So say we all!!
For example, here: http://www.ft.com/intl/cms/s/0/b3c143b6-952d-11e0-a648-00144feab49a.html#axzz1P7M3EyCp The thinking of Lawrence Summers:
[The] US is now halfway to a lost economic decade. In the past five years, our economy’s growth rate averaged less than one per cent a year... the fraction of the population working has fallen from 63.1 per cent to 58.4 per cent.... [An] economy producing below its potential for a prolonged interval sacrifices its future. To an extent once unimaginable, new college graduates are moving back in with their parents. Strapped school districts across the country are cutting out advanced courses in maths and science. Reduced income and tax collections are the most critical cause of unacceptable budget deficits now and in the future....
That the problem... is a lack of business demand for employees not any lack of desire to work is all but self-evident... the propensity of workers to quit jobs and the level of job openings are at near-record lows; rises in non-employment have taken place among all demographic groups; rising rates of profit and falling rates of wage growth suggest employers, not workers, have the power in almost every market.
A sick economy constrained by demand works very differently from a normal one.... When demand is constraining an economy, there is little to be gained from increasing potential supply... if more people seek to borrow less or save more there is reduced demand, hence fewer jobs.... After bubbles burst there is no pent-up desire to invest. Instead there is a glut of capital... consumers discover they have less wealth than they expected, less collateral to borrow against and are under more pressure than they expected from their creditors. Pressure on private spending is enhanced by structural changes....
What, then, is to be done?... The central irony of financial crisis is that while it is caused by too much confidence, borrowing and lending, and spending, it is only resolved by increases in confidence, borrowing and lending, and spending. Unless and until this is done other policies, no matter how apparently appealing or effective in normal times, will be futile at best. The fiscal debate must accept that the greatest threat to our creditworthiness is a sustained period of slow growth. Discussions about medium-term austerity need to be coupled with a focus on near-term growth. Without the payroll tax cuts and unemployment insurance negotiated last autumn we might now be looking at the possibility of a double dip. Substantial withdrawal of fiscal stimulus at the end of 2011 would be premature. Stimulus should be continued and indeed expanded.... [It] is a false economy to defer infrastructure maintenance and replacement, and [not to] take advantage of a moment when 10-year interest rates are below 3 per cent and construction unemployment approaches 20 per cent to expand infrastructure investment. It is far too soon for financial policy to shift towards preventing future bubbles and possible inflation, and away from assuring adequate demand...
So say we all, that is, except for the White House: http://www.economist.com/blogs/freeexchange/2011/06/fiscal-policy-0 The thinking of the Obama administration, as reported by Ryan Avent:
Whether or not the move toward [immediate] austerity was heartfelt, the administration has now embraced the policy choice. At a White House forum on the economy yesterday, I heard from several administration officials who defended the present policy path in no uncertain terms. Austan Goolsbee, outgoing chairman of the Council of Economic Advisers, played down the May employment figure as just one data point and touted administration efforts to support entrepreneurship and facilitate private investment. I asked him whether his comments could be taken as indicating that the administration no longer felt fiscal stimulus could or should be used to support aggregate demand. Not at all, he replied, before talking more about the investment incentives and regulatory initiatives the White House has supported. These were, almost exclusively, supply-side policies. The administration's business-support efforts look like useful steps to me, but they're clearly not designed to provide a direct boost to aggregate demand. The time for that has passed, or so Mr Goolsbee seemed to imply.
The comments from Gene Sperling, Director of the National Economic Council and a key member of the team negotiating an agreement on an increase in the debt ceiling, were clearer still. The White House believes, he said, that deficit-cutting is an important component (the emphasis was his) of a growth strategy. And he repeatedly said that deficit-reduction was crucial in generating economic confidence. Confidence—he repeated this word many times...
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