Employment

Tim Duy is channeling Hamlet, torn between his concern over mass unemployment in a stagnant economy and his fear that an attack on the dollar could be just around the corner. I think he is right that we came close to a disorderly decline in the dollar during the period leading up to the financial crisis, but it’s a big mistake to think that slashing fiscal deficits is any sort of insurance against a return of this threat. On the contrary, big government deficits are exactly the result of credit contraction in the private sector. Duy gives us a FRED visual on capital inflows to the US economy; I’m reproducing it here. Inflows ballooned from the mid 90s until the onset of the financial crisis. This was not a period of outsized fiscal deficits, however; it was the private economy (housing but not only) that ran up the tab. When the bubble popped, it was left to the Fed/Treasury combo to transfer debt from those who couldn’t finance it (households and financial institutions) to those ...

Brian Beutler reports on the “logic” of two Republicans opposing President Obama’s proposal to extend the payroll tax relief. One of the opponents is Senator Lamar Alexander: We don't need short-term gestures, we need long-term strategies that build into our system simpler taxes, lower taxes, fewer mandates, lower costs, more certainty, any changes in the debt structure of tax reform ought to come out of the Vice President's talks or part of a major tax reform. The current unemployment problem is one of a lack of aggregate demand, which is precisely a short-term problem. The long-run fiscal policy problem, however, is the deficit. Clearly what we need is short-term fiscal stimulus with long-term fiscal restraint. Of course, Senator Alexander is simply echoing the standard Republican mantra. Which is why the leaders of this party should not be trusted with macroeconomic policy. Generated by BlogIt BlogIt - Auto Blogging Software for YOU!