The Tea Party’s Modest Proposal

Here is one by Simon Johnson, The Tea Party’s Modest Proposal.

The irony of the Tea Party revolt, of course, is that it undermines the private sector more than it reins in “big government.” The S&P downgrade resulted in a “flight to quality,” meaning that investors bought US government debt – thus increasing its price and lowering the rate that the federal government pays to borrow.

It was the value of the stock market that fell sharply – which makes sense, given that counter-cyclical policy is now severely constrained. The government part of the credit system has been strengthened, relatively speaking, by developments over the past few months. It is the private sector – where investment and entrepreneurial activity are needed to generate growth and employment – that has taken a beating.

Unless and until America’s private sector recovers, investment and job creation will continue to stagnate. But today’s atmosphere of fear and aggressive budget tactics are combining to undermine private-sector confidence and spending power.

As Jonathan Swift put it in 1727, “Party is the madness of many, for the gain of the few.”

I highlight the above paragraphs partly because it expands on something that I have noted.  The Republican politicians, the Tea Party, and Financial talking heads on “news” shows  may not believe in Keynesian economics.  Maybe not consciously, but viscerally, the market does seem to believe in Keynesian economics.  The market sees the government austerity coming.  They know this will lead to a second dip recession, and they want out of stocks and into safe US Government bonds in a big way.

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