29 December 2008

Krugman: 50 Hoovers and public sector participation in the economy

I have little patience with fiscal conservatism right now. Its ugly side, laissez faire, meaning let the crooks screw everyone, has totally ruined our economy for the short and medium term, and now they're saying we should cut public investment as well. I hear the argument that only discipline will correct the current problems, and that public spending is just another bubble.

That kind of thinking was what led to trying to balance the budget in 1932, with disastrous results, as Krugman points out in his column today. He points out that State governments, mostly hamstrung by the inability to deficit spend or "print money" the way the Fed can, are acting like 50 Hoovers right now, when what's needed is continued public investment. The obvious short term fix is Federal revenue sharing and direct aid to states.

When market capitalism fails, capitalists all become socialists, at least for their own interests. We have seen this in a huge way in the past six months. But what's really important is maintaining vital services, and ensuring that economic activity continues, and the only way to achieve it is public investment.

Face it, conservatives, the pendulum has swung. Uncle Milt is dead, and his policy ideas are in eclipse. We are going to have a major role for public sector investment for some time now, and a completely new regulatory regime to at least prevent the repeat of the last round of greedy entirely self-interested Wall Street schemes. The American people are pissed off, and are insisting on reform in ways we haven't seen, quite literally, since before WWII. Of course, the sharp minds who are drawn to finance will eventually figure out new ways to game the system, both financially and politically, but for a time, at least, we are going to have a big shift towards more control and more public sector participation in the economy. It's a done deal already.

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