-----Original Message----- From: Rakesh Bhandari <bhandari at phoenix.Princeton.EDU> To: lbo-talk at lists.panix.com <lbo-talk at lists.panix.com>
> I still maintain that govt cannot freely
>play the fiscal card in the next recession or depression because of its
>indebtedness. That is, the issuance of massive new govt debt will not be
>available as a temporal displacement in a deep crisis ofoveraccumulation,
>given the interest payments that already have to be made (at present
>around 14% of the budget).
Rakesh, while I appreciate your more general critique of the limits of Keynesianism, the above statement has that annoying quality of far-left critiques mirroring rightwing arguments.
There is little question that the level of US debt will inhibit deficit spending, but the fact is that just a few years ago we had annual deficits of $300 billion and we now have a surplus of $70 billion. If we could sustain a deficit $370 billion higher than today just a few years ago, we could do so again during a forthcoming economic downturn.
At one level, Reaganism can be seen as making a mockery of extreme conservative claims about the dangers of budget deficits. Deficits do lead to debt and the burden of paying back the bankers - the tautological meaning of debt. But after both Reagan's deficit-led 80s boom and Clinton's balanced-budget bond-market backed growth, it is mostly unclear to me what the meaning of deficits are to the economy.
The biggest problem with traditional Keynesian arguments is that money pumped in through deficits can easily be pumped out of the US economy through imports. In fact, much of the world no doubt depended on the US during the 80s for Reagan's deficit spending and there are complaints right now that the US prudent budget balancing is hurting overseas growth. In fact, the contraction of the global economy may at some level be related to the rather sharp plunge in deficit spending by the US government- an element in the whole global turmoil that is rather undiscussed in US financial analyses.
--nathan newman