The key thing to bear in mind is that for the world as a whole, spending equals income. If one group of people — those with excessive debts — is forced to cut spending to pay down its debts, one of two things must happen: either someone else must spend more, or world income will fall.
Yet those parts of the private sector not burdened by high levels of debt see little reason to increase spending. Corporations are flush with cash — but why expand when so much of the capacity they already have is sitting idle? Consumers who didn’t overborrow can get loans at low rates — but that incentive to spend is more than outweighed by worries about a weak job market. Nobody in the private sector is willing to fill the hole created by the debt overhang.
So what should we be doing? First, governments should be spending while the private sector won’t, so that debtors can pay down their debts without perpetuating a global slump. Second, governments should be promoting widespread debt relief: reducing obligations to levels the debtors can handle is the fastest way to eliminate that debt overhang.
But the moralizers will have none of it. They denounce deficit spending, declaring that you can’t solve debt problems with more debt. They denounce debt relief, calling it a reward for the undeserving.
Another heinous victory for the religious fundamentalists who have to see things in black and white terms, given their own self-righteous "white purity."
Krugman's is a lone voice in the wilderness on government stimulus at a time when his advice and counsel would be "just what the economic doctor ordered" for the current conditions.
There is a quality of the sacred to the plea to "stop spending by government" just as there is a quality of irresponsbility to the plea for more stimulus spending. However, it is precisely this Manichean split of the world into a duality that does not exist that is entrapping the public debate on the current crisis.
It is not an "either-or" proposition, not about spending, not about taxing, not about innovation versus traditional manufacturing, not about technology or the arts, not about science versus the humanities.
This is a pivotal time in the life of the planet, when we must bridge the kind of divide that reduces our problems to an either-or resolution.
All consitutencies, all points of view and all values (positive) are needed for any resolution to be effective. And yet we refuse to grant to any one, or to any institution, the opportunity to bring all the diverse voices together to devise a long-range, mature, sensible and sustainable approach that all of the people can and will support.
- First, we have to shed our addiction to instant gratification;
- next we have to shed our addiction to our own power;
- next we have to shed our addiction to our own sanctimonious self-righteousness;
- next we have to learn to listen to opposing points of view;
- next we have to admit that insanity is doing more of the same while expecting different results.