Behind every silver lining is a dark cloud

Posted by AzBlueMeanie:

If you listen to Willard "Mittens" Romney and the rest of the GOP presidential field, their talking points are that the economic recovery would be doing better if not for President Obama's interventionist economic policies (which began under George W. Bush in late 2008 by the way).

It is important to keep in mind that these Tea-Publicans are all true believers in the "invisible hand" of the freee market place. What they are really saying is that the economy should have been left alone to sink into a Great Depression and the "creative destruction" of a depression would have cleaned out the inefficiencies in our economy. The human cost and destruction of lives be damned.

This is not new. It is as old as Treasury Secretary Andrew Mellon's "liquidationist thesis": Andrew Mellon advised President Hoover to “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.”

Here's the full quote from President Herbert Hoover on the advice given to him by Mellon:

…the “leave it alone liquidationists” headed by [my] Secretary of the Treasury Mellon, who felt that government must keep its hands off and let the slump liquidate itself. Mr. Mellon had only one formula: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” He insisted that, when the people get an inflation brainstorm, the only way to get it out of their blood is to let it collapse. He held that even a panic was not altogether a bad thing. He said: “It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people”… (Source: U.C. Berkeley Economist Brad De Long).

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In some ways Andrew Mellon's failed approach resembles the IMF austerity programmes after the 1997 Asian economic crisis that economist Joseph Stiglitz criticized so vehemently in his book Globalization and its Discontents (2002).

It is also the IMF and European Union austerity programmes being put in place today in response to the Euro Crisis that will lead to recession this year – some warn depression — in Europe.

And sadly, it is austerity programs of Tea-Publican state legislatures that is holding back our economic recovery in America. As the monthly jobs reports I post every month show, the private sector has been adding jobs for 23 consecutive months, however modest the numbers, but public sector employment continues to be devastated by Tea-Publican budget cutting at the state government level. This takes paying jobs and money out of the economy for economic expansion. Tea-Publicans are systematically sabotaging the economic recovery in blind pursuit of a disproved and discredited economic theory.

As Paul Krugman recently posted, Destructive Austerity, USA – NYTimes.com:

Jared Bernstein has been emphasizing, rightly, the extent to which our weak recovery is being undermined by cutbacks at the state and local level:

But it’s even worse than he says. Why? Because if you look at what’s being cut, it’s heavily focused on investment:

That is, we’re sacrificing the future as well as the present. Oh, and the cuts that aren’t falling on investment in physical capital are largely falling on human capital, that is, education.

[T]his is a time when government investment should be pushed very hard. Instead, it’s being slashed.

What an utter disaster.

This the backgrounder you need for today's opinion by Paul Krugman. Things Are Not O.K. – NYTimes.com:

In a better world — specifically, a world with a better policy elite — a good jobs report would be cause for unalloyed celebration. In the world we actually inhabit, however, every silver lining comes with a cloud. Friday’s report was, in fact, much better than expected, and has made many people, myself included, more optimistic. But there’s a real danger that this optimism will be self-defeating, because it will encourage and empower the purge-and-liquidate crowd.

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That said, our economy remains deeply depressed. As the Economic Policy Institute points out, we started 2012 with fewer workers employed than in January 2001 — zero growth after 11 years, even as the population, and therefore the number of jobs we needed, grew steadily. The institute estimates that even at January’s pace of job creation it would take us until 2019 to return to full employment.

I would point out that during this entire period we have had the massive Bush tax cuts for the so-called "job creators" of the one percent. "Mr. Boehner, where are the jobs?" Magical belief in faith based supply-side "trickle down" GOP economics has been an utter disaster. This economic theory has been entirely disproved and discredited with devastating economic consequences over the past decade.

And we should never forget that the persistence of high unemployment inflicts enormous, continuing damage on our economy and our society, even if the unemployment rate is gradually declining. Bear in mind, in particular, the fact that long-term unemployment — the percentage of workers who have been out of work for six months or more — remains at levels not seen since the Great Depression. And each month that this goes on means more Americans permanently alienated from the work force, more families exhausting their savings, and, not least, more of our fellow citizens losing hope.

So this encouraging employment report shouldn’t lead to any slackening in efforts to promote recovery. Full employment is still a distant dream — and that’s unacceptable. Policy makers should be doing everything they can to get us back to full employment as soon as possible.

Unfortunately, that’s not the way many people with influence on policy see it.

Very early in this slump — basically, as soon as the threat of complete financial collapse began to recede — a significant number of people within the policy community began demanding an early end to efforts to support the economy. Some of their demands focused on the fiscal side, with calls for immediate austerity despite low borrowing costs and high unemployment. But there have also been repeated demands that the Fed and its counterparts abroad tighten money and raise interest rates.

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But there’s also a sort of freestanding opposition to low interest rates, a sense that there’s something wrong with cheap money and easy credit even in a desperately weak economy. I think of this as the urge to purge, after Andrew Mellon, Herbert Hoover’s Treasury secretary, who urged him to let liquidation run its course, to “purge the rottenness” that he believed afflicted America.

And every time we get a bit of good news, the purge-and-liquidate types pop up, saying that it’s time to stop focusing on job creation.

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So here’s what needs to be said about the latest numbers: yes, we’re doing a bit better, but no, things are not O.K. — not remotely O.K. This is still a terrible economy, and policy makers should be doing much more than they are to make it better.

About "The Fire Next Time: The Euro Crisis" and the threat of a recession — some say depression — in Europe this year spreading like a contagion to the U.S. economy. Paul Krugman blogs America's European Exposure – NYTimes.com:

It’s now conventional wisdom that the fate of the U.S. economy over the next three quarters — and hence, also, Obama’s reelection chances — depend on events in Europe. So maybe this is a good time to express some skepticism.

The map above — taken from here — tells us that overall, exports to Europe are just 2 percent of GDP. Some states, notably South Carolina, are more exposed (presumably because of those European-owned auto plants). But Obama isn’t going to win South Carolina in any case. And more broadly, even a sharp fall in exports to Europe would be only a small direct hit to demand.

The professor lists several caveats, the most important of which is: "if European events cause a Lehman-type event, disrupting financial markets world-wide, all bets are off." Well, yeah!

With all that, however, it’s still very questionable whether Europe’s looming recession will actually have that much negative impact here. Decoupling didn’t hold in 2008-2009, but that was an epochal disaster. This time might be different.

You see, there's the problem. People always convince themselves "this time it will be different"  and then act surprised when the same result occurs. People do not learn from their mistakes. We have had nearly a century to bury Andrew Mellon's liquidationist thesis on the ash heap of history, and yet here we are with Tea-Publican presidential candidates advocating for Mellon's disproved and discredited economic theory in the 21st Century.