The Republican Economy

What should be done about the economy? Republicans claim to have the answer: slash spending and cut taxes. What they hope voters won’t notice is that that’s precisely the policy we’ve been following the past couple of years. Never mind the Democrat in the White House; for all practical purposes, this is already the economic policy of Republican dreams. So the Republican electoral strategy is, in effect, a gigantic con game: it depends on convincing voters that the bad economy is the result of big-spending policies that President Obama hasn’t followed (in large part because the G.O.P. wouldn’t let him), and that our woes can be cured by pursuing more of the same policies that have already failed. For some reason, however, neither the press nor Obama’s political team has done a very good job of exposing the con. (source: Paul Krugman – NYTimes – 04/06/2012)

What do I mean by saying that this is already a Republican economy? Look first at total government spending, federal, state, local. Adjusted for population growth and inflation, such spending has recently been falling at a rate not seen since the demobilization that followed Korean War. How is that possible? Isn’t Mr. Obama a big spender? Actually, no; there was a brief burst of spending in late 2009 and early 2010 as stimulus kicked in, but that boost is long behind us. Since then it has been all downhill. Cash-strapped state and local governments have laid off teachers, firefighters and police officers; meanwhile, unemployment benefits have been trailing off even though unemployment remains extremely high. Over all, the picture for America in 2012 bears a stunning resemblance to the great mistake of 1937, when F.D.R. prematurely slashed spending, sending U.S. economy, which had actually been recovering fairly fast until that point, into the second leg of the Great Depression. In FDR’s case, however, this was an unforced error, since he had a solidly Democratic Congress. In President Obama’s case, much though not all of the responsibility for the policy wrong turn lies with a completely obstructionist Republican majority in the House. That same obstructionist House majority effectively blackmailed the president into continuing all the Bush tax cuts for wealthy, so that federal taxes as a share of G.D.P. are near historic lows, much lower, in particular, than at any point during Ronald Reagan’s presidency. As I said, for all practical purposes this is already a Republican economy. As an aside, I think it’s worth pointing out although economy’s performance has been disappointing, to say the least, none of disasters Republicans predicted have come to pass. Remember all those assertions the budget deficits would lead to soaring interest rates? Well, U.S. borrowing costs have just hit a record low. Remember those dire warnings about inflation and “debasement” of dollar? Inflation remains low, the dollar has been stronger than it was in the Bush years.

Put it this way: Republicans have been warning we were about to turn into Greece because President Obama was doing too much to boost the economy; Keynesian economists like myself warned that we were, on the contrary, at risk of turning into Japan because he was doing too little. And Japanification it is, except with a level of misery Japanese never had to endure. So why don’t voters know any of this? Part of the answer is that far too much economic reporting is still of the he-said, she-said variety, with dueling quotes from hired guns on either side. But it’s also true that the Obama team has consistently failed to highlight Republican obstruction, perhaps out of a fear of seeming weak. Instead, the president’s advisers keep turning to happy talk, seizing on a few months’ good economic news as proof their policies are working and then ending up looking foolish when numbers turn down again. Remarkably, they’ve made this mistake 3 times in a row: in 2010, 2011 and now once again. At this point, however, Obama and his political team don’t seem to have much choice. They can point with pride to some big economic achievements, above all the successful rescue of the auto industry, which is responsible for a large part of whatever job growth we are managing to get. But they’re not going to be able to sell a narrative of overall economic success. Their best bet, surely, is to do a Harry Truman, to run against “do-nothing” Republican Congress that has, in reality, blocked proposals, for tax cuts as well as more spending, that would have made 2012 a much better year than it’s turning out to be. For that, in the end, is the best argument against Republicans’ claims that they can fix the economy. The fact is that we have already seen the Republican economic future, and it doesn’t work. 


Acerca de ignaciocovelo
Consultor Internacional

2 Responses to The Republican Economy

  1. Professor Uziel Nogueira says: Nowadays, Paul’s columns on the American economy are like watching Seinfeld’s reruns. Each episode gets less funnier after be seen 2-3 times. He preaches to the converted hard core Democrat base. It is obvious that Pres Obama cannot sell a narrative of overall economic success to the American people. Luckily for Obama, he is facing Romney in a level playing field. The Republican candidate offers the same (failed) economic financial model that Obama does. There are no major differences between Obama and Romney as far as economic policy is concerned. Like previous presidential elections, this election will be decided by voter’s trust in Obama or Romney and NOT in two competing economic views.

  2. By now you will probably have read an awful lot about the financial crisis. Perhaps I’ve been reading all the wrong stuff, but until now I hadn’t managed to find answers to the most puzzling questions. If the crash of 2008 was preceded by an era of unprecedented prosperity, how come most of the people I know weren’t earning much? Deregulation of financial services was supposed to have made us all better off, so why did most of us have to live off credit to keep up? Now that it has all gone wrong, and everyone agrees we’re in the worst crisis since the Great Depression, why aren’t we following the lessons we learned in the 1930s? President Obama is the only world leader who has attempted a Keynesian stimulus programme. Why has it been only minimally effective? Why do most other western leaders still insist the only way out is to tighten our belts and pay off our debts, when that clearly isn’t working either? And how come the bankers, credit agencies and bond traders are still treated with cowed reverence – don’t frighten the markets! – when they got us into this mess? These mysteries were beginning to make me feel as if I must be going mad – but since reading Paul Krugman’s new book, I fear I’m in danger instead of becoming a bore. It’s the sort of book you wish were compulsory reading, and want to quote to anyone who’ll listen, because End This Depression Now! provides a comprehensive narrative of how we have ended up doing the opposite of what logic and history tell us we must do to get out of this crisis (…..)


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