The current Great Recession started in December 2007, so this was the second Thanksgiving in the worst downturn since the Great Depression. Unemployment is over 10 percent, and predicted to continue at that level well into next year. People who hoped to retire are struggling to rebuild their savings and facing years of additional work. Housing foreclosures remain a serious threat.
So you would think the discussion around the Thanksgiving table, when friends and family gathered, would have been about how to get the economy growing again.
But at least in my admittedly unscientific sample, people’s legitimate anxieties about losing their homes, or jobs, or retirement savings were focused in the wrong place. Instead of calls for continued job creation, I’m hearing a lot of misplaced fear about inflation and the growing federal debt — what Paul Krugman correctly calls the phantom menace.
So, in the spirit of having vigorous family discussions, if your Aunt Teresa the economist had been at your dinner table, here’s what I would have said.
Shouldn’t the Government balance its budget? Sure, over the long term, but no, not now. If the economy was booming, the government should be shrinking the debt. That is what the Clinton Administration did during its eight years in office, cutting it to zero, and actually leaving a surplus. And that is what George W. Bush didn’t do, increasing spending on prescription drugs, wars, and unnecessary tax cuts for the wealthy, while not paying for any of it.
Isn’t inflation a big threat? No. Because the economy is in such bad shape, there is no inflationary pressure. For the first time ever Social Security recipients will not get a cost of living adjustment.
Won’t foreigners stop buying our debt? No, even though big banks are trying to panic you into thinking that. Why? Inflation erodes the value of debt repayment.
Aunt Teresa reminds you that economic policy makers respond to particular historical and economic situations. Inflexible theology does not help. Our situation now calls for continued government deficit spending, keeping interest rates virtually at zero, and doing everything possible to create jobs. When the economy begins to recover, then we should fight inflation.
When an overweight patient with high blood pressure and high cholesterol has a heart attack, there are lots of things that should be done over time to make the patient healthy — better diet, exercise, proper medication. But first you have to save their life and deal with the heart attack. That’s our economy now — we need to save the patient, and then do the long-term rehab (deficit reduction, stricter regulation of the financial sector, stronger government guarantees for retirement savings) to stave off future crises.
I hope you had a Happy Thanksgiving weekend, and that this turkey of an economy is better by next year.