Gil Smart in his Sunday News column “Austerity starts at home” opines: “If now is a time for national austerity, then certainly it is a time for personal austerity. It is time for individuals to spend less, cut up their credit cards and buy on the things they can afford… This ripples down the line, of course. Consumer retrenchment may inflict grievous wounds on our consumer-based economy. But the broader debate that we should be having, but aren’t, is should ours be a consumer-based economy?”
First, now isn’t the time for “national austerity.” De facto unemployment and underemployment is about 20%, all things considered.
Second, the observation that, if not a “consumer-based economy”, then what should it be…more planes, tanks and guns? However, we agree that it is not desirable for people to borrow beyond their means to repay. Yet families want their kids to have decent housing, good food, and a good education. Furthermore, those things are essential for a healthy and prosperous nation.
Smart is making the argument based upon Marshallian economics which assumes near full employment. During a deep recession which has put us on the cusp of a depression, it hardly is desirable for consumers to emulate hermits. Recall what FDR said: “ We have nothing to fear but fear itself.”
Here is a simplified approach to understanding Keynesian economics, which has kept the world out of a depressions since the 1940’s when it became embraced and in 2009 saved our respected posteriors through the wildly successful bi-partisan TARP and the largely Democrat RecoveryAct.
Let’s say you are a construction worker out of work and cannot get a job due to the steep recession. Let’s assume you no longer qualify for unemployment insurance or any other government aid.
If you borrow a hundred thousand dollars from the bank to build a house, you end up owing a hundred thousand dollars and owning a house worth a hundred thousand dollars. Or you can sit at home, spend a hundred thousand dollars from your savings, and have no house. Which do you prefer: Owing a hundred thousand dollars on a house worth a hundred thousand dollars or spending a hundred thousand dollars from your savings and having nothing in return? (Okay, we didn’t take into consideration the cost of materials, but you get the point.)
Times of steep recessions are when government must turn to deficit spending and seize the opportunity to invest in needed public works and programs. (Such investments in the future are usually funded at relatively bargain costs and rock bottom interest rates.) Then the country has something in exchange for its expenditures, rather than simply having spent the money on unemployment compensation and other safety net programs, and sliding deeper and deeper towards depression.
Don’t spend foolishly; but don’t skimp on life and your children. You only come around once (most of us think). And for the kids to succeed in this ever more challenging world, they need a good head start.
Agreed! Agreed! The problem is that Gil Smart has in exactly backwards. This is not a time for national austerity, in spite of the deficit, and consumers have no choice in the matter, but austerity. Consumers are unemployed, credit has dried up, refinancing houses has virtually ended. Given the imposed consumer austerity and the government’s ideological austerity, the economy sinks into depression.
Gil Smart and others, easy-to-say, “Bring it on”, forget, or are totally ignorant of what a depression really means. The human suffering breaks up people and families and institutions, anger builds to explosiveness, competition for scarce resources increases between people and countries, wars begin and the absolute terrors of that reality are far too horrific to comprehend.
The totem pole religion of free market capitalism almost collapsed recently and Republican and Democrats, to their credit did what was necessary; not what was desirable or pretty or even good. But the best minds in the country, Republican, Democrat, and Independent said it was absolutely necessary. So, we did that. To second guess that now and pretend that it never happened, and/or that we had nothing to do with it is disingenuous, self-serving and, with some people, a politically motivated bold-faced lie.
Because the consumer based economy is severely crippled, something needs to happen. If the government has been painted as the demonic, anti-Christ, we are stuck with destructive inaction. Some people will applaud the coming destruction as somehow in God’s plan but God gave us intelligence to take action in crisis, and to sit on our hands and do nothing is to throw it all back in God’s face.
It’s obvious you are enamored with the Keynesian model. While in theory it may have some limited merit, in reality, it is simply an economic theory that is sure ultimately bankrupt any nation that follows Keynes plan. With a fiat currency, our politicians will engage in deficit spending in good times and bad.
The explosion in the national debt that has occurred while trying to spend our way out of this recession has already had crippling effects. Further massive deficit spending will be devastating to the US dollar and help push the US further toward third world status.