I am slightly worried, given the brightly coloured cover of this book and the snappy title (screaming exclamation mark and all), that Paul Krugman’s End This Depression Now! (Melrose Road Partners, 2012) is going to end up in the hands of a lot of disappointed people looking for a quick fix for the their mental health problems. In fact, while Krugman does his best to be upbeat and make the case for a set of positive, quick and straightforward policies we can use to solve the current economic crisis, there’s a risk that reading about the shocking, self-interested and deliberately disingenuous decisions that have served to lengthen our current economic woes will only make those who are prone to melancholy feel even gloomier.
Paul Krugman [obligatory reference to Nobel laureate goes here] is a smart guy. Back in 1999 he published a book called The Return of Depression Economics – it was a book that I read and digested and used to parrot bits (usually without attribution – hey, I want to look smart too!) at the drop of a hat into conversations that were often only very tangentially concerned with economics. What I discovered, and I’m sure Krugman has experienced this a thousand-fold, is that in the good times no one likes to be warned of the disaster that is around the corner. No one, it turns out, makes passes at Cassandras who predict losses.
Thirteen years later, and four-and-a-half years into a depression that (if it isn’t quite as deep) is set to last longer than the disaster of the 1930s, one might forgive Krugman if his latest book was just the phrase “I told you so” repeated for 240 pages in a large, sarcastic font. Fortunately, for the reader, End This Depression Now manages (mostly) to keep a lid on the triumphalism of an academic justified. Krugman isn’t content to look backwards, instead he tries to offer a practical programme to get us out of the mess were in.
…it’s extremely important that we take action to promote a real, full recovery. And here’s the thing: we know how to do that, or at least we should know how to do that. We are suffering woes that, for all the differences in detail that come with seventy-five years of economic , technological, and social change, are recognizably similar to those of the 1930s. And we know what policy makers should have been doing then, both from the contemporary analysis of Keynes and others and from much subsequent research and analysis. That same analysis tells us what we should be doing in our current predicament.
Unfortunately, we’re not using the knowledge we have, because too many people who matter – politicians, public officials, and the broader class of writers and talkers who define conventional wisdom – have, for a variety of reasons, chosen to forget the lessons of history and the conclusions of several generations’ worth of economic analysis, replacing that hard won knowledge with ideologically and politically convenient prejudice. (xi)
We shouldn’t underestimate how bad things are. Unemployment has risen sharply and it is particularly bad amongst young people and the effects are likely to be long-lasting – blighting lives long after this depression has ended. Unlike past recessions, economic recovery has been (at best) sluggish. Four years after the economic crash of the 1930s the British economy had already returned to its pre-crash levels of activity – we’re nowhere near back to 2007 levels today. We risk losing the future:
Amid all the excuses you hear for not taking action to end this depression, one refrain is repeated constantly by apologists for inaction: we need, they say, to focus on the long run, not the short run… Focusing only on the long run means ignoring the vast suffering the current depression is inflicting, the lives it is ruining irreparably as you read this. But that’s not all. Our short-run problems – if you can call a slump now in its fifth year “short run” – are hurting our long-run prospects too…” (15)
Long term unemployment is corrosive, making people unemployable and reducing the economy’s effective workforce. Low business investment creates limits on productive capacity that will cause bottlenecks to slow or stall recovery, when it eventually comes. And “austerity” is damaging crucial public services – cuts to education (America has laid off more than 300,000 teachers) damage future prospects for individuals and the nation, the cancellation of infrastructure projects create more bottlenecks for the future. But all this long-term damage could be reduced by short-term action to solve the problems we face today.
What makes this disaster so terrible – what should make you angry – is that none of this need be happening. There has been no plague of locusts, we have not lost our technological know-how; America and Europe should be richer, not poorer, than they were five years ago… We have both the knowledge and the tools to end this suffering… These are terrible times, and all the more terrible because it’s all so unnecessary. But don’t give up: we can end this depression, if only we can find the clarity and the will. (20)
Krugman stresses that while the scale of the disaster is huge, the causes are relatively straightforward. The problem isn’t with the “economic engine” of our economy, it is a problem of “organization and coordination” – we are in what Keynes called a “colossal muddle” but one which can be relatively quickly solved, if we want, but many find this hard to accept.
