Robert Reich's Most Excellent "Maximum-Strength Remedy" for the Economy

TPM Cafe has a post up from former Labor Secretary Robert Reich that diagnoses our biggest economic ailment, lack of demand:

Introductory economic courses explain that aggregate demand is made up of four things, expressed as C+I+G+exports. C is consumers. Consumers are cutting back on everything other than necessities. Because their spending accounts for 70 percent of the nation's economic activity and is the flywheel for the rest of the economy, the precipitous drop in consumer spending is causing the rest of the economy to shut down.

I is investment. Absent consumer spending, businesses are not going to invest.

Exports won't help much because the rest of the world is sliding into deep recession, too. ...

That leaves G, which, of course, is government. Government is the spender of last resort. Government spending lifted America out of the Great Depression. It may be the only instrument we have for lifting America out of the Mini Depression. Even Fed Chair Ben Bernanke is now calling for a sizable government stimulus. He knows that monetary policy won't work if there's inadequate demand.


Then he goes on to prescribe how the Government can best use its spending power to get the economy back on track:
So the crucial questions become (1) how much will the government have to spend to get the economy back on track? and (2) what sort of spending will have the biggest impact on jobs and incomes?

The answer to the first question is "a lot." Given the magnitude of the mess and the amount of underutilized capacity in the economy-- people who are or will soon be unemployed, those who are underemployed, factories shuttered, offices empty, trucks and containers idled -- government may have to spend $600 or $700 billion next year to reverse the downward cycle we're in.

The answer to the second question is mostly "infrastructure" -- repairing roads and bridges, levees and ports; investing in light rail, electrical grids, new sources of energy, more energy conservation. Even conservative economists like Harvard's Martin Feldstein are calling for government to stimulate the economy through infrastructure spending. Infrastructure projects like these pack a double-whammy: they create lots of jobs, and they make the economy work better in the future. (Important qualification: To do this correctly and avoid pork, the federal government will need to have a capital budget that lists infrastructure projects in order of priority of public need.)

Government should also spend on health care and child care. These expenditures are also double whammies: they, too, create lots of jobs, and they fulfill vital public needs.

I've been calling for these kinds of economic stimulus for months. Glad to have someone joining in who's got the ear of the incoming administration.

Tags: Recession, Robert Reich, state budgets, stimulus package (all tags)

Comments

3 Comments

infrastructure investment/ rebuilding is where it

is at ... this is key.

by FLS 2008-11-10 07:10AM | 0 recs
Re: sounds about right
6-700 Billion, intelligently targeted, would make a huge difference in terms of foreshortening the recession.  Maybe the US would already be recovering while the rest of the world spent another year struggling.  
Infrastructure, energy, health care, child care, education, all of that would stimulate the economy while simultaneously improving other aspects of our national status.
by megaplayboy 2008-11-10 07:13AM | 0 recs
Re: Robert Reich's Most Excellent ....

"demand" is a euphemism for "waste", i.e., people buying a whole bunch of shit that they don't really need. Its what has destroyed the environment and caused global warning which threatens very real human extinction; its what has caused massive widespread suffering of most of humanity so a very minuscule few can live in obscene opulence.  

The Earth and humanity need a better business model

"Small is Beautiful"

by gak 2008-11-10 11:23AM | 0 recs

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