Well, Feldstein (Interview can be found here) did get the fact that this recession is different from the past ones, which were primarily due to the Fed trying to damp inflation. Thus, his position that the usual monetary tools won’t work make sense as well. In the past, the Fed had turned the knob too far one way, and could simply turn it back the other. But as this one is not due to the Fed turning that particular knob, we need a different remedy.
I liked the euphemistic way that economics talk. The collapse of the bubble being due to “repricing of risky assets.” Yes, well, but the risk was created by greed and bad investment policy, and willfully ignored.
He is in line with the Keynesians in that he is seeking to increase growth in the GDP via massive injections of cash. But, as Brian points out, he does not seem too concerned about where the cash goes, just that it starts flowing round the pipes again. While I agree that we might need some cash to start circulating in order to create jobs and so on, it is obvious that where we spend it makes all the difference. I do not understand the lack of discernment within mainstream economics that blinds them to this point.
It was a bit disturbing that he did not view inequality in distribution as a problem. When pressed on this point, he insisted that growth was reducing poverty, and would continue to do so, despite the fact that the rich were getting richer. The view here seems to be that everyone is getting richer, and that the spread is increasing because some are getting richer faster than others.
This might have been true up to say, 1980. But currently the income enquality is widening because the rich are getting richer and the poor are getting poorer. This is an important point, and one that is often missed. The “rising tide lifts all boats” ideology, that underpins the trickle-down theory, and justifies the equation of growth with well being assumes this:
When what we actually have is this:
When pressed, Feldstein said that growth was more important than equality. Or as he put it, we “shouldn’t sacrifice growth for equality”. As he did not strike me as a particularly evil man, he must be justifying his position with this delusion – that the growth in inequality is the first chart and not the latter.
Others have commented on his inconsistency in terms of regulation. I thought his position on the military was intriguing. He seems to favor putting money there not because he believed in military might, or war, but because they could put it to use the fastest. Construction projects could start right away, they have training apparatus set up and ready to go. He even said that the military could train people for two years, to do all sorts of useful things that might not be related to combat, and then let them go.
This is interesting because what he is really talking about is setting up a national service corps that is not based on the military – kind of like an internal peace core. But, as it would take too long to build that kind of thing, he thinks we should use the vehicle that is ready now – the armed forces.
Why the panic, the need to act so quickly that we ignore the potentially dangerous consequences of making the military the core of our economic engine? Especially as he opened with a clear statement that we do not have to worry about breadlines, about 25% unemployment like we had in the depression due to our new, modern social safety net?
[originally posted at cosmo.marlboro.edu/wrobb – an E Portfolio as “Remarks on Feldstein Interview]