Partly that’s because it just feels wrong to attribute such devastation to a relatively minor malfunction. Partly too there’s a strong desire to see economics as a morality play, in which bad times are the ineluctable punishment for previous excesses… And the people who… sagely declare that our problems have deep roots and no easy solution, that we all have to adjust to a more austere outlook – sound wise and realistic even though they are utterly wrong… The sources of our suffering are relatively trivial in the scheme of things, and could be fixed quickly and fairly easily if enough people in positions of power understood the realities. Moreover, for the great majority of people the process of fixing the economy would not be painful and involve sacrifices; on the contrary, ending this depression would be a feel-good experience for almost everyone except those who are politically, emotionally and professionally invested in wrongheaded economic doctrines. (23)
Unemployment is high and the economy is growing slowly because there isn’t enough demand in the economy – people and businesses aren’t spending money and low spending means businesses “won’t produce what they can’t sell, won’t hire workers if they don’t need them for production.” (25) People are driven by the urge to reduce their debt and to build up reserves to protect themselves against the crises – “the world’s residents are trying to buy less stuff than they are capable of producing, to spend less than they earn. That’s possible for an individual, but not for the world as a whole. And the result is devastation all round.” (30) Normally, in such circumstances, central banks deal with the problem by printing money – encouraging the circulation of cash in the economy, increasing liquidity, and cutting interest rates – giving people access to cash, boosting spending and getting investment back on track. That hasn’t worked in this crisis. Interest rates are at, or near, zero and can’t be cut further and people and businesses are still unwilling to borrow and unable to spend. We are in a liquidity trap: “it’s what happens when zero isn’t low enough, when the Fed has saturated the economy with liquidity to such an extent that there’s no cost to holding more cash, yet overall demand remains too low.” (34)
A STRUCTURAL CRISIS?
Krugman dismisses the often made argument that what is wrong with our economy is structural – that the reason our economy is idle and so many people are unemployed is not because of a failure of demand but because there are too many workers with the wrong skills or in the wrong location or in the wrong industry – that we have to suffer this depression because we need to first realign our economy. The same claims were made in the 1930s but when the recovery came, it turned out that the much touted structural problems in the economy had disappeared.
More broadly, if the problem is that many workers have the wrong skills, or are in the wrong place, those workers with the right skills in the right place should be doing well. They should be experiencing full employment and rising wages. So where are these people? …unemployment is high everywhere. And there are no major occupations or skill groups doing well. Between 2007 and 2010 unemployment roughly doubled in just about every category – blue-collar and white collar, manufacturing and services, highly educated and uneducated. Nobody was getting big wage increases… The bottom line is that if we had mass unemployment because too many workers lacked the Right Stuff, we should be able to find a significant number of workers who do have the right stuff prospering – and we can’t. What we see is impoverishment all around, which is what happens when the economy suffers from inadequate demand. (37-38)
This is crucial. Because if the problems are not structural, if “all” we need to do to get out of this mess is to boost demand then we know how to do that. We saw how it was done in the late 1930s. We need “governments to step up their spending to get us out of this depression… Ending this depression should be, could be, almost incredibly easy.” (40)
PARADOXES OF DEBT
Highly leveraged debt is a problem – it lead to the “Minsky moment” in which creditors panicked and stopped lending money, debtors stopped spending money and focused only on repaying their debt and the economy to came a grinding halt, potentially locking us into a debt-deflation cycle of the kind that has plagued Japan since the 1990s. In this situation a number of paradoxes appear.
- The paradox of thrift: as everyone tries to save more (and spend less) the economy shrinks faster, businesses (having no markets) invest less and so incomes fall, meaning that people end up saving less, not more.
- The paradox of deleveraging: the harder people try to clear their debts (for example, by selling heavily mortgaged property) the higher their debts become (because everyone is trying to sell their property and the value plummets).
- The paradox of flexibility: while an individual worker can improve her chance of getting a job by accepting lower wages – making her more attractive compared to workers demanding higher wages – reducing the wages of everyone simply reduces incomes and spending and leaves levels of debt unchanged, making things worse.
