Leadership lacking in the US [View All]

Leadership lacking in the US
Bill Mitchell

http://bilbo.economicoutlook.net/blog/?p=15110

I am sitting in one of my “offices” – the little nook I have found at Melbourne airport that lets me work while waiting for planes – watching the video fo the US President’s recent Press Conference (June 29, 2011). I have “offices” like this at various airports. In the speech he berates the Republicans for refusing to show leadership in the current budget debate. My assessment is that after reading the full speech (the video goes for 67 minutes and 5 minutes is too long) – is that the US President outlined in the most categorical terms why he shouldn’t be in charge of the largest economy in the World. In the short time I have to write my blog today I will tell you why that is the case. But overall – as I noted the other day – it is looking more every day like a case of RIP USA.

(snip)

There is no applicable analogy between a household and a sovereign government. The false analogy is a vehicle used by conservatives to entice unknowing voters into relating the experiences and options of the government to their own budget constraints. This flawed intuition then makes it easier for the neo-liberals to maintain their false policy agenda. But there is no valid analogy and we should continually expose the falsehoods that are embedded within it. He then further demonstrated how poor his understanding of the economics is:

"I do think that the steps that I talked about to deal with job growth and economic growth right now are vitally important to deficit reduction. Just as deficit reduction is important to grow the economy and to create jobs — well, creating jobs and growing the economy also helps reduce the deficit. If we just increased the growth rate by one percentage point, that would drastically bring down the long-term projections of the deficit, because people are paying more into the coffers and fewer people are drawing unemployment insurance. It makes a huge difference."

So which is it? Deficit reduction creates growth and jobs or vice versa? There is no credible evidence to support the proposition that a nation that starts hacking into public spending in situations as exist now in the global economy and particularly in the US will grow and create jobs. There is an overwhelming body of evidence to support the opposite – cutting budget deficits when there is slack private spending growth and external deficits will erode growth and destroy net jobs.

http://bilbo.economicoutlook.net/blog/?p=15110">more...