This is how this country’s economy policy should proceed:
- Military spending should be reduced drastically. The grounds for this are sanity and good international karma (which does work, cf. Cuba’s solid international support at the United Nations).
- The tax cuts for the wealthy should be left to expire. Not only that, but tax rates for the wealthy should go up. The grounds for this is equity, which — as Stiglitz and others imply — will wind up in the medium and long term increasing macro efficiency.
- Taxes should be reduced for everybody else. The grounds for that are both equity and short-term macro efficiency.
- Public spending should increase drastically not only to offset the reduction in military spending and the tax cuts for the wealthy (although the latter is a tiny thing, as the spending by the wealthy is barely affected by tax changes), but more importantly to hit full employment. The grounds for all this is macro efficiency.
There are many areas for federal and overall public spending to go to: Federal help to states and municipalities is urgent to sustain basic local public services. Substantial investment in public education, health care, science & technology (for civilian applications) are sorely needed, and the green/energy/transportation/communications/urban/suburban/rural 21st-century infrastructure must be built. Quality-of-life public spending (e.g. in the arts) is absolutely necessary.
A bigger deficit is fine. Treasury yields are and will remain low, and even some inflation will help with debt relief — which is good on equity (and hence, on macro efficiency — Stiglitz again) grounds. The sky won’t fall. Instead, the deficit/debt so-called problem will vanish.
I have explained before that the debt (public or private) is about how wealth is distributed and does not necessarily have anything to do with how the productive wealth of the country (and of the world) is employed. The nervousness of rich people (debt holders) about their future should not be allowed to turn into a generalized economic disaster. (Ultimately, decoupling debt from employment requires that wealth be redistributed — i.e. a profound social revolution, but for the time being we can push back against the attempts to make one thing depend on the other.)
These are the economic policies that make sense to the 99%. How can we make them happen? We can do things like these:
Let’s take action before the Austerity Bomb (so-called Fiscal Cliff) goes off!
UPDATE: Hat tip to Jim Farmelant for reminding me of Michal Kalecki’s essay, “Political Aspects of Full Employment,” on the political difficulties facing the enactment of full-employment policies. Again, we need mass action to set this in motion.