Sunday, August 28, 2011

Does the economy now need government stimulus or austerity?

Is the current economic set of problems the result of Democratic policies as implemented by Obama, or is the economy sputtering because the Republicans who control the House of Representatives refuse are doing their free market fundamentalist austerity policies? David Shorr writes on that issue:
The heart of the Republican argument is the claim that government spending and taxation is "job-destroying" and otherwise harmful to the economy. Well, this view among Republicans (and sympathetic deficit-hawk Dems) put limits on the 2009 stimulus package and ruled out the possibility of a subsequent injection of stimulus. So if the economic disaster brought about by Bush policies wasn't proof enough, we are tragically getting another demonstration of what happens when free market fundamentalist policies win out over J.M. Keynes' time-tested, Great Depression-taming approach.

The real problem with Republican obstructionism isn't its rigid refusal to compromise or cynicism in wishing for the president's failure. What we have here is a grand experiment for our grand debate over government expenditure, regulation and the provision of public goods, i.e. whether they are necessities or threats for the economy. We should take the GOP at Grover Norquist and Ayn Rand's word; cuts in budgets and the public sector is the job- and prosperity-creating tonic for what ails our economy. Republicans have succeeded in sidelining the government and preventing it from propping up weak demand. It's not a stretch, therefore, to say this is the Republicans' economy -- not because of George Bush, but because of Paul Ryan, Michele Bachman, John Boehner, Mitch McConnell, Rand Paul, Mitt Romney, Tim Pawlenty, the Koch Brothers, Richard Viguerie...
The scorekeeper on this experiment can be considered to be the bond market. When the policies begin to work then businesses will begin to expand and they will need funds. Investors will invest in the companies and in the stock market rather than in the bond market. Demand for safe government bonds will drop, requiring bond issuers to offer higher interest rates.

In other words, low bond interest rates means that the economy is still doing poorly, higher bond interest rates will indicate that the economy is improving.

The Republican led charge into cutting government spending has resulted in the lowest bond interest rates since the 1950's. The markets are speaking very loudly. Why aren't the Republicans in the Congress listening? Or do they have other purposes rather than improving the American economy?

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