Though the Great Neoliberalism Debate of 2011 now seems like yesterday’s news—probably because it is—the second-quarter GDP estimates that were just released should bring us back to where that debate began: with a question about what is the “single best thing” the government could do to create jobs and stimulate the economy.
In case you haven’t heard, things suck: almost no growth at all. As all the commentary makes clear, the major problem is low consumer demand and falling government spending. People aren’t spending the money they don’t have; businesses aren’t spending the money they do have; government is not spending the money it could have. As all the commentary makes equally clear, there is a solution: government action on the fiscal front. Government needs to spend, government needs to hire. That will put money into people’s pockets, pump up consumer demand, and push firms to hire.
Hmm, I seem to recall someone saying something similar not so long ago.
Interestingly, in the face of this latest economic news, I haven’t heard many people running to the Fed and demanding that it increase its inflation targets—a proposal that sounds increasingly like a solution in search of a problem.