According to Federal Reserve data, the Great Recession wiped out more than $16 trillion in household net worth, and more than two years into the recovery, households are still more than $7 trillion poorer than they were before the collapse. Such losses, combined with falling wages (average household income has declined 7 percent since 2001), have depressed consumer spending dramatically, about $175 less per person per month, by one estimate. As a result of this collapsing demand, we have a serious unemployment crisis, with more than 25 million people either unemployed, underemployed, or no longer looking for work.
The most effective government response for reducing unemployment and stimulating the economy today would be a major direct jobs program similar to Franklin Roosevelt’s jobs programs in the New Deal. I will return to this idea — although off the table now, it’s time may still come. But first let’s be clear about what the libertarian right and the Republican Party are trying to do in the current debate, as reflected in Tad DeHaven’s commentary here.
The right’s response to this crisis might be generously described as feckless if the politics weren't so poisonous for average Americans. With impressive flair for disregarding the vast weight of the evidence about the causes of the Great Recession and the solutions, they take to the airwaves to salvage their economy-wrecking anti-government ideas by rewriting history – blaming the massive financial bubble that crashed our economy on over-regulation, for example, and arguing that more tax cuts and more de-regulation is what the economy needs to spur recovery and create jobs. Needless to say, most Americans do partly blame government for what happened, but they blame government for lack of oversight, not too much. And on taxes, well, good luck explaining why deficit-exploding tax cuts for the wealthy are necessary in such hard fiscal times for everyone else.
DeHaven even suggests that President Warren G. Harding should be our role model for stimulating the economy today. We need to get back to a Roaring 20s-type economy, apparently. So, massive financial speculation and merger-mania, growing inequality and concentrations of wealth, productivity gains far outstripping wage gains, steep declines in union membership — does this sound familiar? That’s the economy libertarian policies created in the 1920s, and it’s what they created again in the 2000s, and the result was the same in both cases: severe or very severe economic collapse.
Round III Wednesday, Nov 23: Should we be more upset with Washington or Wall Street?