THE BIG LIE
So apparently common sense approaches to tackling debt can be counterproductive. But the idea that people and governments need to “tighten their belts” and accept a long period of austerity remains potent. The “Big Lie” – that this crisis was caused by governments not unregulated markets and that it can only be solved by more deregulation of markets – suits the interests of those who have profited most from the changes that began in the 1980s and their wealth gives them power to shape both politics and the profession of economics. We are in a “dark age of macroeconomics” which is different from the experience of the 1930, then:
…nobody knew how to think about a depression and it took pathbreaking economic thinking to find a way forward. That era was, if you like, the Stone Age of economics, when the arts of civilization had yet to be discovered. But by 2009 the arts of civilization had been discovered – and then lost. A new barbarism had descended on the field. (92)
The rejection of Keynes theories by the right is, at first, confusing for there is nothing especially radical about them. Keynes called them conservative and there’s certainly nothing in them that challenges “capitalism”. Krugman quotes Michal Kalecki (94) who, in 1943, argued that capitalists used the idea of “confidence” to exercise control over government. Governments must never do anything to upset business because that would destroy confidence and confidence creates jobs and keeps the economy spinning. The problem with Keynesian theory is that it shows that government can create jobs without business and that the “confidence” of a small group of wealthy people is not crucial after all. This weakens the position of the wealthy and makes Keynes a threat. And since the very wealthy are the same people who sponsor university professorships, fund research, sponsor conferences and provide jobs for experts, Krugman argues that they have a powerful effect on shaping shifting the attitude of professional economics away from the ideas of Keynes. The result was that “at the decisive moment, when what we really needed was clarity, economists presented a cacophony of views, undermining rather than reinforcing the case for action.” (108) So, even when attempts to boost the economy were made – for example, Obama’s American Recovery and Reinvestment Act – they were half-hearted and only marginally helpful.
But it didn’t have to be like this, and it doesn’t have to stay like this. There were things policy makers could have done at any point in the last three years that would have greatly improved the situation. Politics and intellectual confusion – not fundamental economic realities – blocked effective action. And the road out of depression and back to full employment is still wide open. We don’t have to suffer like this. (129)
One of the most common objections to Keynesian action to tackle the economic crisis is the “exaggerated fear of deficits” (131) but there’s no evidence that deficits represent a significant threat to economies like America, Britain or Japan. The claim that “bond vigilantes” will refuse to purchase the debt of economies that borrow against their own currencies (the situation is different for Eurozone nations), driving up interest rates, is not supported by evidence. Even as deficits have risen, interest rates on government bonds have fallen. In America and Britain the current interest rate on ten year bonds (around 2%) is below levels of inflation (around 3.5% in the UK) – investors are paying governments to hold on to their money. And the effect of “downgrading” America’s AAA status by ratings agencies in 2010 was exactly the same as the effect of their downgrading of Japan a decade before: there was none. Krugman dismisses another objection to governments running deficits in an economic downturn – the idea that it “crowds out” private money, money the government spends has to be borrowed and that, in effect, is taking money from those who could spend it more effectively in the private sector.
…in a depressed economy budget deficits don’t compete with the private sector for funds, and hence don’t lead to soaring interest rates. The government is simply finding a use for the private sector’s excess savings, that is, the excess of what it wants to save over what it is willing to invest. And it was in fact crucial that the government play this role, since without those public deficits the private sector’s attempt to spend less than it earned would have caused a deep depression. (137)
The other common objection to higher deficits is the supposed “burden” it places on the future. But the truth is that the debts we’re running now “won’t have to be paid off quickly, or indeed at all. In fact it won’t be a tragedy if the debt continues to grow, as long as it grows more slowly than the sum of inflation and economic growth” (141). This sounds reckless and even cynical but it we’ve been here before. The vast debts that burdened the US and UK after the WW2 weren’t paid off either. Despite the “burden” of debt a long period of high growth and moderate inflation through the 1950s and 1960s eroded the debt as proportion of GDP as governments ran balanced budgets or slight deficits.
We won’t ever have to pay off the debt, all we’ll have to do is pay enough of the interest on the debt so that the debt grows significantly more slowly than the economy. One way to do this would be to pay enough interest so that the real value of the debt – its value adjusted for inflation – stays constant; this would mean the ratio of debt to GDP would fall steadily as the economy grows… The point is that debt doesn’t impose any burden at all but that even shock-and-awe debt numbers aren’t nearly as big a deal as often claimed. (143)
Given these facts, the willingness of the right to impose the suffering of unemployment by arguing against short-term solutions seems perverse. Austerity hurts in the short-term and makes will probably make things worse in the long term. “All that we need to know is that the payoff to fiscal cuts in times like these is small, possibly nonexistent, while the costs are large. This is really not a good time to obsess over deficits” (145).
And yet it can still seem counterintuitive to argue that the way to cure a problem caused by over-leveraged debt is to create more debt. But all debts are not the same. In America (and the UK) the national debt is money we owe ourselves (there are elements owed overseas, but these are modest compared to the size of our economies) and one person’s debt is another person’s asset.
