To combat the continuing recession in the U.S. and to move toward full employment, the clearly optimal policy is for the federal government to increase spending now on programs that contribute to economic growth while improving the quality of life, such as education, infrastructure, research & development, and – not least – reduction of emissions of heat-trapping gases. President Obama as well as Federal Reserve Bank Chairman Bernanke appear to be well aware of this.
Michal Kalecki’s (1943) classic paper, “Political Aspects of Full Employment” remains surprisingly modern, and its message still is worth revising. If you read and/or watch the current debates on economic policy in the mainstream media you would think that public deficits and debt are the main economic problem ahead. Further, if you look at Obama’s budget proposal, with the offer of reducing payments to social security recipients, you would think that entitlement programs are unsustainable and must be overhauled. On the other hand, the mainstream media is not as vocal on the unemployment problem, and in some quarters the current rate of unemployment, 7.6%, is seen as not too high, and only slightly above full employment, which is put by some at 5.5% (the so-called natural rate).
On Wednesday, April 24, an 8-story building outside of Dhaka, Bangladesh collapsed. Over 600 people were killed, and over 1,000 injured – but the death toll may rise as rescue crews continue their search.
The building housed a variety of businesses, including a bank and five garment factories that employed over 3,100 garment workers – mostly young women. Observers noticed a large crack develop on in the building on Tuesday, and the bank on the second floor told its workers not to come in the next day. The garment factories decided to stay open for business, and the result was tragedy.
They came, they danced, they marched, 2,000 people spirited and strong, Robin Hood’s merry band of men and women, through the streets of Washington April 20.
Ending up astride a prominent government building, christened with a new name and a naming ceremony. No more U.S. Treasury, now, the banner declared, “The U.S. Treasury. A Citigroup Subsidiary. Jack Lew, Inc., CEO.”We could end AIDS, reverse climate change, fund jobs and health care. Who do you work for Secretary Lew?” asked Jennifer Flynn, managing director of Health GAP (Global Action Project). “You work for the people, not Wall Street.”
Last Friday, The New York Times published a lengthy response by Reinhart and Rogoff to our critique of their work in “Growth in a Time of Debt,” and the ensuing worldwide debate. We have replied to them, which appeared in the Times online Monday night. As you can see below, we did not find their defense at all convincing. We also go into these issues in much more depth in a technical appendix here.
Debt and Growth: A Response to Reinhart and Rogoff
The debate over government debt and its relationship to economic growth is at the forefront of policy debates across the industrialized world. The role of the economics profession in shaping the debate has always come under scrutiny.