Deficit Spending and the Recession: The Daily Beast Manifesto

On Monday, 16 economists and historians signed a document calling for tax cuts and stimulus spending to get America working again. Within two days, their ranks have swelled past 100, including four Nobel laureates. Here’s what they’re saying.

Chip East / Reuters

On Monday, 16 economists and historians signed a document calling for tax cuts and stimulus spending to get America working again. Within two days, their ranks have swelled past 100, including four Nobel laureates. Read the complete list of manifesto backers. Here’s what they’re saying:

Eric Maskin, Nobel laureate in economics, A.O. Hirschman Professor of Social Science, Princeton University

Both theory and historical experience show that public spending—even deficit spending—during an economic downturn is important for recovery. One effective form of spending is to put money in the hands of the unemployed; they will use it for immediate purchases, which in turn stimulate production. But besides this economic logic, there is a moral reason for focusing on the unemployed: they did not cause the economic collapse, but are its worst victims. They deserve our support.

Marshall Auerback, Senior Fellow, Roosevelt Institute: Fiscal deficits do matter. They matter to full employment. Because relative price adjustments in so called free markets fail to spontaneously or even gradually get us to full employment without fiscal action. They can also matter to inflation, if the economy is miraculously already approaching full employment. And they matter to private wealth accumulation—the allow net private saving of financial assets like Treasuries that are default free for nations with sovereign currencies and debt denominated in that sovereign currency. And if fiscal policy is crafted correctly, it can matter to private investment initiatives. Public investment has been shown to crowd in related private investment activity. Think the development of the highway system with public funds and the development of suburbs. E

Erik Olsen, Economics Professor, University of Missouri: Today there are millions of unemployed workers in the U.S. alongside idle or underutilized production facilities. Our infrastructure is old and obsolete, our energy system is ruining the planet, and many areas of our central cities have become poverty traps. And we are told by some that the solution to all of this is to do nothing? Solutions to our pressing problems are available, it just takes the courage to find them and seize them. The cost of finding these solutions is manageable; the cost of doing nothing is intolerable.

Malcolm Robinson, Economics Professor, Thomas More College: The Obama administration seems to be afraid to use the words "mass unemployment" to describe our current state of affairs. I am not afraid to speak up for the jobless. The administration is also unwilling to admit that it underestimated the depths of the recession caused by a collapse in demand and a freezing up of financial markets. Although it was wise to spread the impact of the first stimulus out over multiple years, it seems painfully obvious that the ARRA was too small. The deteriorating fiscal position of the states has further weakened the recovery. To preach austerity today to solve our budget problems in the long run is like suggesting we should amputate a foot because thirty years from now the patient will suffer a heart attack unless she changes her diet and exercises. I support a second stimulus because it is the correct and moral response to our lingering mass unemployment.

Clair Brown, Economics Professor, UC-Berkeley: I strongly support this statement, because people’s time and the use of capital cannot be stored. Their contributions to the economy are gone forever. Getting people and capital back to work will generate GDP for people to spend and companies to invest, as well as generate tax revenues and reduce government spending and the deficit. Without stimulus, we are passing along a smaller economic pie to our children. With stimulus, we generate more debt in short run, but we are passing along a larger economic pie with the ability to pay interest and repay debt. When job openings provide enough jobs for those seeking work, then we can go back to our normal unemployment benefit period, and begin the serious work of reducing the government deficit.

Robert Pollin,
Professor of Economics
and Co-Director, Political Economy Research Institute, University of MassachusettsAmherst:

The Original Manifesto—and Supporters The notion of imposing austerity at a moment when we may— may—be slowly coming out of the most severe recession in the last 70 years is potentially calamitous. At the very least it is highly, highly risky. What we need now, both in Europe and in North America, are continued stimulus policies, policies that will expand spending, promote employment creation, and enable the private sector to start growing as well. That has to be the basic premise. The mere fact that it is not the basic premise is what makes the policies themselves utterly inappropriate for the moment.

