Sunday, March 24, 2013

Policy works.


At heteconomist, a good title from PeterC: Why Neoliberals Pretend Private Debt Doesn't Matter and Public "Debt" Does, and a very good opening line:

The neoliberal policy approach in the decades leading up to the crisis basically amounted to enticing or pushing people into increasing levels of private debt.

I still don't know what a "neoliberal" is, nor care to know. But as PeterC says, economic policy for decades pushed and enticed and cajoled and encouraged more and ever more debt.

You don't find people saying things like that very often. But it is so important to realize that most of what happens in the economy happens because of policy.

Economists, of all people, go around saying things like fiscal policy doesn't work and monetary policy works only in the short term, if at all. So why, I ask, are those people still in that line of work?

My view is that policy works. Monetary policy takes money out of circulation to fight inflation. Fiscal policy encourages spending to make the economy grow. Together, the policies encourage more spending but fail to provide the money. So people use credit.

Policy works: Monetary and fiscal policy caused the expansion of credit-use and the accumulation of debt.

Was this the intent of policy? No, I think not. But economists seem never to look at the combined effect of the two policy tools. So, for decades, policy "basically amounted to enticing or pushing people into increasing levels of private debt."

1 comment:

Greg said...

"Policy works: Monetary and fiscal policy caused the expansion of credit-use and the accumulation of debt.

Was this the intent of policy? No, I think not. But economists seem never to look at the combined effect of the two policy tools. So, for decades, policy "basically amounted to enticing or pushing people into increasing levels of private debt."


Im surprised you would say that this wasnt the INTENT of the policy. Over 95% of the money in our economy comes with interest fees to banks. Banks want us to be in debt to them, its their intent. The govt has made it so there really is very few other options. It certaily isnt a bug of our system but a feature. Banks write our monetary/fiscal policy through their lobbying.