), but what we do with the money we borrow from the future. It’s a tremendous irony that the conservatives are now screaming about deficits and government spending, something they didn’t do when George W. Bush turned the surplus he had inherited from Bill Clinton into an ever growing deficit with his tax cuts for the rich and disastrous invasion of Iraq. It’s only when the U.S. government is going to do some real investments in the future and help the middle class and working that they go bananas.

Nobody is proposing to substitute the capitalist market economy with a centrally planned socialist economy, but when you are in a deep recession on the verge of a depression, you can’t follow the old playbook by having the Fed fiddling with the interest rate.

It sounds like many conservatives would rather do nothing, but this is not an option today, unless you are willing to allow for mass poverty, starvation and possibly a civil war down the line. John Maynard Keynes wrote the book so to say on how to prevent the capitalist economic system from self-destruction, and it’s thanks to him and clever can-do politicians like FDR that the U.S. and world’s major capitalist economies has system stabilizers, which prevents it from collapsing totally. Conservatives hates government intervention, unless it is for Hot Wars like the invasion of Iraq, or Cold Wars like the SDI program, which is why we didn’t hear them protest much against either Reagan’s reckless defense build-up or Bush feckless war in Iraq. What Keynes showed and FDR did was that it is better for the government to spend than sit idle, while the economy settles on an unnecessary low capacity utilization. When the private sector has lost hope, and consumers are terrified, there is no incentive to invest and build the future. But the government can take a longer view, and if it uses its resources and the money it borrows wisely, it can put idle resources (which you have to feed and shelter anyhow unless you want to gamble with a revolution) to work and give the entire economy a jolt and steer it out of the ditch. In today’s world and in the U.S., there are tremendous unmet needs as far as services to the public goes, for investments in the crumbling infrastructure, and in jumpstarting the green economy that is the one and only future for the world. We are facing a structural shift, and market forces typically cannot respond to such major changes as we lack accurate pricing signals for a transition from one economic structure (based on the old, carbon-based Earth destroying energy) to another (based on renewable Earth friendly energy). If you invest wisely, and governments can do that even if they don’t always do it, you can get the economy back on track, a new track, and once the engines are humming again, we can make a plan for paying back our loans.

Of course we would much rather have done this investment in a better future when we had the money and a surplus, but don’t have that luxury thanks to eight years of George W. Bush and his republican boosters.

Give Barack Obama a break. He’s on the right track, and he’s an honest man who cares for you and me.

Ciao!
Hans