Sunday, September 30, 2012
Yes, the government CAN do something about recession and depressionJared Bernstein recently gave a couple of basic explanations about how fiscal and monetary policy create jobs: the oddly titled Daddy, Where Do Jobs Come From? Huffington Post 09/15/2012 and Do Politicians Really Have Much to Do with Job Creation? On The Economy 09/09/2012.
The latter article mentioned addresses something that is often said but seldom questioned in a really critical way, which is how successful the various special tax deals and so forth that states and localities offer to businesses really are in attracting business. Or not.
This part from the Huffington Post piece describes how fiscal policy works:
... though economists tend to discuss fiscal policy as a lump, it actually comes in a lot of different flavors and they're not all created equal in terms of bang-for-buck job creation. Basically, the more indirect they are -- the more links in the chain between the policy and job creation--the less effective they are.In other words, even programs that create what detractors call "make-work jobs" would benefit the economy and help to end the depression. Because making work is the point!
Bernstein's description of the effects of monetary policy are in line with mainstream economics and these days would be shared by most "neo-Keynesians", which is how most Keynesian economists would identify themselves. But it was once more common among Keynesians to dismiss the effectiveness of monetary policy altogether. John Kenneth Galbraith in his famous book The Affluent Society (1958) treated monetary policy with the restrained and urbane scorn which was one of the distinctive characteristics of his writing.
The idea that central bankers exercise some arcane and effective power to influence the course of economic events by manipulations of the interest rate based on their rare knowledge of the mysteries of finance, he wrote, "came to have a compelling charm for all who were in any way identified with it. This was especially true of the banking community."
Monetary policy was graced by effects not only mysterious but magical.I posted last year about Galbraith's continued skepticism over monetary policy in his last book published during his lifetime, The Economics of Innocent Fraud: Truth for Our Times (2004) in Paul Krugman, fiscal policy and the Federal Reserve 08/30/2011. He wrote in that book:
Quiet measures enforced by the Federal Reserve are thought to be the best approved, best accepted of economic actions. They are also manifestly ineffective. They do not accomplish what they are presume to accimplish. Recession and un employment or boom and inflation continue. Here is our most cherished and, on examiniation most evident form of fraud.Tags: john kenneth galbraith, us economy
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That we who lived by honest dreams
Defend the bad against the worse."
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