Who Will Buy the Bonds?

I used to read a lot more economics and political-economy. Hell, I used to read a lot more about everything. Now, ... well, here's hoping that my new prescription for "Zoloft" will improve my motivation.

Anyhow, I used to read more about economics and back in the day I wouldn't have been so forehead-slappingly dense as I was before reading "Worthwhile Canadian Initiative"'s post "Who Will Buy the Bonds?". Because back then I would have remembered the argument that selling government bonds takes money out of the economy. Indeed, selling bonds was a way to fight inflation. Actually, I'm so fucking clueless I don't remember if that last sentence is true or not.

Anyway, here's my take on it: During a downturn, the wealthier sort (the ones who have the money to buy bonds in significant amounts) don't have any outlets for their money in the real economy, so interest-paying government savings bonds are a nice safe place to stash their cash. Meanwhile, the government gets to spend the cash received in the real economy. As well, in our current situation, the wealthiest have been receiving the lion's share of the economic growth for the past few years and they haven't really been doing anything productive with it. Mainly it's gone to some conspicuous consumption (which doesn't employ a whole helluvalotta of other Canadians) or its gone to financial speculation. So taking their money and spending it down among us plebs will positively impact domestic demand.

There's an interesting contribution by an unreconstructed Austrian School of Economics devotee commenting somewhere on that blog. Ah, here it is. ("pointbite") He says we've gone soft and we should just have our recession for a few years. Government demand management will be useless because most of our manufacturing is done in China. Our problem here has been excess demand and dissaving.

My take on that is that the last two big recessions (1980-83 & 1989-92) were much the consequences of deliberately engineered monetarist recessions. The 1990's was generally a period of anemic growth followed by a brief recession due to the implosion of the dot-com bubble. This recession is something else altogether. It's the consequence of decades of neo-liberal desperation. Driving down domestic incomes and replacing the with debt-fueled consumption. In other words, this isn't a planned recession and it isn't a brief dip in the road. A lot of mainstream sources are saying this might be the big one.

If that's the case, then the smart thing to do is to prop-up domestic demand and simultaneously do the work to wean "us" off this regime of exploited foreign labour and deepening domestic indebtedness. Prop-up the retail sector. Build some affordable housing. Encourage scientific spending. Prop-up our other service sectors. Build green alternatives. It'll take a lot of money but the alternative is, many would say, the Second Great Depression.