[raesene]

I'd agree with you in theory, it's pretty standard demand management, that the public sector picks up the slack when private sector demand is low.

the problem with a lot of governments, including the US, appears to be the other half of the equation, which is that when the private sector is doing well, the public sector should contract, in order to mitigate the effects of inflation.

What seemed to me to have happened in the last decade is that government costs expanded in the "good times" causing a deficit, and meaning that when the bad times came with the financial crash it's a lot more difficult for them to expand spending.

The other problem (although it doesn't apply as much to the US as other countries) is sovereign debt risk. Countries like the republic of Ireland absolutely have to cut expenditure as otherwise the bond markets see them as a real default risk and hike up the cost of their borrowing, so they have no real choice but to decrease government spending.

[gahahaha]

The unfunded wars in Iraq and Afghanistan and the unfunded Bush tax cuts put us in a much worse fiscal situation leading into this crisis, but the US has unlimited credit lines now. It should use them. Ireland and Greece is fucked. Germany and China only think about themselves.

American economic historian Charles Kindleberger used to argue that ultimately the Great Depression happened because of this failure of economic leadership on the world stage. He believed that a well-functioning global economy required one country to act as the leader, in effect to do more than its fair share of keeping the global economy moving, fully recognizing that smaller countries will freeload off of its efforts. If we are at a similar transition point in world leadership, if the United States has indeed been knocked off its pedestal in much the same way as was Britain in the early twentieth century, it does not bode well for the ability of the global economy to navigate its next storm.

Through much of the nineteenth century Britain was the linchpin of the world financial system. It was the capital supplier of last resort during crises and acted countercyclically as the economic locomotive for the world. But, almost bankrupted by the First World War, it was no longer able to fulfill that function after 1919. The mantle of leadership should have passed to the United States. But American leaders were too parochial and insular to seize the opportunity. Thus, during the 1920s and 1930s, the United States was unwilling to lead and Britain unable.