"Happy Talk" Won't Solve Crisis, Galbraith Says: Much More Govt. Action Needed

The economist fears the economy is in terminal condition requiring much more intervention than already prescribed. He believes government "doctors" are engaged in a lot of "happy talk" about recovery based on a "fundamentally flawed model," hinged on the idea the economy is self-healing and only needs a booster shot before it "naturally" returns to trend growth and unemployment in the 5% range.

Galbraith believes that is highly unlikely as Americans grapple with a crushing level of household debt. To help replace consumer spending, massive additional government action is necessary, he says, as discussed in the accompanying video and in this recent Washington Monthly article.

Galbraith's recommendations, which he says will cost $1-$1.2 trillion above plans already enacted, include:

• Higher Social Security benefits: This will aid seniors hurt by the downturn in home prices, financial assets and the dollar's purchasing power.
• More government hiring: Infrastructure spending can help, but major building projects can take years to gear up, and they can, for the most part, provide jobs only for those who have the requisite skills," he writes. "So the federal government should sponsor projects that employ people to do what they do best, including art, letters, drama, dance, music, scientific research, teaching, conservation, and the nonprofit sector, including community organizing - why not?"
• A payroll tax holiday: "This is a particularly potent suggestion, because it is large and immediate," and puts income in the pockets of working families, he says.
• Fix Housing: Put a moratorium on foreclosures and have the government buy homes from those homeowners who have no hope of making their mortgage payments, as detailed in a forthcoming segment.

Galbraith's view is that any or all of these programs "can be scaled back" as growth resumes, but that the government cannot afford to hold back any ammunition in its fight against the deflationary forces of the credit crisis.