Perhaps the biggest problem with this newly found love of austerity is that it does not work. Other countries have tried it over the last few years and the results have been an abject, abysmal and total failure. Those countries that did the opposite -- that spent massively -- grew sharply. We're documented both of these here, here, here, here, here, and here. So, we know that countries like China that engaged in massive stimulus are growing and those that are cutting are growing slowly. Logic dictates we follow the former and not the latter.
And that's where the rub is. Instead of engaging in a nice infrastructure program which will lead to decades of growth where we can borrow at incredibly cheap interest rates, put a ton of blue collar people back to work, lower the unemployment rate, solve the problem of our deteriorating infrastructure and start to increase aggregate demand we do the exact opposite.
And that's why I call it the Washington Lobotomy factory. It's completely backward and governed by stupidity.
BTW: thanks for the upcoming slow growth, guys. It'll be a pleasure.
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9 comments:
You thought this was bad, wait until the next round of fiscal responsibilities. More tax cut and gutting government services. Our only answer is public financing of our Representative. I rather buy our politicians then let other people buy them (military complex, oil industries, bank, etc). You will not have an honest debate unless you get rid of the lobbyist.
You might be right about infrastructure broadly, but likely wrong about the type of infrastructure you cite - highways. Energy, oil specifically, is the biggest current drag on the economy, and will continue to be a problem going forward in a way that it wasn't before 2005. That means building more infrastructure that contributes to oil dependence is throwing good money after bad.
But there are good infrastructure options - if we were to invest in rail, subways, electric buses, community agriculture, etc. it would make a lasting impact.
You have to admit though that the choice is a little more difficult for us than for China. We had a relatively high debt/gdp ratio when this started. So doing a massive spending effort was a far riskier proposition for us.
I agree with you and I think we're more likely to have worse debt problems because of the weak stimulative efforts. See also Japan's lost decade and their debt/gdp ratio in the 200% range
I tend to agree with you about what is needed to grow the economy, but I think stupidity isn't the driving factor for the failure to pursue an adequate stimulus package. Rather the Republicans have obviously war gamed the possibilities and concluded they are better positioned to shoot their way out of the wreckage. Of course, I don't discount that this may be the very definition of stupidity...
It's not the Washington factor, it's the Republican factor.
factory
They openly said their only goal was to limit Obama to one term. Doing everything they can to destroy the economy and laying the wreckage at his feet has been the plan all along.
Of course why the Dems played along I have no idea.
It's not stupidity. It's intentional. It is indeed hard to confront the fact that our leaders would purposely damage our economy, but for various reasons, that is exactly what they are doing, they know they are doing it, and they just don't care about the people who will suffer from the fallout. It sucks, but that's the way it is.
Actually it is the Washington factor. DC conventional wisdom, largely adhered to by both parties is that we need to cut spending to deal with the deficit. You see nobody, save maybe Bernie Sanders, calling for increased spending, helping out the states, etc. There's no argument for expansionary fiscal policy, just degrees of contractionary policy.
Are Republicans worse? Sure. But let's not fool ourselves into thinking Obama and the Democrats are doing the right thing here.
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