>New York TIMES/October 4, 2002 >My Economic Plan >By PAUL KRUGMAN > >Although other news has been drowned out by the barking of the dogs of >war, something ominous is happening on the economic front. It's not >dramatic, but month by month the numbers keep coming in worse than >expected. Let's put politics completely aside for once, and review where >we are and what should be done. > >The key point is that this isn't your father's recession -- it's your >grandfather's recession. That is, it isn't your standard postwar >recession, engineered by the Federal Reserve to fight inflation, and >easily reversed when the Fed loosens the reins. It's a classic >overinvestment slump, of a kind that was normal before World War II. And >such slumps have always been hard to fight simply by cutting interest rates.
Right. Such slumps can only be overcome through wars of the type that redivide the world's resources and markets. Not surprisingly, more and more articles are appearing in the bourgeois press that acknowledge the benefits of a victory over Iraq, which would probably the opening salvo in a prolonged war against resource-rich 3rd world countries. Who is next? Venezuela? Iran? >Now there's no question that the Fed's rapid rate reductions last year >helped avert a much bigger slump. But a hard look at monetary policy >suggests that the Fed hasn't done enough -- and possibly can't do enough. >Although the Fed funds rate, the usual measure of monetary policy, is at >its lowest level in generations, the real Fed funds rate -- the interest >rate minus the inflation rate, which is what matters for investment >decisions -- is actually about the same as it was at the bottom of the >last recession, in the early 1990's, because inflation is considerably lower. Sounds like Japan. >The answer is that we should have a sensible plan for fiscal stimulus -- >one that encourages spending now, to bridge the gap until business >investment revives. Some of the elements of such a plan are obvious, and >were described by Jeff Madrick in yesterday's Times. First, extend >unemployment benefits, which are considerably less generous now than in >the last recession; this will do double duty, helping some of the neediest >while putting money into the hands of people who are likely to spend it. >Second, provide aid to the states, which are in increasingly desperate >fiscal straits. This will also do double duty, preventing harsh cuts in >public services, with medical care for the poor the most likely target, at >the same time that it boosts demand. Keynsianism is not a likely option given the morass of the trade union and radical movements. That being said, what makes anybody think it will work now? It surely did not work in the 1930s. Louis Proyect www.marxmail.org