The other major factor holding back a recovery now is that, despite the very large fiscal deficits, private-sector borrowing and spending are not happening. So in my view the key to a recovery is not just to focus on maintaining large fiscal deficits—though that is needed for the current period—but also to start creating very large incentives to get a private credit flowing into businesses. The fact that the short-term interest rates charged now by central banks—the Federal Reserve and European Central Bank—when they lend cash reserves to banks are low is irrelevant if the private banks, in turn are not making loans and businesses don’t want to borrow. It is therefore essential to implement policies that can create large incentives into the private financial markets to promote borrowing, lending, and investment spending to promote growth and job creation. Two measures I have proposed in a bill I drafted at the request of Sen. Sanders office include both a carrot and a stick: 1) large loan guarantees for small business, administered by the Small Business Administration; and 2) Taxing the roughly $1 trillion in excess cash reserves now being held by private banks.

The July 19, 2010 manifesto reads:


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Fourteen million unemployed represents a gigantic waste of human capital, an irrecoverable loss of wealth and spending power, and an affront to the ideals of America. Some 6.8 million have been out of work for 27 weeks or more. Members of Congress went home to celebrate July 4 having failed to extend unemployment benefits.

We recognize the necessity of a program to cut the mid- and long-term federal deficit but the imperative requirement now, and the surest course to balance the budget over time, is to restore a full measure of economic activity. As in the 1930s, the economy is suffering a sharp decline in aggregate demand and loss of business confidence. Long experience shows that monetary policy may not be enough, particularly in deep slumps, as Keynes noted.

The urgent need is for government to replace the lost purchasing power of the unemployed and their families and to employ other tax-cut and spending programs to boost demand. Making deficit reduction the first target, without addressing the chronic underlying deficiency of demand, is exactly the error of the 1930s. It will prolong the great recession, harm the social cohesion of the country, and continue inflicting unnecessary hardship on millions of Americans.

The first 16 signatories were:

- Alan Blinder Alan Blinder was vice chairman of the Federal Reserve and served on Bill Clinton’s Council of Economic Advisers; he’s the Gordon S. Rentschler Memorial Professor of Economics and Public Affairs at Princeton University.

- Daniel Kevles Daniel Kevles is the former faculty chair at California Institute of Technology and serves as a professor of history at Yale University

- David Reynolds David Reynolds is an international history professor and fellow at Christ’s College in Cambridge. His latest book is America, Empire of Liberty: A New History of the United States.

- Derek Shearer Derek Shearer served as the ambassador to Finland from 1994-1997. He is now a diplomacy and world affairs professor at Occidental College in Los Angeles.

- Jim Hoge Jim Hoge is editor of Foreign Affairs and the former editor of the Chicago Sun-Times, which won six Pulitzer Prizes under his tutelage. He is co-editor of How Did This Happen? Terrorism and the New War.

- John Cassidy A journalist and author of the book How Markets Fail: The Logic of Economic Calamities, John Cassidy has been a staff writer at The New Yorker since 1995, covering economics and business.

- Joseph Stiglitz Joseph Stiglitz is the former chief economist of the World Bank, and a recipient of the Nobel Prize and the John Bates Clark Medal; currently, he’s a professor at Columbia University. He is most recently the author of Freefall: America, Free Markets, and the Sinking of the World Economy and The Stiglitz Report: Reforming the International Monetary and Financial Systems in the Wake of the Global Crisis.

- Laura Tyson Laura Tyson served as the chair of Council of Economic Advisers and the director of the National Economic Council during the Clinton administration. She is a professor at the Haas School of Business at the University of California, Berkeley.

- Lizabeth Cohen Lizabeth Cohen is the Howard Mumford Jones Professor of American Studies in the History Department at Harvard University, and author of Making a New Deal: Industrial Workers in Chicago, 1919-1939.

- Harold Evans Sir Harold Evans is a journalist and former editor of The Sunday Times and the Times, who was knighted in 2004 for his services to journalism. His award-winning book, They Made America, chronicled the country’s most important innovators and inventors.

