Imagine two supermarkets. One has 50 customers, each with 1 item in hand, waiting to check out. The other has one customer, but with a shopping cart filled with 50 items. Question: which supermarket is going to hire a second cashier? Now try it this way: if the owner of the supermarket with just one customer could hire a second cashier without paying for health insurance or social security, would he? (Hint if you said yes youve been listening to too many Republican politicians.)
This is from Paul Krugman: In the spring of 2005 a panel of conservative scholars and policy leaders was asked to identify the most dangerous books of the 19th and 20th centuries. ... Charles Darwin and Betty Friedan ranked high on the list. But The General Theory of Employment, Interest, and Money did very well, too. In fact, John Maynard Keynes beat out V.I. Lenin and Frantz Fanon.
The basics of Keynes may not be intuitive, but they can be explained in under 10 minutes to anybody who can keep an open mind and a shut mouth. When the economy fails, it cant always correct itself. Thats when its time for the government to step in and prime the pump. An alternative version might be: when your customers dont have any money, you wont either.
Most of the time, when the economy softens, basic supply and demand responses will correct things prices will drop, people will buy at the lower price, and everything will come back into balance. Still, theres a point where too many people have been laid off, and cant buy things, even at low prices. During the Great Depression, people starved because they had no money to buy food, and farmers stopped planting because nobody was buying their crops.
Right now, the Democrats are running against John Boehner and the Republicans are running against John Maynard Keynes. Rep. Eric Cantor (R-Va.) said The president will use the Labor Day holiday as the launching pad for yet another government stimulus effort, another play called from the same failed Keynesian playbook, Sen. John McCain (R-Ariz.) said, The point is that the Obama Keynesian-on-steroids has not worked.
Theyre both wrong. The stimulus worked but because the administration was looking for bipartisan support, the stimulus was too small, and too much of it was in the form of tax cuts, and so it didnt work as well as it should have. Far from being on steroids, the stimulus was watered down.
The whole point of a stimulus is to increase demand, accelerate spending, speed up the velocity of money. It doesnt matter how much money you have; if you dont spend it, nobody profits.
The best stimulus would be to provide jobs to the unemployed, as Roosevelt did with the CCC and WPA, or to extend unemployment benefits. In these cases, the recipients will have to spend the money, and keep it moving.
The Republicans, in contrast, remain committed to the idea of Supply Side Economics, making it easier for people to produce goods and services. The failing should be obvious why make stuff that nobody is buying? So factories shut down, stores close up, and things just get worse.
The Republicans have nothing to offer except more tax cuts for the rich, which didnt keep us from running record deficits during the Bush years. Companies have plenty of cash, and can borrow more at very low rates, but they arent hiring or expanding because theyre waiting for demand to increase. Left in the hands of Supply Side advocates, were headed for not merely a double-dip recession, but a second Depression.
A lot of progressives may plan to sit out this election. President Obama wasted opportunities that may not come again in our lifetimes a powerful stimulus with infrastructure rebuilding, a really good universal healthcare system. We invested a lot in this administration and got very little in return. The trouble is, the Republican supply-side approach would be so incredibly disastrous that we have to repress our resentment and get involved.
Supply Side gave us the low interest rates that are pauperizing the elderly, and the tax policies that enrich the wealthy at the expense of everyone else. It would be nice to nurse grievances for a while, but this time the price is too high. Those who dont learn from history are condemned to repeat it, but those who dont learn Economics 101 dont even have the luxury of a second chance.
Sam Uretsky is a writer and pharmacist living on Long Island, N.Y. Email email@example.com.
From The Progressive Populist, October 15, 2010
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