the fed's considering another stimulus?

so recently the new york times published an article called "fed is torn on tipping point for action" in which they talk about how the fed (the federal reserve) met in june and said "...that unemployment would remain elevated for another five to six years..." but it was still contemplating the course of action it should take. obviously, the keynesians among them advocate another stimulus akin to the one passed in 2008 which only saw marginal success. the issue that the bankers of the fed and the members of the mises institute miss is that whether you pump money into the economy or whether you deregulate the result is the same (admittedly, one is more successful than the other[1]), a thwarted crisis for a while and then inflation and high unemployment come roaring back.

to fully understand this effect we will look to prof. dr. dr. h.c. wolfgang streeck's paper entitled "the crisis in context: democratic capitalism and its contradictions". as a preface, this paper sets to argue that that recessions can be, and have been, warded off but the mechanisms which produce them and are used to "stop" them are fundamentally the same and thus the crisis still comes rearing back. streeck also argues that the way these crises come about originally are from the conflict between democracy and capitalism.

what streeck argues, and is summarized nicely here, is that post world war ii when more countries were becoming democratic and we see an increase in federal income, citizens wanted a transition more towards a welfare state. with the post war money the state facilitated this transition and increase spending on public projects and entitlement programs. however, since these were still fundamentally based on the system of capital accumulation they were doomed to fail. later in the century trade unions were pushing on the government for less regulation and more economic freedom and this combined with increasing public debts brought down the keynesian system. then the oil shock came. following the oil shock we entered a period of stagflation. here, streeck says:

Today’s calamities were preceded by high inflation in the late 1960s and 1970s, rising public deficits in the 1980s, and growing private indebtedness in the 1990s and 2000s. In each case, governments were faced with popular demands for prosperity and security that were incompatible with market allocation. (streeck, 3)

during each of these areas of public indebtedness, the people demanded help and businesses demanded freedom. the issue was that the two were fundamentally incompatible and so a solution had to be found. the "solution" was found in an increasing of interest rates. this only temporarily solved the problem and thus, the fiscal legacy of the united states was a main talking point during the 1992 election. post election the government decided there was a new way to "solve" the problem: to shift the debt from the public sector to the private sector. this shift in debt was characterized by lower taxes for the wealthy and an increase in the poor's income. the problem was that the government then used it's freed up public monies to bail out banks. this, combined with financial deregulation of the banking sector led to risky investments and loans to people who couldn't pay them back. all of this culminated in 2008 with the crash of the housing market and the dumping of america into a recession.

now how does this tie into the fed's proposal to spend more public funds? well, assuming the fed does go along with this we will see increased job growth for a period, however, the u.s. government will slip more into debt and we will see the cycle again, a shifting of public debt over to private and nothing will get solved. this is the name of the game and until we rethink or notions of capital, economic growth, and goods and services, this pattern will continue.

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1: admittedly, keynesian principles are much better at holding off the oncoming onslaught yet they still fail in time. deregulation has empirically led to failures in banks and the crashing of economies. but that will be a post for another time.