Is the recession the fault of people like me?

Why hasn’t the government of the United States done more to end the recession?  According to an economist named Steve Randy Waldman, it is my fault—or rather the fault of people like me, old retired people who’ve saved their money and don’t want anything to happen that would affect the value of our savings.

We are in a depression, but not because we don’t know how to remedy the problem. We are in a depression because it is our revealed preference, as a polity, not to remedy the problem. We are choosing continued depression because we prefer it to the alternatives. … …

But the preferences of developed, aging polities — first Japan, now the United States and Europe — are obvious to a dispassionate observer.  Their overwhelming priority is to protect the purchasing power of incumbent creditors.  That’s it.  That’s everything.  All other considerations are secondary.  These preferences are reflected in what the polities do, how they behave.  They swoop in with incredible speed and force to bail out the financial sectors in which creditors are invested, trampling over prior norms and laws as necessary.  The same preferences are reflected in what the polities omit to do.  They do not pursue monetary policy with sufficient force to ensure expenditure growth even at risk of inflation.  They do not purse fiscal policy with sufficient force to ensure employment even at risk of inflation. They remain forever vigilant that neither monetary ease nor fiscal profligacy engender inflation.  The tepid policy experiments that are occasionally embarked upon they sabotage at the very first hint of inflation.  The purchasing power of holders of nominal debt must not be put at risk.  That is the overriding preference, in context of which observed behavior is rational.

via interfluidity.

I don’t see it.  I am fortune enough to have savings, which I have invested conservatively, and I don’t think that either the federal government or Wall Street is acting in my financial interest.  If it were, I would be able to earn interest on my bank account or my money market fund.  No, the U.S. government, the German government and the international financial institutions are operating in the interests of the big banks and investment firms.  They are acting to preserve the value of their assets, not my savings.

True, many Tea Party members are in my economic class, and they are much more worried about inflation and government debt than they are about unemployment and public services.  But the Tea Party rank and file don’t run things.  The average Tea Party supporter is as opposed to the Wall Street bailouts as I am.

True, economic policy is tilted toward averting inflation, which isn’t a serious problem at present, rather than bringing down unemployment, which is.  I think that reflects the policies which serve the interests of financial institutions, whose priority is to maintain the value of currencies and financial assets, and over the interests of the producers of tangible goods and services, whose priority is to maintain the level economic activity.

I don’t think governments should intentionally adopt a policy of inflation, but I do think they need to recognize that inflation is not the main concern right now.  Right now continued recession, with the strong possibility of another financial markets crash, is a greater threat to my savings than inflation is.

Click on Depression is a choice for Steve Randy Waldman’s full comment.

Tags: Economic Policy, Great Recession, Inflation, Tea Party