The stimulus bill’s purpose has no relationship to the nation’s defense or public safety, so these patriotic-sounding comparative parameters are not relevant.
As all conservative Republican economists (like Harvard economist Martin Feldstein, former Chair of Reagan’s Council of Economic Avisers) know, the Republican politicians are wrong about the tax breaks in the stimulus bill because they do not understand macroeconomics, or how the government manages the economy. Conventional, mainstream macroeconomics since the 1950’s holds that the dangers of an extended, self-reinforcing contraction – a downward spiral – in the U.S. and world economy, can be prevented. This is based on consensus analysis of what happened 1930-1945. Like the 1930’s, the current global economy is in a severe contraction, growing out of a credit-induced, hyperinflated U.S. home mortgage market, and the subsequent collapse of a giant global Ponzi scheme perpetrated by Wall Street and spread through the entire world’s financial system. The U.S. Government has a handful of basic tools to deal with such a problem:
1. Preventative – Prevent concentration in the financial markets; i.e., maintain lots of mid-size banks rather than a few huge banks to mitigate the risk of bank failure.
2. Preventative – Maintain stable capitalization of the private banking system through regulation – proper cash reserves, rational investment risks, etc.
3. Preventative – Maintain a stable money supply; disinflate or inflate total cash in the economy to counteract inflationary or deflationary swings.
4. Reactive – Manipulate interest rates to expand/contract private bank lending which will bolster/cool a recessionary/overheated economy. Read the rest of this entry »