It follows that the level of debt matters only if the distribution of net worth matters, if highly indebted players face different constraints from players with low debt. And this means that all debt isn’t created equal, which is why borrowing by some actors now can help cure problems created by excess borrowing by other actors in the past. (146)
The other supposed threat to our economy if we borrow too much is inflation. Deficit hawks have been predicting a sharp spike in inflation since the start of the recovery and continue to make these claims, despite continually being proven wrong. Some, like rightwing historian Niall Ferguson, have even taken to propounding conspiracy theories about how governments are covering up the “real” level of inflation (160), claims for which there is no evidence. Indeed the problem with the economy is not that inflation is too high, but that it is too low – this is especially obvious when volatile commodities like food and fuel are stripped out. The costs of moderately higher inflation (around 4-5% compared to current targets of around 2%) would be small – high inflation can be damaging and runaway inflation is a disaster, but moderate inflation has none of o those negative effects but it would offer three crucial benefits.
- Higher inflation, “other things being equal, makes borrowing more attractive: if borrowers believe that they’ll be able to repay loans in dollars that are worth less than the dollars they borrow today, they’ll be more willing to borrow and spend at any given interest rate” (163). In our current liquidity trap interest rates are at zero and “want” to go lower but can’t (because lenders will just hold on to their money rather than lend it at negative interest rates that lose money). Higher inflation would make holding on to money less attractive as it devalues faster while being held. So, higher inflation would encourage lending and borrowing without, at least in the short-term, driving up interest rates.
- Inflation reduces the real value of debt, and highly leveraged debt remains a burden on the private sector and individuals.
- Inflation makes it easier for regions in difficulty to reduce wages. Employees are unwilling to accept pay cuts (partly because it is hard for them to judge whether they are being treated fairly by employers) but it is easier for them to stomach the erosion of the value of their wages by inflation – which is a general force. This is particularly important for nations like Spain and Greece whose economies are locked into the Euro with Germany and who desperately need to find ways to reduce costs to make them competitive again to stand any chance of recovery.
Krugman’s analysis of the crisis in Europe is especially interesting, not just because as a European it affects me most, but because it is so utterly counter to the prevailing narrative in politics and the media about the causes of the crisis in the Eurozone nations. Greece, Ireland, Portugal, Spain and Italy (the GIPSI nations) are, we are told, being punished now for their profligacy (if not downright corruption) in the good years. But, argues Krugman, the real problem lies not with individual government but with the structures that were created (or not created) when the euro was introduced.
Krugman identifies three key elements necessary for regions to share currency: shared trade, labour mobility and fiscal integration. European nations certainly trade extensively with each other but, despite open border legislation, labour mobility remains relatively low (barriers of culture and language remain high) and there is little fiscal integration – when things go wrong vulnerable economies like Ireland and Spain are left to meet the overwhelming majority of the costs of economic crisis out of their own diminished revenues.
The creation of the euro in 1999 created a situation where it became highly attractive to invest in nations like Italy and Spain because, where once they had seemed high risk, their debt was now treated in the same way as Germany. The cost of borrowing fell and, supported by inward investment from Germany, a huge housing bubble developed and a vast gap opened between the trade imbalances of the GIPSIs (running current account deficits) and Germany (running huge surpluses).
Then the bubble burst.
And unlike the US or UK, the GIPSI countries didn’t just enter a depression, their national budgets came under severe strain. Tax revenues collapsed, unemployment rose sharply, spending on benefits soared and they found themselves burdened with the huge debts run up by private banks. Investors panicked, interest rates on bonds soared, and the crisis deepened.
But just has America has a “Big Lie” (that the housing crisis was caused by government intervention in “free” markets) so Europe has the “Big Delusion” – that the European crisis was caused by governments acting irresponsibly – running deep into debt. Certainly there were problems in Greece – though it isn’t simply down to Greek mismanagement – and to a lesser degree in Portugal, but before the crisis Ireland and Spain were nations with budget surpluses and low debt. And Italy had inherited high debt from the 1970s and 1980s but was steadily reducing it.
Yet many Europeans in key positions – especially politicians and officials in Germany, but also the leadership of the European Central Bank and opinion leaders throughout the world of finance and banking – are deeply committed to the Big Delusion, and no amount of contrary evidence will shake them. As a result, the problem of dealing with the crisis is often couched in moral terms: nations are in trouble because they have sinned, and they must redeem themselves through suffering. And that’s a very bad way to approach the actual problems Europe faces. (179)
The easiest way (not easy, but easier) for the GIPSI nations to get out of trouble would be for a Germany to pursue and aggressive policy of fiscal stimulation, creating full employment an enduring moderately raised levels of inflation (an anathema to Germans) that would raise German prices while GIPSI costs remained stable. The alternative for the crisis nations – if they are to stay a part of the euro – is a long, ruinous period of unemployment and deflation (increasing the already crippling burdens of debt).
