Anti-Keynesian Skidmarks

America's debt is not its biggest problem
[Bill Gross, Pimco - Washington Post]

Having run up our credit card to keep on spending, we have reached market-enforced limits that force deleveraging. It is not the debt, however, but the lack of global aggregate demand that is at the heart of the crisis. As the entire world strives to put its own people to work before other nations do, policymakers constructively lower interest rates and delay sovereign, corporate and household defaults to provide breathing room. Fiscally, however, an anti-Keynesian, budget-balancing immediacy imparts a constrictive noose around whatever demand remains alive and kicking. Washington hassles over debt ceilings instead of job creation in the mistaken belief that a balanced budget will produce a balanced economy. It will not.

The Cracked Conservative Mirror
[Paul Krugman, NYT]

I’m not the first person to notice this, but whenever you read conservatives trying to critique what they think the other side believes, you find them assuming that their opponents must be mirror images of themselves. The right believes that less government spending is always good, regardless of circumstances, so it assumes that the other side must always favor more government spending. The right says that deficits are always evil (unless they’re caused by tax cuts), so they assume that the center-left must favor deficits in all conditions.

I personally get this a lot, of course. Not a day goes by without someone blithely asserting that I have never called for spending cuts on anything, and that I have never called for action against budget deficits. A few minutes searching this blog would disabuse them of these beliefs, but they don’t need to check — they know.

From the book, Econned, by Yves Smith, page 211:

Prior to the 1980s, U.S. policy was mindful of average worker wages and trade deficits. But starting in 1979, the character of U.S. business cycles changed. Large trade deficits, debt increases in excess of income growth, asset price increases, and a failure of workers to capture the benefits of productivity growth became the norm. [...]

Before, U.S. policymakers saw trade deficits as a cause for alarm, a sign that U.S. demand was being dissipated abroad rather than supporting at-home production and employment. But the new world view was that any trade imbalance was the result of market forces, and hence virtuous. Moreover, given that keeping inflation at bay was now a high priority, the Fed saw competition from foreign workers as a way to keep U.S. wages in check. Suddenly the virtuous circle of rising worker incomes leading to greater prosperity was put in reverse gear.