An Economics Lesson: Expansionary Economics

by: aaronsw

Wed Oct 08, 2008 at 08:29

The reason is simple. Like it or not, our economy works because of a constant flow of money -- when you buy vacations, money goes to the airlines, who use it to hire airport staff and buy planes, which means more people building airplanes, who means more people building airplane parts, which means more people building machine tools, and so on. There's a word for what happens when all these people cut back: a recession. The money dries up, suddenly folks find themselves out of a job, and everybody left has to take a paycut to "stay competitive".

Belt-tightening means pulling even more money out, which means even more jobless and weakened. The only way to get things moving again is if the government counteracts these trends by investing -- getting more money into the economy so that it starts bulking up instead of cutting back.

This is what we learned during the Great Depression -- Herbert Hoover's fiscal austerity did little, but FDR's Works Progress Administration got America going by paying folks to build public buildings, write books, distribute food, and so on. Many of their books and buildings can still be seen today.

This is why moderators' questions about "what will you cut back on in a recession?" are nonsense -- the real question is what will we expand with? Will we get the economy going again by creating thousands of new green jobs or starting a new Apollo Program to create clean energy instead of a man on the moon? Or, as John McCain proposes, will we give it all away in tax breaks to the wealthy? We need to know, because one thing is clear: we can't afford another Hoover.