It is just coming to light that after the Great Recession of 2008 – 2009 many nations’ right turn into economic austerity was based on faulty economic analysis. Harvard economists, Ken Rogoff and Carmen Reinhart published a very influential paper in 2010 saying that when a nation’s debt to GDP ratio exceeded 90%, economic growth would be negative. This paper was touted to justify much cutting of government expenditures in Europe and the U.S.A. A team of researchers at U. Mass, Amherst (Thomas Herndon, Michael Ash and Robert Pollin) pointed out several errors in the analysis and showed that the Rogoff/Reinhart thesis did not hold up.
“This is a mistake that has had enormous consequences,” wrote Dean Baker of the Center for Economic and Policy Research. “If facts mattered in economic policy debates, this should be the cause for a major reassessment of the deficit reduction policies being pursued in the United States and elsewhere.” (Huffington Post, June 12, 2013). “If facts mattered” is a reminder that economic policy is based on ideology more than anything else, and right-wing politicians are always seeking justification for their support of policies which benefit the wealthy and the powerful.
Keynesian economic theory, on the other hand, holds that during a recession the government’s job is to prime the pump through public investment in infrastructure to help the economy weather the downturn. Government borrowing is by far the lesser of two evils than having businesses go bankrupt and many people unemployed. The social costs of unemployment are enormous. What sort of society is it that sacrifices its most vulnerable citizens on the altar of cutting the taxes of the rich? On a personal note I know several families whose young adults (with developmental disabilities) were laid off during the recession and who have not returned to work three to four years later.
Where is the outcry about this injustice done to ordinary people? Where are the Congressional investigations? The outcry is muted so far at best – another sign of the way that the corporate world controls the halls of Washington. I read this morning that Mayor Bloomberg of New York City is looking for $20 billion to build levees to protect NYC against reoccurrences of hurricanes like Sandy. Take it out of the Pentagon budget, I say. Transfer the money from defending against imagined threats to defending against real threats. Stop lining the pockets of the armaments industry and put the money to work to provide jobs for people on Main Street. That’s an example of constructive economic policy.