In Economists (and Non-Economists) Behaving Very Badly Indeed Watch, Brad DeLong accosts the austerity bandwagon that objects to any more federal stimulus, whether from Congress or from the Fed.
At the moment our flow of nominal spending at $14.7 trillion per year is some 12% below its pre-2008 trend. And in the absence of any 12% decline in prices and wages, that shortfall in spending has to produce our current macroeconomic distress: there is not enough "money" to support enough of a flow of spending to chase all the goods we could produce. We don't have a deficiency of real supply (for whatever reason). We have a deficiency of nominal demand.
This is the problem we all know and recognize. Since the financial crisis hit, banks, corporations and individuals have been deleveraging, and that means not enough money is out there being spent. The stimulus bill was a bare minimum that staved out utter depression, but (on Republican insistence) was larded with much too many tax breaks for big corporations rather than targeted 100% towards the population that would best put the money to work in the economy. Private saving means that public spending has to step into the gap. We did some, but not enough. Jobs were saved, but not enough new jobs were created. Thus, the Fed has a new proposal for a $600 billion stimulus--quantitative easing (essentially, printing money rather than borrowing it). This is a good idea, especially since we can expect either gridlock or Republican policies holding sway in Congress for the next two years, which means that the plight of ordinary Americans will take a back burner to ensuring the "competitiveness" (read--high profits) of US multinationals and cutting federal workers, federal benefits, Social Security and Medicare.
As DeLong notes, even a bunch of conservative economists of times gone by (including Milton Friedman) would say that "it is a central bank's business to intervene in asset markets to boost the flow of nominal spending back to what everybody expected it to be and counted on it being."
But today's wingnuts can't seem to stomach any reasonable policy that might help someone other than managers and owners of the US MNEs. So DeLong notes:
now we have a bunch of economists and non-economists behaving very badly: saying not only that the government shouldn't boost its spending but that the central bank shouldn't buy bonds for cash either.
And they have no real model for how we got into this mess or how we can get out of it. They pretend that the credit mess instigated by big banks was really the Fed's fault (along with the community reinvestment act--operable for three decades, but nonetheless guilty according to the right and Fannie and Freddie, which came in at the tail end of the action but nonetheless are primary causes according to the right). As Krugman (quoted in DeLong) says:
How do they think we got into a crisis that has depressed employment all around the advanced world? I don’t think they have an answer; I think all they have are wild stories about how Obama’s Sharia-law Marxism has unnerved business, or something, with the effects mysteriously spreading to Spain and Latvia.
And in the name of whatever it is they believe, they’re doing their best to ensure that the slump goes on.
One of DeLong's commenters has it right, so we might as well end with an excerpt of that comment:
Apparently, [the right-wing, nihilist economists] are right because they say they are right, and they don't need no stinking facts, models or studies to back their views up. BTW, didn't we try their way during the Hoover administration and it didn't work then? Rob in Fl.