Saturday, February 23, 2013

Contractionary Policy Is Contractionary

The loss of welfare inflicted on their populations by those who rule Europe and the US is tremendous, and completely counterproductive given the stated goals of those rulers. The way to reduce deficits is to increase economic growth. The way to encourage growth, when below full employment, is to print free money and spend a lot of money. The actions of our Fed have been ineffective because they've relied on the banking channel even though quite obviously our financial sector is completely screwed up. My preferred policies would be free money for everyone combined with Fed-financed infrastructure spending. Free money freaks people out, but that's what "quantitive easing" means. Magic money creation! There's an opportunity for a free lunch and we left it on the table.

Even those who get there's a problem usually can't bring themselves to the obvious solutions.

Moody's recognises that Britain's economic travails stem from depressed growth, but its analysis seems incapable of progressing on from there. Taken as a whole, the agency is saying, with a straight face, that "Britain's attempts to cut its debt have harmed its attempts to cut its debt, and this could harm its attempts to cut its debt", and it sees nothing problematic with that.

There's no need for widespread economic misery. It isn't as bad here and in the UK as it is in Spain and Greece, which are just being destroyed, but it's much worse than it should be.