While the mess in Wisconsin drags on, the economic recovery remains fragile and anemic.
And the Republicans in Congress—almost unnoticed—are doing everything they can to exacerbate its fragility and deprive it of much-needed iron—government spending.
Most every economist this side of Rush Limbaugh understands that there is a deficiency in demand in our economy. That’s one reason (but not the only one) why American businesses are sitting on a Chris Christie-size pile of cash. But what to do about the demand problem is the issue.
The Republican answer is austerity. Crippling austerity, it turns out. Last week, Speaker Boehner famously said he doesn’t much care (“so be it”) if the GOP spending cuts kill jobs, because they would be government jobs.
But yesterday, the Financial Times published a story indicating that it won’t just be government workers who take a hit from Republican budget-cutting hysteria. The headline was:
Goldman sees danger in US budget cuts
The story began:
The Republican plan to slash government spending by $61bn in 2011 could reduce US economic growth by 1.5 to 2 percentage points in the second and third quarters of the year, a Goldman Sachs economist has warned.
Even if—to avoid a government shutdown—Democrats managed to whittle down the budget cuts in a compromise deal with Republicans, say, to $25 billion, that will still “lead to a smaller drag on growth of 1 percentage point in the second quarter.”
Mark Zandi, chief economist at Moody’s Analytics, and former John McCain campaign adviser, concurs:
The betting is that we’ll see cuts somewhere close to $25-, $30 billion that take affect beginning in the second quarter of this year. And that could shave growth by as much as a percentage point. So it would weigh on growth. It would have longer lasting affects, but near-term it would be a negative.
Kudos to at least one Senate Democrat Chuck Schumer, who said,
This nonpartisan study proves that the House Republicans’ proposal is a recipe for a double-dip recession. Just as the economy is beginning to pick up a little steam, the Republican budget would snuff out any chance of recovery. This analysis puts a dagger through the heart of their ‘cut-and-grow’ fantasy.
Unfortunately, the cut-and-grow fantasy is not that easy to kill.
Paul Krugman, wrote a few days ago:
It’s amazing how this whole crisis has been fiscalized; deficits, which are overwhelmingly the result of the crisis, have been retroactively deemed its cause. And at the same time, influential people around the world have seized on the idea of expansionary austerity, becoming ever more adamant about it as the alleged historical evidence has collapsed.
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
It appears to me that the balance of economic opinion—from real economists—agrees with (1). But Republicans—energized by anti-government deficit-phobes in the Tea Party movement—have successfully changed the debate from nurturing the economy back to health and creating jobs to killing labor unions, dismantling government programs, and making draconian cuts in government spending.
It’s fair to ask: What does killing Big Bird and collective bargaining have to do with lowering the unemployment rate?
Mark Thoma, Professor of Economics at the University of Oregon, wrote in The Economist:
Policymakers are not taking proper account of the risk of an extended period of stagnation. We should be pursuing additional fiscal stimulus along with quantitative easing as insurance against a stagnant economy that persists into the future, in fact this should have happened months ago.
He wrote that in October of 2010.
But Thoma is a real economist. He doesn’t just play one on TV or radio. And as Krugman said,
From where I sit, it looks as if the ascendant doctrines in our policy/political debate are coming precisely from people who don’t know and don’t care about technical economics. The revival of goldbuggy sentiment, the fear of hyperinflation in the face of high unemployment, the continuing force of the notion that tax cuts don’t increase the deficit, aren’t coming from some subtle battle among mathematical modelers; they’re coming from the same people who reject evolution, climate science, and more. They don’t need no stinking technical analysis. The truth is that the economics profession is proving far less relevant to public debate, even in the face of economic crisis, than was dreamed of in our philosophy.
Now, whether you think it good or ill that professional economists have lost their clout, the fact remains that in their place have come fiscal and monetary policy geniuses like Michele Bachmann and Glenn Beck and, God forbid, Ozark Billy Long. People like these three have more to do with how we are fighting this crisis than those who have spent a lifetime studying economics.
And if that doesn’t scare you, then you must be a wealthy Republican.
[J.S. Applewhite / AP (left, center); Cliff Owen / AP]