Wednesday, July 7, 2010

It's Over, They Lost, Go Home

Economist Brad DeLong argues that the Krugman/demand-sider view of the economy that we need more stimulus to jump start a deflationary economy has lost the political battle, and now we will pay the price.
The situation is grim. So why isn't everybody running around with their hair on fire?

Why aren't there irresistible political demands for more government action to steer us toward a better economic recovery --or at least to hedge against a double-dip in what seems likely to be called not a “recession” but a “depression” when historians get around to writing about it?

I have my theories:
    •       widening wealth inequality and an upgrading of the class position of reporters and pundits, who are no longer ink-stained wretches immersed in mainstream America;
    •       the collapse of union power, which ensures that nobody who sees real workers on a daily basis sits at the table when the deals are made;
    •       increasing job security for the powerful in Washington, aided by the growth of the lobbying apparatus that envelops the mixed-economy government;
    •       the collapse of professional integrity among the Washington press corps, which no longer dares to call balls and strikes as it sees them, preferring to say only that the Democrats say it was a strike and the Republicans say it was a ball, and that opinions on the shape of the earth differ.

I don't know which theories are right. But the situation does leave me feeling like one crying in the wilderness. (Say not "we are children of the market!”) I cry out to boost aggregate demand--by banking policy, by monetary policy, by fiscal policy, by spending increases, by tax cuts, by anything -- I don't care what!

More constructive, however, might be to go back to late 2008, when the incipient Obama Administration thought that it had put in place policies that would, by today, have reduced the unemployment rate safely below 7.5 percent. It’s time to review some of the ideas then being batted around about what to do if recovery reversed or stalled.
In other words, back when the smart guys were saying the stimulus was going to be too small in February 2009, we didn't have a plan B because Obama and the crew didn't think it would be needed...and the GOP wasn't going to allow any more than that anyway.  As it is, the stimulus barely passed the GOP wanting to assure the economy crumbled.

They did the next best thing:  allowing a relief package way too small to really fix the situation and then blame Obama for it.  I called the plan then, and lo and behold, here we are 15 months later going "hey, the stimulus was too small, Obama won't be able to ask for more because when he does the GOP will cover their ears and say TOLD YOU SO!".

I do hate being right about terrible things, but there you are.  Now we can't even get a jobs only bill away from the Forces Of Austerity.  Unemployment causes growth, you know.

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