Robert Reich on Paul Krugman

Good stuff...

Paul is correct in arguing for a large stimulus. I can't help wondering, though, if we'll need something more. Keynesianism is based on two highly-questionable assumptions in today's world. The first is that American consumers will eventually regain the purchasing power needed to keep the economy going full tilt. That seems doubtful. Median incomes dropped during the last recovery, adjusted for inflation, and even at the start weren't much higher than they were in the 1970s. Consumers kept spending by borrowing against their homes. But that's over. The second assumption seems even more doubtful: that, even if middle-class Americans had the money to continue the old pattern of spending, they could do so forever. Yet the social and environmental costs would soon overwhelm us. Even if climate change were not an imminent threat to the planet, the rest of the world will not allow American consumers to continue to use up a quarter of the planet's natural resources and generate an even larger share of its toxic wastes and pollutants.

The current deep recession is a nightmare for people who have lost their jobs, homes, and savings; and it's part of a continuing nightmare for the very poor. That's why we have to do all we can to get the economy back on track. But many other Americans are discovering they can exist surprisingly well buying fewer of the things they never really needed to begin with. What we most lack, or are in danger of losing, are the things we use in common -- clean air, clean water, public parks, good schools, and public transportation, as well as social safety nets to catch those of us who fall.

Given the implausibility of middle-class consumers being able to return to the rate of spending they maintained before the bubble, along with the undesirability of our doing so even if we could, and the growing scarcity of common goods, one could conceive an argument for maintaining aggregate demand through continuing government expenditure on the commons. Rather than a temporary stimulus, government would permanently fill the gap left by consumers who cannot and should not be expected to resume their old spendthrift ways. This wouldn't require permanent deficits as long as, once economic growth returns, revenues from a progressive income tax refill the coffers.