Here's Why 2014 Could Be the Year America Finally Ditches its Inane Deficit Obsession
Austerity advocates have been routed intellectually, but the political debate is still stacked in their favor. Here's how to influence it.
It’s hard to interpret the letter that Congressional Republicans sent on Tuesday evening to Ben Bernanke as anything other than an attempt to politically influence the monetary policy set by the Federal Reserve. Democrats have correctly recognized this as a rare breach of the central bank’s independence.
With David Frum moving in on my dissecting Wall Street Journal editorial territory, and now Zack Beuachamp cutting in on my patented role of pointing out Pete Wehner's hackery, it becomes all the more vital that I cling to my role of ridiculing Stephen Moore, the Journal's lead economics editorial writer and my most cherished foil. Moore's latest column argues that President Obama's economic program has failed and that President Reagan's succeeded, ergo Keynesian economics is wrong and supply-side economics is correct.
This article is a contribution to 'Is There Anything That Can Be Done? A TNR Symposium On The Economy.' Click here to read other contributions to the series. As the Great Recession drags on and on, it’s natural to wonder if we will ever get back to normal. Why is the recovery from this recession taking so long? Why was the recovery from other severe recessions, for example the 1982 recession where unemployment reached 10.8 percent, so much faster?
Ezra Klein has a good take on the differences between the 1982 recession and the 2008 recession: Financial crises, as Kenneth Rogoff and Carmen Reinhardt have exhaustively documented, are different than normal recessions. And global financial crises are different than domestic financial crises (it's hard to export your way out, for instance. We could spend a long time talking about why that is, but for our purposes, the point is what it does: "The recovery after deep financial crises tends to be slower and more protracted than for a garden variety recession," Rogoff says.
Do a thought experiment: Think back a year ago to what most analysts were predicting for the financial sector and for the state of the economy. In his newspaper column, Paul Krugman repeatedly warned that the policies adopted by the Bush and Obama administrations would have dire consequences. There was talk in other corners about no new business lending, slumping retail sales, and rising unemployment with no end in sight. But here we are—in the midst of a rebound. Each week over the last year, a number of positive and negative economic indicators were announced.
As President Obama’s bipartisan fiscal commission gets set to convene, the Greek budget disaster has triggered the predictable flood of cautionary notes about how we’re spending too much and heading toward a debt crisis. Should these concerns illuminate the commission’s work—or are they merely alarmist? Paul Krugman harbors no doubts: “Despite a chorus of voices claiming otherwise,” he writes, “we aren’t Greece.” But that’s not as encouraging as it sounds, he adds: “We are however, looking more and more like Japan. ...
Last week, CBO issued its analysis of President Obama’s proposed budget for fiscal year 2011. The news was not encouraging. Here are the basic findings: “If the President’s proposals were enacted, the federal government would record deficits of $1.5 trillion in 2010 and $1.3 trillion in 2011. These deficits would amount to 10.3 percent and 8.9 percent of gross domestic product (GDP) respectively.” “Measured relative to the size of the economy, the deficit under the President’s proposals would fall to about 4 percent of GDP by 2014 but would rise steadily thereafter.
This past Friday, without much fanfare, CBO submitted its analysis of President Obama’s proposed FY 2011 budget. The bottom line is worse than we thought. Despite sustained economic recovery, the budget deficit under the president’s proposal never falls below 4 percent of GDP over the next decade and rises to 5.6 percent by 2020. The aggregate deficit during that period is $9.761 trillion—close to $1 trillion each year on average. Not surprisingly, debt held by the public rises steadily and reaches 90 percent of GDP by 2020.
My favorite moment from last month’s White House jobs summit came when the president asked if Washington had been doing something to discourage hiring. At this point, a man named Fred Lampropoulos, the CEO of a Utah-based medical device manufacturer, chimed in that yes, in fact, it had. “[T]here’s such an aggressive legislative agenda that businesspeople don’t really know what they ought to do,” Mr. Lampropoulos told the president, according to The New York Times. Political uncertainty, he said, “is really what’s holding back the jobs.” Well, okay.