Noted for April 15, 2013
Liveblogging World War II: April 15, 1943

DeLong Smackdown Watch: Monday Hoisted from Comments Weblogging




Second, if the problem is that people don’t have enough cash--well, then, find some organization, a Bank of England, a Federal Reserve--and have it print cash until people no longer think they should spend less than their income to build up their cash. Flood the economy with money until people no longer want to hoard more cash than they currently have.

That's a pretty crass response to a crisis, it is just the usual "pump up asset prices" one from the likes of Greenspan and Summers.

What about addressing the REASON why "people" think they don't have enough cash?

Most people (other than the speculation oriented millionaires who sponsor Summers and other economists) are heavily invested in their JOBS, think that their job is an income-producing asset, and save more in safer assets if they think that their jobs have become less safe assets. Sure a bit more liquidity going round the real economy may make some jobs safer assets, but the main effect is boosting asset prices.

Just pumping up asset prices with massive "liquidity" injections does not anything to make their JOBS safer. Especially if the job-asset is accordingly devalued with respect to the other assets whose price is booming.

But safer jobs and better wages are "inflationary", and booming speculative asset prices are not, so hurrah for the policy of a flood of cash.

Then Ronald Reagan came in, said what the US economy really needs is tax cuts, and that pushed the debt up by a lot.»

That was the beginning of the application of Jensenism (as Henwood, the author of "Wall Street The Book" calls it), but applied to whole countries: loading a company or a government with debt leads it to be constant pressure so it will squeeze its suppliers and employees harder and harder to repay the debt.

And loading a company or government with debt offers the fantastic opportunity of asset stripping: taking out as much debt as possible to pay out large dividends. Which is what happened when the USA government borrowed from the OASDI trust fund to pay for massive tax cuts on high income or high wealth taxpayers.