Wall Street hyper-speculation brought the global economy to its knees in 2008-09. To prevent a 1930s-level Depression, economic policymakers throughout the world enacted extraordinary measures. These included large-scale fiscal stimulus programs, financed by major expansions in central government fiscal deficits. But roughly 18 months after these measures were introduced, a new wave of opposition to large-scale fiscal deficits has emerged.
In this article (November/December 2010 issue of Challenge) PERI Co-Director Robert Pollin reviews the arguments developed by various leading deficit hawks. In fact, they are not advancing one main argument or even a unified set of positions, but rather four distinct claims:
- large fiscal deficits will cause high interest rates, large government debts, and inflation;
- even if the current deficits have not caused high interest rates and inflation, they are eroding business confidence;
- the multiplier for fiscal stimulus policies is always close to zero and has been so with the current measures; and
- regardless of short-term considerations, we are courting disaster in the long run with structural deficits that the recession only worsened.
Pollin argues that none of these deficit hawk positions stand up to scrutiny, and makes the case that by critiquing the four deficit-hawk positions, we can also bring greater clarity toward developing a workable recovery program. This will include fiscal deficits that can stabilize state and local government budgets; maintaining sufficient funds for unemployment insurance; and continuing support for long-term investments in traditional infrastructure and clean energy, combined with credit-market measures that are strong enough to unlock credit markets.
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Part I: Austerity is Not a Solution: A Response to Deficit Hawks
Part II: A Crisis in Business Confidence?
Part III: If Stimulus Works, Why is Unemployment so High?
Part IV: US Economy A “Train Wreck”?
Part V: “Creative Destruction” and Facism