A USA Today/Gallup poll shows that more people blame government than Wall Street for the state of the economy. I’m sure there’s a subset there that blames government for the economy because they’re captured by Wall Street. At any rate, the numbers are pretty high in both cases: 78% said that Wall Street bears either a great deal or a fair amount of blame for the economy; 87% made that claim about Washington.
I think this reflects the public sentiment that the buck stops in Washington when it comes to the economy. They have the ability to resist political capture and take on measures that don’t solely accrue to the benefit of the top 1%. They choose not to do so. In a time when the standard economic model demands more stimulus, governments around the world are implementing austerity measures on their populations. This is something now firmly opposed by the IMF, at variance with practically their entire history.
The International Monetary Fund, known throughout its history for urging governments to slash their budgets, is now worried that a global round of austerity may trigger a new recession and is urging countries to look for ways to boost growth.
On Monday, the agency warned the world’s leading economies that belt-tightening by governments, companies and consumers has been become so aggressive that the global economy could falter because of anemic demand.
“The immediate risk is that the global economy tips into a downward spiral. . . . Even in a less severe scenario, key advanced economies could suffer from a protracted period of low growth,” the IMF said. The agency report urged all but the most debt-strapped nations to boost growth through expansive government budget and spending policies or through central bank measures such as lowering interest rates to stimulate the economy.
As Antonio Borges, director of the IMF’s European division, recently said, “We call it a sovereign debt problem, but if countries were growing and were competitive we would not be in the position we are in today.” Growth is the missing ingredient in all these fiendish plans to save Europe. Without growth, you cannot get out of the spiral of debt. And austerity is keeping growth from returning to those European countries.
This is also the case in the United States. Charles Evans describes it in response to the Federal Reserve, saying that the central bank has ignored its full employment mandate in favor of keeping inflation low. But you can apply this to the political system as well. It’s hard to keep writing “Elites are doing it wrong” over and over again, but, well, they are. They have all the tools and information they need to return the economy to at least some growth level. And they have stubbornly resisted these policies. Part of this is divided government, and a Republican Party valuing political success over economic success. But the Fed’s disinclination to act in the ways Evans describes doesn’t really explain that. It’s just elite failure. As Evans writes, “But these are not ordinary times — we are in the aftermath of a financial crisis with massive output gaps, with stubborn debt overhangs and high degrees of household and business caution that are weighing on economic activity.” It would be nice if anyone in Washington acted like these were not ordinary times.