Juicing Employment Is Good

Financial FAQs

The subject of juicing is in the air with Lance Armstrong’s confession that he and his cycling teammates injected various stimulants to win races. Yet he told Oprah on her show he didn’t think he was cheating. “Scary, hunh?”

But when it comes to stimulating growth of the U.S. economy after a recession there shouldn’t be any debate about boosting economic growth. Yet bond vigilantes and other austerity advocates think governments are cheating in some way by spending to stimulate economic growth, and create jobs (rather than let growth continue to stagnate).

But in reality, it is the age old attempt to restrict government from being effective in its various mandates, including helping to grow the economy; which also helps to right the record inequality that was a major cause of the Great Recession.

My goodness, we have such huge budget deficits, say the deficit hawks and bond vigilantes (who sing the same basic tune). This means their thinking is even scarier. It’s as if the Great Recession never happened. Because some deficits are good during an economic recovery, when there is little chance of inflation. Fed Chairman Bernanke has even said we could tolerate 3 to 4 percent inflation—instead of the current 2 percent—and it wouldn’t hurt economic growth.


Graph: BLS

In fact, we can’t have real inflation until the unemployment rate drops back to 6 to 6.5 percent. One Fed Governor, Naryana Kocherlacota, even wants to wait until it falls to 5.5 percent, which is closer to the historical norm for inflation to kick in. This is why the Fed Governors set such a target before beginning to tighten credit.


Graph: BLS

History has shown there isn’t sufficient demand to drive up prices when unemployment is high, which is the same as saying not enough money is in circulation that would drive up inflation. A good recent example is in the 1990s as the accompanying graphs show. When unemployment rose, inflation fell at the same time. Inflation then remained in the 2-4 percent range during the 1990s when unemployment was between 4-6 percent, which seems to be the norm, as we said.

We call it austerity when inflation hawks hold sway as they are doing in Europe at the present. It is also the rationale used by the deficit hawks who resist any stimulus spending, even though history has shown it decreases record inequality, the major cause of the current recession and economic stagnation, as we said. Nobelist Joseph Stiglitz is one who has trumpeted the necessity of decreasing inequality if we want real growth.

This is the lesson that Bernanke’s Fed has learned, and why they continue to pump money into our economy by buying up bonds and mortgage-backed securities with successive Quantitative Easing (QE) programs.

So Lance Armstrong’s ‘juicing’ does teach us something. It is a label misused by those protecting their wealth who resist all stimulus spending that benefits most Americans, and decreases record inequality. Using monetary stimulants to boost economic growth when unemployment high is good, because it creates a healthier economy, more jobs, and yes, a winning mentality for the right reasons.

Harlan Green © 2013

Follow Harlan Green on Twitter: www.twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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