- Nancy Folbre Nancy Folbre won a MacArthur Genius Award, is a professor of economics at the University of Massachusetts-Amherst, and recently wrote the book Saving State U: Fixing Public Higher Education.

- Richard Parker Richard Parker, a former congressional consultant, is a public policy lecturer and senior fellow at the Shorenstein Center at Harvard’s Kennedy School of Government. He is the author of The Myth of the Middle Class, Mixed Signals: The Future of Global Television News, and John Kenneth Galbraith: His Life, His Politics, His Economics.

- Robert Reich A professor of public policy at the University of California at Berkeley, Robert Reich was the 22nd secretary of Labor under President Clinton. He is the author of 12 books, including his most recent Supercapitalism: The Transformation of Business, Democracy, and Everyday Life.

- Sean Wilentz Sean Wilentz is the Sidney and Ruth Lapidus Professor in the American Revolutionary Era at Princeton. His book, The Rise of American Democracy: From Jefferson to Lincoln, won the 2006 Bancroft Prize.

- Sidney Blumenthal Sidney Blumenthal is a former senior adviser to President Bill Clinton and advised Hillary Clinton during her 2008 presidential campaign. His books include The Clinton Wars and The Permanent Campaign.

- Simon Schama The author and host of the BBC documentary A History of Britain, Simon Schama is a historian who teaches at Columbia University.

The 85 subsequent signatories are:

