Fourteen months ago I wrote the following, in a piece titled, “While We Were Away, Republicans Were Trying to Kill The Economy:
Since the fall of 2008, there has emerged two diametrically opposed approaches to solving our (and the world’s) economic predicament:
(1) Stimulate the economy through government (deficit) spending until consumer demand picks up sufficiently to sustain a strong recovery
(2) Drastically cut government spending because deficits are a drag on the economy
Democrats, of course, have tried to pursue (against strong Republican opposition) the former and Republicans, including now the party’s candidate for president, have aggressively pursued the latter.
Thankfully, early in 2009, the Democrats prevailed with a mild (relatively mild, it turned out) stimulus program that has led to Ben Bernanke talking up today (cautiously, modestly) the Fed’s latest growth forecast for 2012 (now up to a range of 2.4 to 2.9%) and projected unemployment down to 7.8-8% at the end of the year. Not fabulous, but better than the 700,000+ jobs we were losing when Obama took office. And the current 25 straight months of private-sector job growth ain’t nuttin’.
The Democrats success with the stimulus (oh, how that galls conservatives when they hear those words, but they must watch as the American recovery continues) can be compared to what has happened in Europe, which pursued a Republicanesque austerity philosophy.
From Henry Blodget of the Business Insider:
The “austerity” idea, you’ll remember, was that the continents’ huge debt and deficit problem had ushered in a “crisis of confidence” and that, once business-people saw that governments were serious about debt reduction, they’d get confident and start spending again.
That hasn’t worked.
Instead, spending cuts have led to cuts in GDP which has led to greater deficits and the need for more spending cuts. And so on.
Paul Krugman chimes in about the “big fat failure” of the European austerity policy:
It’s important to understand that what we’re seeing isn’t a failure of orthodox economics. Standard economics in this case — that is, economics based on what the profession has learned these past three generations, and for that matter on most textbooks — was the Keynesian position. The austerity thing was just invented out of thin air and a few dubious historical examples to serve the prejudices of the elite.
And now the results are in: Keynesians have been completely right, Austerians utterly wrong — at vast human cost.
But no one I know of thinks that these “results” will convince Republicans here in America to suddenly rush to the confessional and admit there are flaws in their cut-spending-balance-the-budget-deregulate prescription for short-term salvation. Not gonna happen, as Krugman points out:
Nobody ever admits that they were wrong, and Austerian ideas clearly have an emotional and political appeal that is resilient to any and all evidence.
Do you not know, my son, with how little wisdom the world is governed?
[See here for the origin of that wonderful admonition.]