The Weapon of “Weaponized Keynesianism”

From “Obstruct and Exploit,” Paul Krugman, NYT:

“Anyway, do Republicans really believe that government spending is bad for the economy?  No.

“Right now, Mitt Romney has an advertising blitz under way in which he attacks Mr. Obama for possible cuts in defense spending — cuts, by the way, that were mandated by an agreement forced on the president by House Republicans [that would be you, Paul Ryan] last year.  And why is Mr. Romney denouncing these cuts?  Because, he says, they would cost jobs!

“This is classic ‘weaponized Keynesianism’ — the claim that government spending can’t create jobs unless the money goes to defense contractors, in which case it’s the lifeblood of the economy.  And no, it doesn’t make any sense.”

Krugman Loves Him Some Reagan

From “Reagan Was A Keynesian,” Paul Krugman, NYT:

“They [the GOP] love, in particular, to contrast President Obama’s record with that of Ronald Reagan, who, by this point in his presidency, was indeed presiding over a strong economic recovery. … So let’s look at that comparison, shall we?

“For the truth is that on at least one dimension, government spending, there was a large difference between the two presidencies, with total government spending adjusted for inflation and population growth rising much faster under one than under the other.  I find it especially instructive to look at spending levels three years into each man’s administration…compared with four years earlier, which in each case more or less corresponds to the start of an economic crisis.  Under one president, real per capita government spending at that point was 14.4 percent higher than four years previously; under the other, less than half as much, just 6.4 percent.

“O.K., by now many readers have probably figured out the trick here:  Reagan, not Obama, was the big spender.

“Why was government spending much stronger under Reagan than in the current slump?  ‘Weaponized Keynesianism’  —  Reagan’s big military buildup — played some role.  But the big difference was real per capita spending at the state and local level, which continued to rise under Reagan, but has fallen significantly this time around.”

A False Choice

In his NYT column today, “The Structural Revolution,” David Brooks sets up a false choice between those whom he calls “cyclicalists” (he means you, Paul Krugman) and those whom he calls “structuralists” (hi, Paul Ryan, hi Mitt):

“The main argument you hear from these cyclicalists is that the economy is operating well below capacity.  To get it moving at full speed, the government should borrow and spend more.

“The diverse people in this camp — and I’m one of them — believe the core problems are structural, not cyclical.

“There are several overlapping structural problems.  First, there are those surrounding globalization and technological change. … Then there are the structural issues surrounding the decline in human capital.  The United States, once the world’s educational leader, is falling back in the pack.

“Then there is political sclerosis.  Over the decades, companies and other entities have implanted  a growing number of special-interest deals into the tax and regulatory codes, making it harder for politically unconnected, new competitors, making the economy less dynamic.

“Unlike the cyclicalists, we structuralists do not believe that the level of government spending is the main factor in determining how fast an economy grows.”

Brooks’ false choice is highlighted in that last sentence.  I consider myself both a cyclicalist and a structuralist.  We need to focus on this cyclical downturn in the short term and on our undoubted structural problems in the short, medium, and long term.  I don’t see government spending as a force to make our economy grow under normal circumstances.  I see it as a temporary spur to counter the lack of demand in the private sector from the Great Recession.  Once we get the private sector kick-started, government should pull back.  This is classic Keynesian economics, which Republicans used to accept and believe in.

We can address some of our structural problems at the same time as we do our cyclical ones.  They are not mutually exclusive.  Brooks bemoans our decline in education.  So let’s hire back or replace some of the hundreds of thousands of teachers who have been fired in the last few years.  Some of those teachers weren’t very good?  Fine, there are plenty of unemployed people to choose from.  Same with his complaint about special deals in the tax code.  Let’s close the loopholes.  That raises more revenue that can be used to stimulate the economy and makes the playing  field more even.  Scrubbing regulatory codes of provisions that favor one company over another is irrelevant to government stimulus spending.  You can do both simultaneously.

Brooks says the problem is that “different people are having entirely different debates.”  The real problem, the sad and shameful problem, is that we’re having an election.  Some people, whose initials are GOP, don’t want the economy to get better.

 

 

A Self-Sustaining Recovery

Editorial in The Economist, “Can it be…the recovery?”

“For the year as a whole America’s economy will probably grow around its trend rate of around 2.5%.  That’s a lot lower than might be expected after a normal recession; but after financial crises, when consumers are weighed down by debt, recoveries tend to be anaemic.  That level of growth…could be the first step towards a self-sustaining recovery, thanks to the virtuous circle of stronger job growth leading to higher consumer spending, which in turn should generate more jobs.

“America’s priority should be to craft a medium-term plan which puts the budget deficit on a downward path without snuffing out the recovery.  There is, unfortunately, not a chance that it will do that before November’s presidential election.

“The reasons for optimism are real.  But if policymakers get it wrong again, the recovery could yet turn to dust.”  Emphasis added.

That phrase “self-sustaining recovery” captures my problem with both parties.  For me, the Democrats don’t know when to stop the government spending, while the Republicans don’t know when it’s necessary.  I believe in stimulus to get a recovery going, when consumer spending isn’t there, but when that recovery become “self-sustaining,” I want less government.  I believe that “expansionary austerity” isn’t just an oxymoron, it’s a dangerous and delusional myth.