So here’s my question: Will it make any difference that Ben Bernanke has now joined the ranks of the hippies?
Earlier this week, Mr. Bernanke delivered testimony that should have made everyone in Washington sit up and take notice. True, it wasn’t really a break with what he has said in the past or, for that matter, with what other Federal Reserve officials have been saying, but the Fed chairman spoke more clearly and forcefully on fiscal policy than ever before — and what he said, translated from Fedspeak into plain English, was that the Beltway obsession with deficits is a terrible mistake.
First of all, he pointed out that the budget picture just isn’t very scary, even over the medium run: “The federal debt held by the public (including that held by the Federal Reserve) is projected to remain roughly 75 percent of G.D.P. through much of the current decade.”
He then argued that given the state of the economy, we’re currently spending too little, not too much: “A substantial portion of the recent progress in lowering the deficit has been concentrated in near-term budget changes, which, taken together, could create a significant headwind for the economic recovery.”
Finally, he suggested that austerity in a depressed economy may well be self-defeating even in purely fiscal terms: “Besides having adverse effects on jobs and incomes, a slower recovery would lead to less actual deficit reduction in the short run for any given set of fiscal actions.”
So the deficit is not a clear and present danger, spending cuts in a depressed economy are a terrible idea and premature austerity doesn’t make sense even in budgetary terms. Regular readers may find these propositions familiar, since they’re pretty much what I and other progressive economists have been saying all along. But we’re irresponsible hippies. Is Ben Bernanke? (Well, he has a beard.)
Ben the hippie
So austerity (Hayek’s cure) being practiced all over Europe and destroying the place, and that the Republicans (1%) want to bring to the USA is bad? Let’s get the old brain pan working for a minute. Create massive unemployment by shipping jobs overseas while simultaneously reducing the wages (buying power) of those still working in America. That way nobody can buy nothing because they have no money. If nobody spends anything and buys nothing, then factories close and more folks are unemployed. A vicious cycle is begun and the whole house of cards comes tumbling down. That’s how austerity works. That’s the T-baggers (right wing crazy people) and their Republican Party wet dream and the Capitalist way. Libertarians are idiots when it comes to economics.