More fiscal stimulus needed in the US

[girl gone mad]

More fiscal stimulus needed in the US
Bill Mitchell

Yesterday (July 21, 2010), US Federal Reserve Chairman Ben Bernanke presented the http://federalreserve.gov/newsevents/testimony/bernanke20100721a.htm">Semiannual Monetary Policy Report to the US Congress before the Committee on Banking, Housing, and Urban Affairs, in the US Senate. His assessment was rather negative and the most stark thing he said was that the rate of growth is not sufficient and will not be sufficient in the coming year to start reducing the swollen ranks of the unemployed. So the costs of policy inaction at this stage are already huge but growing by the day. These are deadweight losses that will never be made up again. While the US political system is now so moribund that it appears incapable of producing policy outcomes that will advance public purpose and restore stronger economic growth, the data that is freely available points to the need for a further fiscal stimulus. It is such an obvious strategy that the US government should employ.

The Chairman delivered a gloomy assessment of the state of the US economy. He said:

The economic expansion that began in the middle of last year is proceeding at a moderate pace, supported by stimulative monetary and fiscal policies … the housing market remains weak, with the overhang of vacant or foreclosed houses weighing on home prices and construction. An important drag on household spending is the slow recovery in the labor market and the attendant uncertainty about job prospects. After two years of job losses, private payrolls expanded at … a pace insufficient to reduce the unemployment rate materially. In all likelihood, a significant amount of time will be required to restore the nearly 8-1/2 million jobs that were lost over 2008 and 2009. Moreover, nearly half of the unemployed have been out of work for longer than six months. Long-term unemployment not only imposes exceptional near-term hardships on workers and their families, it also erodes skills and may have long-lasting effects on workers’ employment and earnings prospects.

So the US labour market is now locked into a situation where the tepid employment growth barely absorbs new entrants and the most disadvantaged workers are being trapped in long-term unemployment. In this state, we get what the institutional labour economists (like me) call “bumping down”.

Accordingly, when there is an overall shortage of jobs, higher-skilled (more educated) workers tend to take jobs that were previously occupied by lower skilled workers. The low-skilled are then forced out into the unemployment queue. So there are two inefficiencies: (a) the skills-based underemployment; and (b) the unemployment.

http://bilbo.economicoutlook.net/blog/?p=10823">more...

[yourout]

1. I knew when they did the first one it would not be big enough.....It should have been triple what...

the banksters got.

It was small enough to fail but big enough for the pukes to strangle us with.

[Hydra]

2. It was based on the idea that the recession would be over in a year

Regardless of anything they did.

Whoever thought that was logical should never have gotten into an advisor position, IMO.

[Hydra]

3. Gave you a rec, GGM, but it's still 0

Too bad they said a stimulus was going to be impossible, since they FUBARed the first one.

I hate watching a train wreck in slow motion...you can't do anything about it, but you can't look away.

[jtuck004]

4. Red'd it yesterday

Can't overcome the goose egg. Can't imagine what kind of life someone leads when that is their mission...But those of us who know it's important get to read it. So thanks.

Mitchell is making the good case, as are so many others, that we are going to continue being less relevent in this world (leaving aside all the tragedy that's going to accompany the ride) if investment in this country, in proportion to the size and importance of this economy, doesn't materialize.

However, after reading Michael Hudson's analysis of Bernenke's background, listening to Bernenke's testimony, and hearing Obama tell how much he and Bernanke are of the same mind...unless there is some earth, shaking prodding that goes on, they seem content to leave people in their misery.

[bemildred]

5. Does this mean we need to give more money to people that don't have enough? nt

[jtuck004]

6. No. It means we, as in taxpayers, need to create opportunities for them to earn

money because demand is so low, or taxes are too high, (or whatever other excuse business wants to use) we don't have enough jobs.

Even headlines like "Getting a job just got a little easier" get it wrong. More here...

"There are now about 5.9 job seekers, on average, competing for each job opening, according to the latest Job Openings and Labor Turnover survey from the Bureau of Labor Statistics. That's down from 6.4 the previous month -- the greatest differential since the Labor Department began tracking job openings in December 2000."

They neglect the hundreds of thousands who have quit looking, detailed in the BLS report, people who have been foreclosed on or are now homeless and can't look, people who are discouraged after having sent off dozens or hundreds of resumes and simply can't face the prospect of being ignored for a bit. There is nothing...nothing...on the horizon that indicates any growth in jobs, and an administration who thinks the export fairy is going to make conditions better here, even though every other country in the world is trying to increase their exports as well, and many of them sell merchandise that is good enough and cheaper. And with a Republican Federal Reserve Chairman who is enriching the biggest investment banks despite their bad business decisions, while he ignores the misery of the unemplyed in the country (is he working for his party's success in Novemeber?).

No, no giveaways. Investment in our country to make it stonger.

[bemildred]

7. Nice sig line there.

Thanks for explaining that, I feel so much better now.

[jtuck004]

8. LOL. If people would begin to talk about investing in our country,

instead of framing it as "giveaways" (our opponents frame) we might start a conversation that would light a fire under the
feet of the folks that say they work for us.

They have put big money and effort into controlling the conversation, and we (as a big group) don't seem to understand how important that is. Or we would be taking every opportunity to reframe and refocus.

Instead the folks who say they are on our side want to "decrease" the deficit, because the ratio of deficit to GDP is too high.

They forget their basic math - the other way is to make the GDP bigger - jobs can do that, and we are supposed to be the party that is on the side of the working person. The working person is hurting badly, and I just can't let it sit when I hear people say things like "giveaway" :)

[bemildred]

9. I once started a thread here about "What's wrong with handouts?"

Pointing out that the government gives lots of money away, indeed throws it away, that it does determine winners and losers and take sides, and asking why not then just "give" money to people that need food, shelter, clothing, and so on? I also pointed out that none of us, in fact, are sui generis and we all depend on society to take care of us in various ways from cradle to grave.

It created quite an interesting discussion, seemed to upset certain people, apparently some of these ideas are taboo, it's like they think they just sort of popped up out of the ground all by themselves and get insulted if you suggest otherwise or that they owe anybody gratitude for anything.

[jtuck004]

10. I am truly astounded at the number of people who think

we survive on our own. Education may have had it's failures, but it has done a dandy job in teaching people that individuals can exist without the help of everyone else. We ignore (to our peril, I think) the collective action that is necessary for our survival.

It used to be glaringly apparent when we had to support each other just to live on the farm, but I think people need help to see the connections today.

I think people like to work. It gives them a sense of accomplishment. I wouldn't have a problem with paying people to create art, writing, theater, or paying them to get degrees we need more of. I think it sets a bad precedent to just give people things long-term, (temporary emergencies excepted, of course), because that is artificial. Life doesn't give you anything, and giving people the fruit of other's labor teaches them the wrong thing.

But I have not problem one with using taxpayer money to fund these. We gain so much, people create demand, and the economy flows.

I'll have to go look for your post. Thank you.

[bemildred]

11. Copacetic.

It was long ago, like 2003 or 2004, I dunno if they still keep that stuff around. I had a copy somewhere, but that was several computers ago too.