- Sylvia A. Allegretto Economist, University of California Berkeley - Gar Alperovitz Professor of Political Economy, University of Maryland - Kenneth Arrow Nobel laureate in economics, Professor of Economics and Operations Research, Stanford University - Marshall Auerback Senior Fellow
at the Roosevelt Institute - Radhika Balakrishnan Professor of Women’s and Gender Studies, Rutgers University - Edward Barbier Professor of Economics, University of Wyoming - Michael Belzer Associate Professor of Economics, Wayne State University - Peter Beinart Associate Professor of Journalism and Political Science, City University of New York - Cihan Bilginsoy Professor of Economics, University of Utah - Barry Bluestone Dean, School of Public Policy & Urban Affairs, Northwestern University - Howard Botwinick Associate Professor of Economics, SUNY Cortland - Heather Boushey Senior Economist, Center for American Progress - Dagobert Brito Peterkin Professor of Political Economy, Rice University - Clair Brown Professor of Economics Director
Center for Work, Technology, and Society, University of California, Berkeley - Jim Campen Professor of Economics, Emeritus, University of Massachusetts—Boston - John Chasse Professor Emeritus of Economics, SUNY Brockport - Woodrow Clark Managing Director, Clark Strategic Partners - James Devine Professor of Economics, Loyola Marymount University - Malcolm Dole Professor of Economics, University of California Los Angeles - James Dorman Professor of Economics, Evergreen State College - Robert Drago Research Director, Institute for Women’s Policy Research - Gary Dymski Professor of Economics, University of California Riverside - Gerald Epstein Professor of Economics and Chair, Department of Economics and Political Economy Research Institute, University of Massachusetts, Amherst - Rudy Fichtenbaum Professor of Economics, Wright State University - Robert H. Frank Economist, Cornell University - Anthony Gabb Professor of Economics, St. John’s University - Daphne Greenwood Professor of Economics, University of Colorado—Colorado Springs - Carol Heim Professor of Economics, University of Massachusetts Amherst - James Heintz Associate Director and Associate Research Professor, Political Economy Research Institute, University of Massachusetts- Amherst - Susan Helper Chair, Department of Economics, Case Western Reserve University - Harry Holzer Professor of Public Policy at Georgetown University, former Chief Economist for the US Department of Labor - Michael D. Intriligator Professor of Economics, Political Science, and Public Policy, UCLA Senior Fellow, The Milken Institute University of Western Sydney - Dorene Isenberg Professor and Chair, Department of Economics, University of Redlands - Fadhel Kaboub Assistant Professor of Economics, Denison University - J.K. Kapler Professor of Economics, University of Massachusetts Boston - Peter Kresl Professor of Economics – Emeritus, Bucknell University - Melaku Lakew Professor of Economics, Richard Stockton College of New Jersey - Thomas Lambert Professor of Economics, Indiana University-Purdue University Indianapolis - Henry Levin William Heard Kilpatrick Professor of Economics and Education, Columbia University - David I. Levine Eugene E. and Catherine M. Trefethen Professor Haas School of Business, University of California
Berkeley - Victor D. Lippit Professor of Economics, University of California, Riverside - Catherine Lynde Associate Professor of Economics, University of Massachusetts Boston - Robert Lynch Professor of Economics, Washington College
 - Arthur MacEwan Professor Emeritus, Department of Economics, Senior Fellow, Center for Social Policy, University of Massachusetts Boston - Richard MacMinn Edmondson-Miller Chair
College of Business
Illinois State University - Eric Maskin Nobel laureate in economics, A.O. Hirschman Professor of Social Science, Institute for Advanced Study, Princeton - Peter Hans Matthews Professor of Economics, Middlebury College - Hannah McKinney Professor of Economics, Kalamazoo College, Vice Mayor City of Kalamazoo, MI - Daniel McFadden Recipient of the 2000 Nobel Prize for Economics and 1975 John Bates Clark Award
University of California
Berkeley, California - Walter W. McMahon Professor of Economics (Emeritus) University of Illinois
Champaign, Illinois - Ellen Meara Associate Professor of Health Policy and Clinical Practice - Peter B. Meyer Professor Emeritus of Urban Policy and Economics
Director Emeritus, Center for Environmental Policy and Management, University of Louisville
 - Marcelo Milan Professor of Economics, University of Wisconsin Parkside - Tracy Mott Chair, Department of Economics, University of Denver - Adil Mouhammed Professor of Economics, University of Illinois, Springfield - Kevin Murphy Professor of Economics, Oakland University - Michael Nuwer Professor of Economics, SUNY Potsdam
 - Erik Olsen Assistant Professor
Department of Economics, University of Missouri 
 - Dimitri Papadimitriou President
of The Levy Economics Institute - James Parrott Deputy Director and Chief Economist, Fiscal Policy Institute - Chris Phillips Professor of Economics, Somerset Community College - Paul Pieper Professor of Economics, University of Illinois—Chicago - Bruce Pietrykowski Professor of Economics, University of Michigan-Dearborn
 - Robert Pollin Professor of Economics
and Co-Director, Political Economy Research Institute, University of Massachusetts—Amherst
 - Mark Price Labor Economist, Keystone Research Center - Malcolm B. Robinson Professor of Economics, Thomas More College
 - John E. Roemer Professor of Political Science & Economics, Yale University - Jaime Ros Professor of Economics, University of Notre Dame - Samuel Rosenberg Acting Vice Provost for Faculty and Academic Administration, Roosevelt University - Anwar Shaikh Professor of Economics, The New School - Juliet Schor Professor of Sociology, Boston College - Robert Scott Senior International Economist, Economic International Economist - Heidi Shierholz Economist at Economic Policy Institute - Peter Skott Professor
University of Massachusetts, Amherst
 - Case Sprenkle Professor Emeritus, University of Illinois - Mary Huff Stevenson Professor of Economics, University of Massachusetts, Boston
 - James B. Stewart Professor Emeritus of Economics, Penn State University - Chris Tilly Professor of Urban Planning, University of California Los Angeles - Leanne Ussher Assistant Professor of Economics, Queens College - Rudi von Arnim Professor of Economics, University of Utah - David Weiman Professor of Economics and Director of Barnard-Columbia Urban Studies Program - Martin H. Wolfson Professor of Economics, University of Notre Dame - Linda Wilcox Young Professor of Economics, Southern Oregon University - Mark Zandi Chief Economist and Co- Founder, Moody’s - Ben Zipperer Professor of Economics, University of Massachusetts