The Real Lesson from the Great Depression: Fiscal Policy Works!
Monday, 08/30/2010 - 10:34 am by Marshall Auerback
New Attacks on FDR’s New Deal Fueled by Old - and Discredited - Ideology
If the US government had a dollar every time someone proclaimed to learn the lessons of the Great Depression, we probably wouldn’t have a budget deficit. Usually, these debates turn on the question of fiscal policy and whether in fact, FDR’s New Deal had a discernable role in generating recovery. “Fiscal austerians” have done much to dismiss the economic achievements of the New Deal, some even suggesting that FDR’s fiscal policies worsened the crisis.
For a brief period during 2008, the views of neo-liberals like Alan Greenspan and Robert Rubin were shunted aside. But the FDR revisionists, who disapprove of fiscal policy measures of any kind, have come back. Now they’re brandishing the old arguments that “excessive” government spending risks “crowding out” private spending, making it impossible for the US government to deal with the recession (because it has run out of money) and hindering the capacity of the private sector to recover because of too much government interference in the “free market”. These complaints are usually accompanied by a wave of rhetoric condemning the “business un-friendly” policies of the current Administration, along with dire warnings of a “national solvency” crisis. After all, fiscal austerians are nothing, if not fully predictable. more
What If We Ditched Quantitative Easing and Just Printed (And Distributed) Cash?
Charles Hugh Smith, Of Two Minds | Aug. 31, 2010, 1:42 PM
Actually doing what everyone fears as horribly inflationary--printing and dropping cash into households--might not be as terrible an idea as many assume.
Just as a thought experiment: what if the Federal Reserve and the U.S. Treasury ditched the failed policy of Quantitative Easing (QE) and instead printed cash and "helicopter dropped" it into households' accounts?
Many people think QE is a "helicopter drop" of cash; it is not. It is simply a way of expanding credit and encouraging more borrowing.
What if the Federal Reserve and U.S. Treasury stopped trying to stimulate the economy by encouraging more borrowing with "quantitative easing" and instead "dropped money from helicopters" into households' accounts?
The core of quantitative easing is this: by expanding bank credit and lowering interest rates, a central bank (in the U.S., the Federal Reserve) stimulates more borrowing and thus more spending by businesses and households.
The problem with this policy is that none of the funds goes directly into consumers' accounts. If consumers are tapped out or wary of taking on more debt, then bank credit can be expanded to the moon and households will not borrow more money. more