The big news today is of an internationally coordinated interest rate cut. This seems like a good idea, but as Paul Krugman says the essence of our current problem is that such measures are unlikely to be effective. The practical availability of credit has become delinked from the central bankers’ interests rates, so the conventional monetary policy toolkit isn’t really working. Lower rates will still do more good than higher ones, and it’s important for the world’s financial authorities to be seen as acting in a united way, but this kind of thing can’t really solve our problems.
That’s why it’s so important for policymakers to reject the neo-Hooverism afflicting the elite media, and not give in to these perverse demands for an austerity budget. We need a green recovery plan that takes advantage of the government’s ability to borrow to put people to work — especially people in the hard-hit construction sector — building a new clean energy infrastructure. That will ensure that incomes and employment levels don’t fall too far during the downturn, and will lay the groundwork for a new recovery that doesn’t suck as much as the one we’re now all missing.