Thursday, February 12, 2009

Chill Out, Paul Krugman!

Liberals are so accustomed to being out of power that they don't even recognize when they are winning, and they are never satisfied. Many on the left still seem to feel that the $800 billion stimulus bill which is about to be passed by Congress represents some kind of a betrayal, because it is too small, or it has too many tax cuts, or it doesn't include enough money for infrastructure or health or education or whatever. These people are missing the forest for the trees.

Congress is about to pass what may be the largest domestic deficit spending bill in history. Not only that, but the content of that bill is substantially the same as the bill President Obama proposed several weeks ago. Some may second guess his strategy of accommodating Republican views and courting Republican votes, but no one should deny this tremendous achievement. Some might decry the failure to fight harder for a better stimulus bill, but no one can be sure that a better bill would have resulted from such a fight. Fighting can produce backlash, while Obama's method of attempting to create a consensus, can often achieve . . . consensus. The fact is that the bill needed three Republican votes in the Senate to pass, and that's all it got. Perhaps that result should be taken as a sign that this is the most liberal bill that could possibly have passed Congress. And perhaps Paul Krugman should stick to economics, because he is not an expert on politics.

Here is what is most important about the stimulus bill. It represents the most dramatic possible reversal and repudiation of the political philosophy that has held sway for the past nearly 30 years: the theory that government is the enemy. Ronald Reagan allowed the federal government to start running up massive deficits only based on the theory of "starving the beast," in other words, keeping money in the hands of taxpayers so as to pressure the government to reduce its spending and its role in the economy. These deficits were never justified on the theory that government spending could actually help people. When Clinton came in, he never really challenged the prevailing view that government is evil. He even stated that the era of big government is over. Rather than attempting to demonstrate that government could actually do good, Clinton merely got government on a better financial footing by balancing the federal budget. That made him basically an Eisenhower Republican, and did not help the Democrats much politically. The reason for that is that people don't really care that much about deficit spending. When the Republicans re-imagined themselves as the party of deficit spending, and the Democrats identified themselves as the party of balanced budgets, the Democrats started losing elections.

Look what President Obama has achieved in less than a month in office. He has completely turned the tables on the Republicans. Now the Democrats are back to their rightful place as the party of deficit spending, while the Republicans are back to carping about the deficit (the fact that they created most of the deficit of course making their cries a lot less credible). More importantly, President Obama has already persuaded the majority of the public that increased government spending can actually help people, which means that the Reagan era is finally over.

Another thing that economists seem to forget is that the purity of their economic prescriptions may matter less than the public perception that things are getting better. Look at the variety of half-baked ideas that the government has put forward to deal with past economic crises. Roosevelt came up with the NRA and the WPA and a whole host of other agencies. Nixon (of all people!) instituted wage and price controls. Reagan cut taxes and government spending. Clinton raised taxes and balanced the budget. Bush brought back the war economy. Now Obama is trying an unprecedented borrowing and spending program for peaceful purposes. The funny thing about these programs, as contradictory and sometimes ineffectual as they sometimes were, is that they all worked to some extent. And the reason they worked is that people believed they were working. Ultimately, what gets the economy moving again is not what the government does to fix the economy, but what all of us do when we start a business, or invest in new equipment, or buy a new car. By doing those things, we show faith that things are going to get better. And because enough of us believe that, things do get better.

So let's keep in mind this timely image from last September, when the polls took a turn for the worse, and many Obama supporters were nervous that John McCain's Sarah Palin strategy might actually work:

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