As a former UC Berkeley student I am devastated by the tuition hikes. My contribution to the crisis is to help explain the mentality that wrongly cuts government spending in a recession. This is precisely the time the Federal government should be inflating the economy, like California’s, to keep up investments in education. Sadly, in China last week President Obama announced policies going in the wrong direction.
He said “It is important though to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a double-dip recession”.
Most all economists were slack-jawed at the declaration. No economist can imagine that an increasing deficit will be inflationary in a recessed economy because there is so much unused capital and labor. demand for capital and labor would have to soar off the charts before there is a shortage pushing up wages and prices.
Perhaps the comment was made to reassure the Chinese that their dollar holdings will not inflate away. But no card-carrying economist sees any signs of inflation or loss of confidence in the U.S. economy that has to do with the debt. In fact, just Friday U.S. government bonds were so coveted that interest rates fell below zero! People will lose money just to own U.S. government. bonds.
President Obama is right; any one could lose confidence in the U.S. economy if we have a double-dip recession. If people are out of work they are not buying Chinese goods and are not helping profits which depresses the stock market.
The first thing that the Federal government should do is offer all people who want a job to get one that pays at least the minimum wage: There is a lot of work that needs to be done in our communities. As the official unemployment rate hovers over 10 percent, it means one in four families have been hit by a job loss over the past year. More devasting is that 44% of households have suffered either a job loss, reduced wages, or lower hours.
The best ideas for how to create more jobs are in a short paper by Ross Eisenbrey from the Economic Policy Institute EPI (disclosure I am on EPI’s board).
What is causing the tuition hikes is clear, it is a desperate short-sighted move that stems from a failed and slugglish response to the recession.
4 Responses to Economists Dumbfounded by Obama’s Debt Worries
seejay - November 23, 2009 at 8:08 am
It seems to me that the situation in California is caused, not principally by economic policies of the United States, but first and foremost by the inability and/or refusal of the California legislature to raise the revenues necessary to fund governmental obligations. This inability and refusal predates the recent economic downturn.
jwgilley - November 23, 2009 at 1:07 pm
There are two points here. She is right in that the stimulus was dead wrong in that it was designed not to stimulate the economy but to bail out state governments who were wildly spending on their credit cards.While I would agree that a jobs stimulus program by Obama would be welcome if and only if it is not a bail out of states and universities like we bailed out Wall Street and AGI. Most states did not use the money for “shovel ready” projects to create private sector jobs but saved it to make ends meet each of the next two years. That is why the economy is sinking again just like it did in the early 1930s after congress started messing with laws. The Great Depression was triggered by the stock market crash of 1929 but with business and government increasing spending it stabalized until congress started imposing crazy laws on international commerce etc then it really crashed.Secondly, this is not a recession but a structural change in our economy which is making most college degrees economically unsound. The accumulated debt of students and former students is now approaching one trillion dollars and only 37% of those holding this debt have or will have a college degree. And over 40% of those with college degrees have a degree with little or no economic value in the emerging 21st century economy.So spending at a rate creating $23-$40 trillion on a national credit card debt will be a disaster.Sure California wants a federal bailout who doesn’t but how about the future of our economy and our children. Why spend the wealth accumulated over a Century just to pay bank presidents,coaches and presidents millions of dollars a year for example?Sorry but Obama is to smart to listen to the wailiing from the obese parts of our economy. He is not going to bail out the University of California. The bailouts are over for good.
macheath - November 23, 2009 at 6:51 pm
Jwgilley repeats a currently popular, but unfortunately wrong, version of what cured the Depression. The Great Depression was ended by large government deficit spending–end of story. The Amity Shales nonsense about the Depression being furthered, not ended, by Roosevelt’s policies is simply wrong, and is being used by right wing forces now to discredit stimulus spending.There is a lot to agree with in what Jwgilley says–too much money is wasted on football coaches, bank presidents, etc. But the cure for a near-Depression economy is government deficit spending. When the economy starts growing again in a healthy way, then cut the deficit. But not now. It will just make things worse for all concerned.State and local spending is just another form of spending in the economy, and is equally virtuous as a form of economic stimulus. Keynes famously said that if you couldn’t think of any other way to increase spending, put old bank notes in bottles and bury them in mine shafts, and let people dig them up. Of course, he didn’t mean that–he was trying to hammer home the point, now apparently forgotten by Obama, that the cure for a near-Depression is getting effective demand into the economy by whatever means you can. We can and should think of deficit spending that also produces long-term benefits (like investment in higher education), but the key now is to increase demand. Ghilarducci’s excellent blog is dead right about this.
rbrunson56 - November 25, 2009 at 6:25 am
Hi Teresa,Two thoughts. Short term inflation doesn’t seem to be an issue, as you say. Long term, people will return to work, and demand for goods and services will increase. As that happens, the money being pumped into the economy via federal debt will need a home. Generally, it will find a home in higher prices. The fact that economists don’t see that says more about economists inability than anything else.Second, the federales should absolutely not offer minimum wage jobs to those who want to work, as this is not their role. Of course, on this point, you and I are at opposite ends of the philisophical spectrum.Our household is one of those that has experienced reduced wages over the last year. The last thing I want or need is for the federales to attempt to do something for me. I could go on…Randy