Liberal economists, Financial Times, signal economic emergency

What's that old saying about those who ignore history? Dean Baker:

Allowing the cascade of financial collapses at the start of the first Great Depression was a mistake. However, there was nothing about this initial collapse that necessitated the decade of double-digit unemployment that was the central tragedy of the Great Depression. This was the result of the failure of the federal government to respond with sufficient vigor to mass unemployment. Indeed, the economy only broke out of the Depression when the federal government undertook massive deficit spending to fight World War II. Deficits peaked at more than 25 percent of GDP. This would be the equivalent, in today?s economy, of running annual deficits of $4 trillion.

There was no economic reason that the government could not have spent on this scale in 1931, as opposed to 1941; the obstacles were political. Then, as now, politicians in Washington were obsessed with the budget deficit. They never would have countenanced such spending, apart from the threat to the nation posed by Hitler and the Axis powers. The New Deal deficit spending helped boost the economy and bring the unemployment rate down to single-digit levels, but fear of deficits limited the scale of New Deal programs and caused Roosevelt to reverse course and cut back on spending in 1937, just as the economy was gaining momentum.

Unfortunately, the country seems destined to follow the same course in the current slump as it did in the 30s. The May jobs report should have provided the sort of stiff kick that is needed to revive discussion of additional stimulus. Instead, it seems to have barely shaken Washington?s ongoing obsession with deficits.

Brad DeLong is another economist in the Baker mode of panic, and that was before the May jobs numbers were released. He also points out that the Financial Times editorial board has joined the "left opposition" in broadcasting the urgent need for more stimulus. "When the Financial Times's editors join those of us on the left?they are, after all, not the Labor Times or the Manufacturing Times or the Construction Times or the Natural Resource Times?that is a sign that this is a really scary time indeed."

If all this seems a bit hysterical, just remember who was right about the housing bubble and impending crash. Being shrill doesn't make you wrong.

Source: http://feeds.dailykos.com/~r/dailykos/index/~3/DjwruSKiXVo/-Liberal-economists,-Financial-Times,-signal-economic-emergency

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