Restoring Trust in the American Economy: The Real World v. The Confidence Fairy
Continued from previous page
When President Obama came into office, the US economy was declining so swiftly many were fearful that the economic situation would develop into a second Great Depression. The Obama administration managed to get Congress to permit a relatively small fiscal stimulus program. (A larger stimulus package was seen by many in Washington as causing too great an increase in the total federal debt and thereby too burdensome for future generations.) The result of the small Obama fiscal stimulus program was that the economy did not collapse into another great depression that many had foreseen. From hindsight it is clear that the size of the Obama stimulus was too small to provide sufficient stimulus to restore prosperity.
People like Professor Cowen do not understand that if we were to develop a large fiscal stimulus program around a needed national infrastructure rebuilding, we could restore prosperity and confidence in the future of the American economy and simultaneously contribute to significantly improving our future standard of living. If the federal government were to let contracts for at least $1 trillion to private enterprise to rebuild failing highways, bridges, municipal water and sewage systems, and provide resources for our shrinking public and higher education systems, the entrepreneurial expectations of continuously ringing cash registers as firms are awarded these government contracts would quickly restore entrepreneurial confidence. The profit opportunities made available by this large government spending program would encourage firms to hire more workers and buy materials needed from other US firms.
The number of unemployed workers would shrink substantially. When these newly hired workers go out and spend their wages to rebuild their households and lives, the confidence of US retailers would immediately surge as these additional customers were breaking down the doors to get at the merchandise on the shelves.
Perhaps someone should teach Tyler Cowen and the politicans who put their faith in fariy tales a basic economic principle: Nothing will build confidence of business firms and workers quicker than the continuous ringing of cash registers.
And there's more they don't want us to know. The fact is that even if this large, needed Keynesian stimulus spending were financed by large federal deficits, we would not be impoverishing our children. Instead we would be investing in the future of our children by providing them with an adequate educational system so they could be qualified to take on future productive hi-tech jobs. Restoring our infrastructure facilities makes it easy and inexpensive to bring goods to market, and it allows us to have safe, sanitary living conditions for enjoying a good life. These are the things that contribute to the productivity, health and happiness of our children. Not economic fairy tales.
Paul Davidson is the author of "The Keynes Solution: The Path to Global Economic Prosperity" and the editor of the Journal of Post Keynesian Economics.