Set aside the politics for a moment, and ask what the past five years would have looked like if the U.S. government had actually been able and willing to do what textbook macroeconomics says it should have done — namely, make a big enough push for job creation to offset the effects of the financial crunch and the housing bust, postponing fiscal austerity and tax increases until the private sector was ready to take up the slack. I've done a back-of-the-envelope calculation of what such a program would have entailed: It would have been about three times as big as the stimulus we actually got, and would have been much more focused on spending rather than tax cuts.Would such a policy have worked? All the evidence of the past five years says yes. The Obama stimulus, inadequate as it was, stopped the economy's plunge in 2009. Europe's experiment in anti-stimulus — the harsh spending cuts imposed on debtor nations — didn't produce the promised surge in private-sector confidence. Instead, it produced severe economic contraction, just as textbook economics predicted. Government spending on job creation would, indeed, have created jobs.But wouldn't the kind of spending program I'm suggesting have meant more debt? Yes — according to my rough calculation, at this point federal debt held by the public would have been about $1 trillion more than it actually is. But alarmist warnings about the dangers of modestly higher debt have proved false. Meanwhile, the economy would also have been stronger, so that the ratio of debt to G.D.P. — the usual measure of a country's fiscal position — would have been only a few points higher. Does anyone seriously think that this difference would have provoked a fiscal crisis?
Friday, September 6, 2013
Opportunity Lost: Bush Crapped On The Economy, and Obama Polished The Turd
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