Top critical review
Promoting more spending
Reviewed in the United States on March 26, 2014
The book starts with the example of Defoe as a debtor and 17th century debt policies being self defeating for the British economy. Extrapolating that to promotion of more public spending in the twenty first century is ridiculous. His case is made mainly by knocking down bad straw man arguments.
He says while focus is on public debt, the real problem is private debt, overlooking that private debt is voluntary while public debt is government coercion. Much private debt has been fueled by government spending particularly in the name of the great American dream of home ownership. Consumerism continues to be encouraged by the current administration.
I agree with his take on the utility of Keynesian spending to alleviate recession. If he thinks that is what's happening now, he's delusional. We need look no further than the current debt expansion during a recovery, exactly opposite to what Keynes advocated. During the over long recession stimulus money went primarily to wall street exacerbating income inequality. There is suspicion that resulting hollowing of the middle class is in accord with administration intent. It continues unabated in the midst of an economic recovery. Later Kuttner refers to the Keynesian welfare state. There is no such thing. In addition to Keynes, Kuttner cites support of his ideas from modern economists Krugman, Stiglitz and Stowell. Krugman, of course, endorses any and all spending, like Kuttner, the more the better. Stiglitz, though liberal, limits spending recommendations to where appropriate. Stiglitz's endorsement on the book cover shows a clever disagreement. Stowell advocates common sense in economics, totally foreign to Kuttner's position.
There's some good financial history with the occasional error. Kuttner says Hamilton paid off war debt at 1c/dollar. It was exactly opposite as Hamilton was largely responsible for putting the new nation's credit on a sound basis by insisting on full payment.
His struggle between rich and poor is actually a struggle between tax payers and tax consumers with consumers winning. He says U.S. austerity requirement is conventional wisdom. I wish it were so. Our liberal administration and Congress is advocating spending supported by a large segment of the population. He cites the populist fantasy that extremes of inequality are due to a capitalist economy. When capitalism was in vogue, income distribution was unsatisfactory. The last sixty years distribution has been worsened by the hammer blows our socialist economy has dealt to capitalism.
FDR's deficit didn't eliminate joblessness until more spending. Indeed it took a war. He says that WWII bond purchases were followed by recovery. That's while
the bond holders lost their patriotic investment to inflation. In 1968 FNMA was privatized leading to the scam that crashed the economy. They were provided with an unlimited supply of federal dollars. Bretton Woods was destined to change. A truly international monetary system could have endured longer. Not after the gold flow of the LBJ era.
Inflation of the 70's a convergence of price pressures. That sounds like a pretty feeble whitewash of the LBJ era social and war spending. The years 1984-95 saw a widening widening wealth gap. There is great disagreement about which policies were most responsible. He says financial enterprises ruined the mortgage system.
It was the easy money flow in the name of the great American dream of home ownership.
He says debt rose during 2001-2008 due to two wars and tax cuts. What's his excuse now? The cause of the 2001 and 2008 downturns was the flood of easy money flowing in the name of the great American dream of home ownership. As pointed out by David Stockman in 'The Great Deformation', Washington destroyed the honest brokers in favor of crony capitalism with money flow to the GSEs. Bank excesses, another effect, helped spread the contagion to the rest of the world. Pointing out the worst excesses of crony capitalism doesn't make the case either for or against austerity.
He says we have a choice of austerity or recovery. It's a myopic view of black and white. To say that by 2011 it is clear that austerity has worsened conditions is reverse logic. It's the stimulus that failed. Complexity conceals corruption. He applies it to corporations while ignoring government.
On his solution page, Kuttner recommends regular increases to budget now and forever with no consideration of economic conditions. In looking for places to cut, every relief legislation is loaded with pork. Cutbacks could start with misguided energy subsidies, starting with ethanol. With senators swimming naked in the Dead Sea and Michelle and daughters visiting China at public expense, anti-austerity looks ridiculous. Unfortunately, every waste has a strong constituency so that across the board sequestration is probably the only thing that works.
The USA has become a slow growth economy. Does that mean austerity? It's a case of stimulus not working so we must do more, a general policy of US administrations for the last half century. In the USA “austerity” means a very small cutback in out of control spending. The whole austerity discussion is somewhat moot, especially in the US. Government stimulus is here to stay for the foreseeable future, as the money flows to Wall Street. Also non ending is government largess under the morality of equality even if results are the opposite of that intended. Kuttner tends to dwell on the obvious like we can't cut our way to growth, devaluation leads to inflation, low growth leads to more debt and austerity won't reduce debt accrued. (Neither will spending.) He doesn't make his case by comparison to the corruption of government induced consumerism funded by government debt.
Kuttner ends by saying that we should restore democratic politics. I don't think he means it. Who would join him in voting for government expansion at the cost of our 16 trillion debt?