Bill Mitchell — Macroeconomic constraints render individual action powerless

When recessions become prolonged and long-term unemployment rises, the conservative denial machinery always scapegoats the most disadvantaged by recommending cuts to welfare to make people more desperate. This is dressed up in terms that attempt to make this sort of policy sound reasonable – like we should all be adventurous and entrepreneurial. The facts are that mass unemployment represents a macroeconomic failure that can be addressed by expansionary fiscal and/or monetary policy. It has nothing to do with the provision of the miserly amounts that are given to the unemployed via income support arrangements. Cutting those benefits will not cure involuntary unemployment. In all likelihood, cutting benefits will make the aggregate demand shortfall that caused the unemployment to worsen. The result is that the cuts will only make the lives of the unemployed more desperate than they already are. It is time that the conservatives learned about macroeconomic constraints....

Macroeconomics teaches us that individual choice can be rendered powerless as a result of the presence of macroeconomic constraints – most usually spending constraints on the product market that ration the number of overall jobs and working hours that will be on offer at any point in time to an economy.

Once an economy is operating under such a demand constraint, the supply-side of the economy loses traction – that is, no longer influences the market outcome, which renders much of the orthodox labour market analysis irrelevant, if not false.

Bill Mitchell — billy blog
Macroeconomic constraints render individual action powerless
Bill Mitchell

Ten dogs, nine bones.

Cutting spending is not fiscal responsibility. It's fiscal irresponsibility!

A government can be said to be fiscally responsible when it taxes and spends at a level that sustains full output and employment. Doesn't matter what the arbitrary level of taxation, spending or deficits are; what matters is the outcome. Simply cutting spending for the sake of cutting spending is not fiscally responsible behavior of government, especially a currency issuer.

Here we go again...Obama appoints two new "fiscal conservatives" to Fed board

Here we go again as if we haven't had our fill of this lunacy. More fiscal conservatives in the Obama Administration. And you guessed it!...they've got either Harvard or Goldman Sachs' ties. (Or both!)

Jerome Powell and Jeremy Stein. Powell is a lawyer with no economics background (bad) and Stein is a Harvard professor (worse!).

Powell quote:

“I am by any fair reckoning a fiscal conservative,” Powell, who goes by Jay, said in a May 16 interview with Bloomberg Television. At the same time, allowing a default is “just not a risk that you run.” “That doesn’t mean that you don’t negotiate very hard to get additional spending cuts and get the deficit under control,” he said. “You do. But that crosses the line into hostage taking, I’m afraid, and is just tactically unacceptable.”

Did you get that part about "getting the deficit under control?"

And here's a Stein quote:

“The Fed in the early part of this decade would have been better had they been a little bit more aggressive in dealing with the housing bubble in its early stages, both through interest-rate policy and potentially through worrying a little bit more about the buildup of all this leverage on bank balance sheets,” Stein said...
Nothing in there about rampant fraud and lax oversight. Only implies low interest rates created the "bubble" and there was too much leverage. Peter Schiff stuff.