Monday, May 24, 2010

Time for Cutbacks?

 Since the economic collapse in 2008, we have tried bail-outs, and we have tried a massive government spending program to stimulate the economy.  And so far, these programs actually seem to be working, to the extent that banks have mostly returned to solvency, growth has returned to the economy, and jobs are slowly being regained.  In the face of all that success, you would think that people would want to give those programs more time to work until the economy regains a semblance of normalcy.  Instead, prompted by fears of a European-style debt crisis, we are hearing cries from all corners about the need for reining in government spending and reducing the deficit.  A column by Robert Kuttner, who has not always been supportive of the Obama administration's economic policies, points out the folly of pushing for austerity right now.  That would only invite the recession to return, and would make it harder for the nation and the world to pull itself out of the economic downturn of the last couple of years.  Economic historians like to use the Roosevelt administration's response to the Great Depression as an example.  They don't always agree on the efficacy of Roosevelt's approach, but one thing there seems to be consensus on is that the economy did not really start to recover until the massive deficit spending leading up to and during World War II.  That would suggest that the Roosevelt administration was actually too timid about running up large deficits during the worst depression years of the 1930's.  Similarly, we should not be timid now.  It might have been a mistake for the Bush administration to have doubled the national debt during relatively good years, but it is hard to see how it is a mistake to run up large deficits now to pull ourselves out of recession.

Let's not forget that the people who are calling for reducing government spending now are the same people who supported the Bush administration's massive tax cuts for the wealthy, and who also supported paying for the Iraq War by credit card.  Let's also not forget that these people for the most part, do not wish the administration well.  They want the Obama administration to fail in its ambitious programs to extend health insurance to everyone, to improve infrastructure, to clean up the environment, to reduce inequality, and to improve education.  They don't want any of these programs to work, because they want to cling to the belief that government is the problem and not a solution.  Perhaps they understand that putting the brakes on government spending now could actually cause the economy to crash, which would allow administration critics to blame Obama for continued economic problems, and would give these critics the opportunity to continue to press their agenda of keeping the government out of the business of trying to solve social problems.

(photo from recovery.gov flickr site)

UPDATE (6/10/10): The New York Times agrees with me that now is not the time to be unduly alarmed about the deficit.

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