Robert Samuelson Argues That Economic Pessimism Is Our Problem

Robert Samuelson tries to explain why investors are so risk averse that they are willing to purchase US treasuries at historically high prices.  The high prices for risk free treasuries tell us that investors have little fear of inflation.  In other words, they are not worried about an economic expansion that would reduce unemployment and cause prices to rise. Banks are flush with record levels of reserves but there is not a high demand for loans from business or from consumers.  Moreover, they have tightened their credit standards so that only the most credit worthy customers can obtain loans.

Samuelson blames this on economic pessimism.  There is a loss of faith in the ability of government to use monetary policy or fiscal policy to affect the business cycle.  In other words it is a problem within economics.   I don't see the problems that way.  Politicians make the decisions not economists.  They tend to listen to economists who support their political perspectives.  Economists who favor a more active role for government have less influence on politicians than those who believe that markets are self correcting.  The politicians are aligned with constituents who have less concern about unemployment than they do about other matters.  Corporate profits have been very good in this climate.  They want a government that will support their interests, which include lower taxes and less regulation.  They also want a government that redistributes income upwards rather than downwards.  That is why deficit reduction has replaced employment growth in election campaigns.  Cutting social welfare programs enables government to cut taxes, and claim that deficits will be reduced, without affecting spending on programs that redistribute income upwards. Neoliberal economics serves the political interests those who fund political campaigns.  The means by which government programs redistribute income upwards is less visible than social welfare programs.