”Today we are living in an era of indebtedness. Over the past several years, society has oscillated ever more wildly though three debt-fueled bubbles. First, there was the dot-com bubble. Then, in 2008, the mortgage-finance bubble. Now, we are living in the fiscal bubble.
In this country, the federal government has borrowed more than $6 trillion in the last four years alone, trying to counteract the effects of the last two bubbles. States struggle with pension promises that should never have been made. Europe is on the verge of collapse because governments there can’t figure out how to deal with their debts. Nations around the globe have debt-to-G.D.P. ratios at or approaching 90 percent — the point at which growth slows and prosperity stalls.”
David Brooks, New York Times
Brooks claims that the reason why our economy is stalling is because of government debt, which under Keynesian calculus would be wrong. When the private sector is too slow to recover the economy, the government would have to borrow more money to make investment spending to hire a greater number of people, and facilitate an economic recovery quicker.
But even aside from Keynesianism, the biggest problem is not the debt burden, but the fact that this debt burden had been necessitated by the forces of capitalism. How can that be? Let me explain. Back in the 1970s, capitalism faced a growing realization crisis, i.e. profits were down, growth stalled, businesses were facing obstacles to expansion (on a side comment, labor was also relatively strong- it was only then that inflation and Reaganomics destroyed organized labor).
Companies eager to restore their profit margins started to move their labor force offshore, where labor was to be had for cheaper. More sophisticated technology was replacing labor in droves. Corporate profitability was restored to full levels at the cost of the labor force that faced stagnant and later diminishing real incomes. Production is ramped up, consumption can’t keep pace. Capitalism faces another crisis.
The crisis was avoided by taking corporate profits and using the banking system to lend the surplus back to working people, whose jobs and wages were deteriorating. Banks really got out of control in the 1990s with the repeal of Glass-Steagall, which allowed the banks to use deposit money for speculative investments, including those subprime mortgages that were issued to poor people. Capitalism averted the crisis until the bubble burst. Credit stalled, a Great Depression lurked in the corner.
Governments fearful of the consequences used public money to bail out the banks, and facing huge debt burdens themselves, now begin to commit to austerity, which sucks even more demand from the economy, while leaving the most vulnerable citizens exposed to cutbacks in critical social services. Now capitalism faces a real crisis.
What is Brooks intent to do about it? Use his punditry wit to draw out a concept of fiscal austerity, which would aggravate the economic crisis to the levels that we have observed in Greece. What he never talks about is that we should a) raise taxes for the rich, b) cancel some of the debts, c) use the ensuing budget surplus to pay for WPA-style programs that put millions of people back to work and stimulate the economy.
Does this sound like a redistribution from the top to the bottom? Yes, this is what we need after transferring all the wealth from the bottom 99% to the top 1% for the last 30 years- with all its devastating effects.