Liberals have generously treated us to a motley assortment of apologia for President Obama’s economy-wrecking fiscal policies over the past 19 months:
(1) The economy is doing fine (Ezra Klein)! We should have expected the recovery to be agonizingly slow, and it is—hence, Obama’s policies worked.
(2) The economy isn’t doing well, but it would have been doing even worse without the stimulus bill (e.g., Mark Zandi, chief economist of Moody’s and bona fide boob). Without a Keynesian spending orgy—or as Obama puts it, “moving the economy forward”—unemployment wouldn’t have stopped at 10% and might have risen to 12 or 13 or 15%.
(3) The economy is doing poorly, and it’s because the Democrats didn’t do enough (the ever-certifiable Paul Krugman). The stimulus should have been much bigger, and financial regulations should have been much harsher. To compensate we need “a second big stimulus, plus much more aggressive Fed policy.”
In contrast, conservatives have suggested the following interpretations of events:
(1) The economy is going to improve soon (Larry Kudlow). We won’t experience a double-dip recession and growth is resuming, so we should be more optimistic. Obama’s policies aren’t helping, but American ingenuity and entrepreneurial spirit are strong enough that we can recover anyway.
(2) The economy isn’t doing well, and Obama’s policies have made it worse (every other conservative on the planet). Wasteful spending caused our debt to skyrocket and increased the chances of inflation; government takeover of private industries and burdensome financial regulations created an uncertain climate for investing and hiring that has prolonged the recession.
(3) The economy is doing poorly, and now is the time to discuss not only repealing Obama’s policies and ensuring that the likes of them never pass again, but undoing the policies liberals have inflicted on the nation since FDR under the pretense that once they were in place future generations would be too sheepish to touch them (Paul Ryan). The impetus from the Tea Party movement should be used to revive talks about privatizing Social Security, Medicare, and Medicaid.
So liberals and conservatives are at a bit of a standoff over the fundamental economic principles behind their political strategies. Who’s right?
Let’s see: economists have demonstrated, time and again, using common-sense reasoning, econometric modeling, and historical data, that increasing government spending yields less economic output than if government had left that money in the private sector to be spent, invested, or saved as those who generated it saw fit.
Economists have shown that increasing marginal tax rates counterintuitively decreases the gross domestic product, especially in the years immediately following tax increases. Obama’s chief economic advisor, Christina Romer—who just retired over a conflict between her views and the administration’s—documented the effect of this negative tax “multiplier” using empirical data in a recently published economics article.
It doesn’t matter whether we accept Klein’s view that the economy is peachy, Zandi’s view that it’s doing badly but could be worse, or Krugman’s view that it’s doing badly and needs more Obamanomics. All are based on the false premise that more government spending, taxation, and regulation are better for the economy than less. (Hey—don’t Keynesians believe that spending lots of money on wars is a good way to revive the economy? I guess Krugman will be admitting he was wrong about the Iraq and Afghanistan conflicts after all!)
People like Klein bemoan the fact that corporate profits are back up to 2006 levels while hiring remains slow. Liberals present the question of our tepid recovery as an intractable metaphysical mystery incapable of being penetrated by mere humans; as Klein puts it: “That is the catch-22 of the recovery: Businesses will start hiring when the economy recovers. And the economy will start to recover when businesses start hiring.” Answer: And both will improve when the government gets out of the way!
As for the varying conservative perspectives, which are the only ones remotely connected to reality and thus worth considering, Kudlow is right that the American economy is resilient. Perhaps he’s slyly making the point that more optimism on the public’s part not only better reflects the state of our economy but may improve it via increased investment and hiring. Kudlow’s perspective is largely predictive, rather than focusing on how lawmakers should bring about a faster and more permanent recovery (though he often discusses those issues as well).
Every other conservative in the world who believes that we shouldn’t stand for the “new normal” of high unemployment and unexceptional growth is correct that Democrats’ policies are making the recession worse. Repealing ObamaCare, preventing cap-and-trade legislation, and stopping or reversing the scores of other nasty things Obama and Pelosi have planned for our economy are mandatory undertakings over the next six years.
But Paul Ryan hits the bullseye when he notes that it is desirable, necessary, and possible to go further. Train wreck legislation like ObamaCare is worth repealing, but if Medicare and Medicaid are quickly running out of money, and Social Security is already in the red, why shouldn’t we go after every entitlement shibboleth?
What principle, applied consistently, would nudge us to nullify ObamaCare but leave Social Security, Medicare, and Medicaid shiny and intact? Did our country survive and prosper before these programs were enacted? Would we survive and prosper if we phased them out? Might we prosper even more in their absence?
Ryan’s proposal is far from perfect—his main argument for the Roadmap to recovery is that it will keep our entitlement system solvent, and he doesn’t discuss eradicating entitlements once and for all. Perhaps Ryan believes that talking about eliminating entitlements is too politically risky now, when even his Roadmap is audacious by today’s standards. But Ryan deserves credit for having gone further than anyone else in Congress in working out the details of a plan that will help the country avoid a fatal insolvency.
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- The Stimulus Evidence One Year On (wsj.com)