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Randall Wray: “We need a big and growing government”

December 22, 2008 Leave a comment Go to comments

Here is something which may come as a bit of a surprise to you: we need a big and growing government, according to Randall Wray:

Private sector-led expansions are (almost) inherently unsustainable because they generate growing debt burdens that eventually must be reversed … It is clear that what we need now is job creation, growth of income (especially wages), and debt relief–all of which will put household finances on better footing. We need public infrastructure investment–not private investment–as well as more (and better) public services. Virtually all economists now favor a bigger role for government, however, most see this as a temporary fix. What I am arguing here is that we need a big and growing government–the ratchet–to generate a sustainable growth path. So while I (mostly) agree with Paul Krugman on the nature and causes of the early postwar boom, I do not think we ever banished the tendency toward stagnation. We just hid it behind an unsustainable debt binge.

From what we can parse here, it appears the Mr. Wray believes our economy cannot grow on its own, and needs big and growing government to compel growth.

He gives, as his reason for this big and growing government, that, left to its own devices, the economy cannot deliver jobs, higher wages and income, and the reduction of debt – and has a pronounced tendency toward stagnation.

Since the Great Depression – we think that is his time line – this natural tendency of the economy to stagnate has been hidden by the unsustainable growth of debt.

We are not sure what is wrong with stagnation, in that case: Reduce the work week, slash government, and everything would be just fine.

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