Welcome to the Vitus Capital Blog!
Notes to myself, possibly of interest to others.
-- Bill Northlich

Friday, February 5, 2010

In a near depression, Government needs to -spend- and create, egad!, deficits

...the National Federation of Independent Business (NFIB) ... surveys independent businesses each month about, among many things, what is the single most important problem they face. Presumably, if this problem were solved, these independent businesses would thrive and would be increasing their staffs....by an order of magnitude, independent businesses report that their biggest problem today is poor sales...After a collapse in aggregate demand emanating from the longest and deepest recession in the post-war era, independent businesses need more demand for their products and services in order for them to step up their hiring....

Some economists, of all people, actually did understand this problem years ago. Both J.M. Keynes, the founder of the school of economics named after him, and F.A. Hayek, an icon of the ultra-free-market Austrian school, both said that when the financial market is unable to create credit because of capital constraints and when private aggregate demand collapses, there is a role for increased government spending and central bank financing of that spending. Neither Keynes nor Hayek recommended such policies in “normal” times. In fact, Hayek argued that excessive central bank credit creation in normal times would ultimately lead to a depression. But if, what he called a “secondary depression” was imminent or upon us, it should be avoided or mitigated by an increase in government spending and central bank credit creation to help finance the government spending.

--- Paul Kasriel, Northern Trust, 2/2

Bill:  Kasriel is no left-winger.  But this echo's Krugman/Delong/Yglesias/Thoma/Reich...  But, not Boehner/Limbaugh/Beck/Palin/...
According to NRTS, "Paul Kasriel is the recipient of the 2006 Lawrence R. Klein Award for Blue Chip Forecasting Accuracy"

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