Don't like the economy? Do something!

Solving fiscal problems requires individuals to take responsibility and make sacrifices

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    Supercommittee member, Senate Finance Committee Chairman Sen. Max Baucus, D-Mont., is pursued by reporters on Capitol Hill in Washington, Thursday, Nov. 17, 2011, as he and other Democratic members of the supercommittee arrived for a closed-door meeting. Bernstein argues that the supercommittee has little chance of solving the nations fiscal problems
    J. Scott Applewhite/AP
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Next week I’m headed over the UK where I’ll be meeting with folks from the Resolution Foundation, a smart and innovative British think tank working on many of the same issues you see on these pages.  Here, for example, is a piece they’ve just put out.

It’s a discussion about some of the economic challenges facing low and middle-income families in the UK, including stagnating real earnings, high household debt levels, and the likelihood that some supportive policies—earnings credits and minimum wage increases—are losing ground.

But the part I found particularly compelling is the policy discussion—the search for “gritty steps for improving household finances.” 

What I see when I look at today’s economic policy debate is a lot of people sitting on their hands.  Here in the US, only the most stalwart souls—more on this in my next blog—are thinking about fiscal actions to create jobs.  Most have given up on the short term and the rest are scrumming around with the supercommittee, that leftover vestige from the great debt ceiling debacle.  Fannie and Freddie are doing a little (on refis and REO to rentals), but could be doing much more. 

In Europe, central bankers at the ECB who could, with aggressive action, provide the necessary credit backstop to the banking system, are refusing to play the lender of last resort role that is the raison d’être of central banks in moments exactly like this one.

In a way, Keynes’ fundamental insight was: Do Something!  The “General Theory” outlines in academic detail the rationale and conditions under which such interventions should occur, as well as the type of things we’d want to do–stimulate demand through tempoary deficit spending–but the core message is that when the market fails like this, sitting on hands doesn’t do anything but squander resources—potential growth is lost forever and, especially when the slog lasts this long, lifelong careers can be negatively altered.

So there you have it: Keynesianism and the policy roadmap forward in two words: Do Something!

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