"The pressures on the so-called "squeezed middle" are now intense. These pressures will not be eased without pro-growth macro-economic policies, activist industrial strategies, stronger unions, higher real incomes across the board, and tougher action against inequality

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From the British Guardian "The strategy of stagnation" : -

The disaster of the conservative politics of Belt Tightening, Budget cuts, finance deregulation and tricks to further impoverish the poor and deny government services to them.


This leads nowhere but to Recession and Depression. Obama and his team need to be stronger and fight for the ideas of the Greatest Economist John Maynard Keynes.



British Guardian
The strategy of stagnation
The forces of economic orthodoxy have fought back since the financial crisis – putting the UK at risk of higher unemployment and even bigger deficits
Monday 30 May 2011

By Larry Elliott
Larry Elliott is the Guardian's economics editor and has been with the paper since 1988


The strategy of stagnation


Some excerpts :

The counter-revolution in economics is almost complete. A flirtation with alternative thinking lasted for the six months between the near collapse of the banking system in late 2008 and the London G20 summit in April 2009. Since then, the forces of economic orthodoxy have regrouped and fought back.

There was always going to be a backlash against more interventionist policies because those who fervently believe that markets never lie, that budgets should always balance and that government is always bad were well dug in on university campuses, in finance ministries and in some central banks.

Even so, the world has returned to the pre-crisis mindset with remarkable speed. In 2008, policymakers prescribed a strong dose of John Maynard Keynes to stave off a full-scale slump. Today, the solution for Greece, burdened with debts it has not a hope of paying, is belt-tightening and privatisation. The way to bring down global unemployment, which stands at more than 200 million, is wage flexibility. The blueprint for reform of the financial sector is to do as little as possible lest it deter the money-changers from returning to the temple.

In some places, resistance continues. Barack Obama persists in his heretical view that the United States should restore its economy to health before cutting the deficit. The Federal Reserve and the Bank of England are holding out against the clamour for higher interest rates to tackle inflation. But prospects for a fundamental shift in economic policy, which looked promising two years ago, have dimmed.

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Warning

Comparisons with the 1930s can be overdone. Britain's public finances were then in a much healthier state than they are today, while the country's industrial base was much larger. But Keynes's essay is a clear warning to finance ministers who believe they can slash their way to prosperity.A more contemporary critique of the current policy configuration emerged last week from one of Keynes's modern disciples, Joe Stiglitz. In the foreword to a book produced by the European Trade Union Institute (Exiting from the crisis: towards a model of more equitable and sustainable growth), Stiglitz argues that fiscal consolidations almost always lead to cutbacks in services to working men and women, while austerity leads to even higher unemployment, putting further pressure on wages and, therefore, overall demand in the economy.

The position, seen from this perspective, is as follows. For the first half of the postwar period, the strength of trade unions ensured that income gains were shared across all sections of the population and income inequality declined. Since the 1970s, real wages for those in the middle and at the bottom of the income distribution have been squeezed hard. Income inequality has increased as trade unions have declined in influence. Equity withdrawal from rising property prices and much higher levels of debt filled the gap left by the stagnation of real wages until the summer of 2007, but the pressures on the so-called "squeezed middle" are now intense. These pressures will not be eased without pro-growth macro-economic policies, activist industrial strategies, stronger unions, higher real incomes across the board, and tougher action against inequality. A return to the Anglo-Saxon model will lead to stagnation, higher unemployment and even bigger public-sector deficits.

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