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Austerity And Stimulus

Anti-austerity protest in Brussels on Septembe...

Image by Surat Lozowick via Flickr

One of the debates in the upcoming midterms concerns the stimulus package and whether or not it failed.

Citing no evidence (except that the economy isn’ t booming), Republicans say that the stimulus was a hands down failure.

I have written in this space before linking to articles showing that this simply isn’t true.

Unemployment numbers reported today seem to show a recovery is happening, even before significant amounts of the stimulus money have been spent.

The real debate is between a Keynesian approach to the economy and the right’s insistence on austerity measures.

A number of Paul Krugman’s recent articles have illustrated how sharp turns toward austerity in Europe have been counterproductive to recovery.

Most recently, he writes:

…mainstream macroeconomics – which suggests that we need a lot more stimulus, monetary and fiscal – has actually held up very well in this crisis; it has, above all, made the right predictions about inflation and interest rates, while the doctrines underlying the pain caucus have gotten it all wrong. Yet “serious” policy makers are rejecting the theory that works in favor of theories that don’t.

Republicans and their lapdog Democratic allies continue to push economic balderdash.

The Motley Fool website has a nice piece from August pitting Keynes against Frederich Hayek. Hayek, and his tome The Road To Serfdom have been essential touchstones for the Tea Partiers who take their marching orders from Glenn Beck.

The article, in a roundtable format contains a lot of head scratching from the various analysts, who find polite ways of saying, “are these people crazy? Austerity measures at a time like this are like economic suicide”.

An example:

We need to take all of this debt-reduction excitement and bottle it up — it’ll come in very handy a few years down the line, when the economy can better handle such measures. But for now, release the Kraken! … um, I mean, the stimulus. – Matt Koppenheffer, Fool contributor

I am not an economist, but I can see what has worked and why, and what has not. I read a lot of history.

It would have been illuminating to see what would have happened if the stimulus had been doubled. We would have  a very clear idea if the conventional wisdom holds true (as it has in case after case before).

Perhaps it would have put the final nail in the coffin of this particular bad idea — but that is likely wishful thinking.

The Great Depression sent a generation of conservatives and their failed policies into exile.

Now they’re back with a vengeance.

 Because people forget of the bitter fruits of their ideology.

Maybe someone should remind them.



September 30, 2010 - Posted by | Deficit, Democrats, Economics, Obama, Republicans, Stimulus, Unemployment

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