Tuesday, November 9, 2010

Prof. Richard Wolff: The Fed and the Great Recession That Won't Go Away

November 8, 2010


Conservatives in the US worry about the inflation potential in their ideological rush to reduce government. They pronounce homilies about inflation’s dangers in order to reduce the size of government. By cutting government spending – and thereby forcing more reliance on the private capitalist sectors – it will be possible to cut deficits, thereby reduce Treasury bond issuance, and thus relieve the Federal Reserve of the need to create money to finance the deficits. Conservatives downplay the risk of worsening unemployment by an abiding faith in the private sector’s capacity to hire everyone willing to work.

Liberals in the US worry about unemployment in their ideological rush to reduce the risk of worker-based anti-capitalist upsurges. They pronounce homilies on the costs of unemployment in order to support government expenditures aimed at reducing unemployment. To appease the rich and big business, they do not propose taxing them to raise the funds for government employment-generating programs. Instead they advocate borrowing those funds (chiefly from the rich and big business) to enable federal government budget deficits. This certainly pleases the rich and big business, since they prefer buying Treasury bonds (lending to the federal government at interest) to being taxed by that government. Liberals downplay inflation risk by reminding everyone that the Federal Reserve has tools to reduce as well as increase the money supply.

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