If the euro is to be saved, and Krugman (like me) believes that the political benefits of a closely linked European Union (decades of peace and a force for stable democracy in a continent too often prone to dictatorship and violence) are worth a significant price to preserve, then three things need to be done.
- Europe need to guarantee liquidity for all nations – setting in place structures that will prevent governments running out of cash because of market panic relating to national debt. The European Central Bank needs to demonstrate that it will, when necessary, buy the bonds of euro nations.
- Europe needs an expansionary monetary policy. The wealthy nations of the EU will need to abandon austerity and become a strong source of demand for the exports of the crisis nations – accepting, as a price, moderate increases in inflation.
- There will continue to be pressure on the crisis countries to reduce their deficits and debt levels, but this can be done at a sensible rate and in a way that maintains a path to economic growth.
While there has been much browbeating of the GIPSI nations for their moral failings, nothing has been done to give them a plausible path to restored competitiveness. Austerity, rather than guiding them away from crisis, is simply prolonging their torture. Why has Europe responded so badly to this situation?
…much of the continents leadership seems determined to ‘Hellenize’ the story, to see everyone in trouble – not just Greece – as having gotten there through fiscal irresponsibility. And given that false believe there’s a natural turn to a false remedy: if fiscal profligacy was the problem, fiscal rectitude must be the solution. It’s economics as morality play, with the extra twist that the sins being punished for the most part never happened. (187)
Since 2010 we have seen the growing dominance of the “Austerians” – those who believe in the need for immediate austerity. Krugman argues that while the Austerians are clear on what should be done – tightening belts, fighting imaginary inflation, raising interest rates – it was much harder to work out why. On interest rates he notes:
I often felt as if the advocates of higher rates were playing Calvinball – the game in the comic strip Calvin and Hobbes in which the players are constantly making up new rules… various economists and financial types seemed quite sure that rates needed to go up, but their explanations of just why they needed to go up kept changing. This changeability in turn suggested that the real motives for demanding tightening had little to do with an objective assessment of the economics. (191)
The most common cause for their concern appeared to be the “fear factor” – fear that nations that didn’t pursue austerity would meet a debt crisis of the sort facing Greece. As Krugman noted “Greek debt was sui generis even within Europe” but it proved useful as a tool – the spectre of the consequences of profligacy was used to justify “apocalyptic warnings about imminent disaster if we didn’t move immediately to cut the deficit” (192).
But despite their predictions, interests rates in nations like the UK and US have not spiked, the downgrade of America by ratings agency S&P had no effect and “even if one took warnings about a looking debt crisis seriously, it was far from clear that immediate fiscal austerity – spending cuts and tax hikes when the economy was already depressed – would help ward that crisis off” (194).
Undermining growth in an already weak economy might actually make deficit reduction harder.
THE CONFIDENCE FAIRY
The Austerians, however, ignore worries about economic contraction caused by cuts and, instead, invoke the “confidence fairy” arguing that “immediate cuts were necessary to restore confidence – and that restored confidence would make those cuts expansionary, not contractionary” (194). To succeed the confidence fairy argument relies on the idea that cutting government spending can increase demand. There are two ways in which this might happen:
- Investors, believing that lower deficits will mean lower future borrowing and, therefore, lower future interest rates may cut long-term interest rates today leading to higher investment and spending.
- Consumers, seeing government cuts, may assume that future taxes will be lower and thus feel richer and spend more.
So, it is possible that austerity might increase spending and therefore increase economic growth, but is it plausible?
It is not enough for these confidence-related effects to exist; they have to be strong enough to more than offset the direct, depressing effects of austerity right now. That was hard to imagine for the interest rate channel, given that rates were already very low at the beginning of 2010 (and are even lower at the time of writing). As for the effects via expected future taxes, how many people do you know who decide how much they can afford to spend this year by trying to estimate what current fiscal decisions will mean for their taxes five or ten years in the future? (196)
THE BRITISH EXPERIMENT
While most governments adopting harsh austerity policies in a time of high unemployment have done so under duress (Greece, Spain, Ireland, etc.) only one has done so willingly, because of its belief in the power of the confidence fairy: David Cameron’s Conservative/Lib Dem coalition.
