As I write this 10 Year Treasuries are yielding 2.16%.
Fixing the economy: We got it wrong
James K. Galbraith, The L.A. Times
August 15, 2011
(T)he economic models in use were obviously faulty. Why? Because they had assumed a “natural rate of unemployment” to which the economy will return whatever happens. This idea originated with Milton Friedman as part of his attack on John Maynard Keynes – who had argued, based on the stark evidence of the Great Depression, that mass unemployment can persist indefinitely. An economist who builds the natural rate into a model is like a doctor who assumes that her patient will always get better eventually, even without treatment. No such doctors exist, of course; that so many economists think this way is just strange.
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This crisis was caused by financial collapse, rooted in massive banking fraud. The financial system is our economic motor and when it fails it cannot be revived simply by pouring money on it, any more than a wrecked reactor can be restarted just by adding fuel. Team Obama faced a situation not seen since the 1930s – a worldwide banking meltdown. The financial system needed to be rebuilt – and it still does. But Team Obama chose to overlook this.The result was debt-deflation. Falling asset prices tipped more and more households into insolvency, business stagnated, tax revenues dropped, states and localities cut their budgets and deficits widened. The situation is similar in Europe, with countries rather than households in the deepest trouble, and wild rumors attacking the shares of even the biggest banks.
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The solution has to be a long-term strategy: both a new direction for economic activity and new institutions to provide the money. The proposed national infrastructure bank – a permanent institution – is the right sort of thing and would be a good place to start.To go further, let’s admit that our problem is not budget deficits or public debt – not now and not later. Let’s agree that cutting Social Security and Medicare – inflicting pointless pain on the elderly – will not help. Let’s build a new financial system to serve public purpose and private business. And let’s start to act on our actual needs and problems: jobs, foreclosures, public investments, energy security and climate change.
When economists use terms like “animal spirits” in their calculations why the hell does anyone take them seriously?
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Don’t worry OFA will attack Galbraith and try to discredit him as a “political rookie” by quoting the right wing Obama sites that want all Obama’s critics to STFU.
Some people think that just because they have a website and worked for a candidate that they know it all. So when the economy continues to tank because they want to continue cutting and doing nothing to fix the core problem, will they take the blame? I bet not