George Osborne’s economic policy was built around the claim in his “emergency budget” in 2010 that without austerity Britain would face “higher interest rates, more business failures, sharper rises in unemployment, and potentially even a catastrophic loss of confidence and the end of the recovery” (200). British interest rates have stayed low, but they also stayed low in the US and Japan – nations with higher levels of debt and no sharp austerity programme.
What about the confidence fairy? Did consumers and business become more confident after Britain’s turn to austerity? On the contrary, business confidence fell to levels not seen since the worst of the financial crisis, and consumer confidence fell even below the levels of 2008-9… there is a real sense in which Britain is doing worse in this slump than it did in the Great Depression: by the fourth year after the Depression began, British GDP had regained its previous peak, but this time around it’s still well below its level in early 2008. And at the time of writing, Britain seemed to be entering a new recession. One could hardly have imagined a stronger demonstration that the Austerians had it wrong. (201)
Krugman offers four reasons why austerity seems so popular despite the evidence that it is not helping and may be making things worse.
First, he notes Keynes’s comments on the dominance of Ricardian economics in his era and suggests that the notion that “it could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress, and the attempt to change such things as likely on the whole to do more harm than good, commended it to authority” rings especially true today.
Second, he returns to Kalecki’s notion that the appeal to confidence is a means by which capitalists exercise control over government and that Keynesian alternatives threaten that source of power.
Third, he asks who do the Austerian policies serve?
If you look at what Austerians want – fiscal policy that focuses on deficits rather than on job creation, monetary policy that obsessively fights even the hint of inflation and raises interest rates even in the face of mass unemployment – all of it in effect serves the interests of creditors, of those who lend as opposed to those who borrow and/or work for living. Lenders want governments to make honouring their debts the highest priority’ and they oppose any action on the monetary side that either deprives bankers of returns by keeping rates low or erodes the value of claims through inflation. (207)
And, finally, he suggests that the “continuing urge to make economic crisis a morality play, a tale in which a depression is the necessary consequence of prior sins” appeals to those people, like central bankers and financial officials whose “sense of self worth is bound up with the idea of being the grown-ups who say no” (207)
END THE DEPRESSION
We can get economies out of depressions, we’ve done it before and we can, if we want, do it again. The last time, in the run up to WW2, we delivered two generations of nearly full employment and dramatically reduced inequality. And not only can we end this depression, but we can do it quickly.
Everytime you hear some talking head declare that we have a long-term problem that can’t be solved with short term fixes, you should know that while he may think he sounds wise, he’s actually being both cruel and foolish. This depression could and should be ended very quickly. (209)
Krugman sets out a range of policies that could be pursued and enacted quickly to meet the current need to get economies growing and people back to work.
Spend now, pay later
If the private sector can’t or won’t spend enough to make full use of or national productive capacity and employ the millions who are unemployed, then government should spend the money instead. We don’t even need to come up with vast projects to spend the money on, simply reversing the cuts that have already taken place (or are planned) would pump significant amounts of extra cash into the economy – cutting unemployment and boosting growth. Infrastructure projects should also be pursued, putting more people back to work, and (again) these don’t have to be vast new undertakings – reinstating those projects that have been cut (from road repair to rail links) could be done quickly. And new projects should also be started.
But what if these projects end up taking a while to get going, and the economy has fully recovered before they have finished? The appropriate answer is, so? It has been obvious from the beginning of this depression that the risks of doing too little are much bigger than the risks of doing too much. (215)
We should also put money into the hands of those who are most likely to spend it – the poorest – temporarily increasing benefits to the unemployed and those on safety net programs.
We should learn from the failures of the Japanese to respond to their deflation crisis by pursuing aggressive monetary policies. Measures such as printing money to buy private debt or to pay for temporary tax cuts, intervening in currency markets to reduce the value of our currency to encourage exports and setting higher inflation targets might all help and, even if they don’t they demonstrate a willingness to do anything to get the economy back up to speed: “The point is to try, and keep on trying if the first round proves inadequate” (219).
Consumers are burdened with heavy debts incurred in the housing boom – a concerted effort to introduce debt relief could help the economy “and this should trump concerns that some of the benefits of relief might flow to people who behaved irresponsibly in the past” (220)
And the possibilities don’t end there. Action of foreign trade – and particularly a focus on China’s lack of openness – or a concerted effort to promote investment in environmental technology might also help. The details don’t matter, what matters is the determination to take positive action.
What’s crucial, beyond any specifics, is a determination to do something, to pursue policies for job creation and to keep trying until the goal of full employment has been achieved. (222)