Friday, February 08, 2013

Kick That Can

New Krugman:

This really isn’t a debatable proposition at this point. The contractionary effects of fiscal austerity have been demonstrated by study after study and overwhelmingly confirmed by recent experience — for example, by the severe and continuing slump in Ireland, which was for a while touted as a shining example of responsible policy, or by the way the Cameron government’s turn to austerity derailed recovery in Britain. 

Even Republicans admit, albeit selectively, that spending cuts hurt employment. Thus John McCain warned earlier this week that the defense cuts scheduled to happen under the budget sequester would cause the loss of a million jobs. It’s true that Republicans often seem to believe in “weaponized Keynesianism,” a doctrine under which military spending, and only military spending, creates jobs. But that is, of course, nonsense. By talking about job losses from defense cuts, the G.O.P. has already conceded the principle of the thing. 

More here.

As long as I can remember, Republicans and conservatives have had a reputation for being responsible with money, for being the smart guys, the ones who understand how dollars flow, and how to use cash wisely.  Liberals and Democrats, on the other hand, have always been the irresponsible "tax and spend" people, short-sighted do-gooders with a suburban teenager's conceptualization of money, not really knowing where it comes from, but being always ready to throw it around lavishly.  It's taken a long time and a lot of reading, but I no longer believe the hype.  The conservative reputation for being good economic stewards is a bunch of crap, and it's probably always been a bunch of crap.  Don't get me wrong: I'm not saying that liberals are necessarily good with money, either, but the notion that conservatives know what they're doing on economics is just a flat out lie.

Case in point: the deficit and spending cuts.

For years now, essentially going back to when Obama took office, conservatives have been droning on and on about how the federal deficit is going to cause all kinds of problems, inflation, or high interest rates, which will kill the economy.  As a digression, it is interesting to note that this kind of rhetoric didn't exist when Bush was in office, and the Republican Congress was spending like drunken sailors in a whorehouse.  No, this attack only started up again when a Democrat took office.  But I digress.  The point is that they've been going on about imminent disaster coming from the deficit for years, but none of their predictions have come to pass.  Interest rates continue to be extraordinarily low to non-existent.  Inflation is also historically low.  The economy is sluggish, to be sure, but it doesn't have a damned thing to do with the deficit.  

That is, the conservatives are just plain wrong.  Wrong, wrong, wrong.  But their reputation for being money wizards allows them to push their crackpot views.  And people listen because they think they're listening to smart people, which makes prospects for the economy even worse.

That is, conservative fear mongering over the deficit creates a context where all the key players, news media, politicians, and business leaders, conclude that we need to cut lots of government spending right now or we're all going to die.  Seriously, the entire freaking establishment is in hysterics over something that is a long term problem, not at all imminent.  But get this.  To cut the federal budget as much as the conservatives want is to essentially take hundreds of billions of dollars out of the economy.  Poof!  Gone.  And no, all that money will NOT be spent better in the hands of the rich taxpayers who would benefit most from such spending cuts.  The vast majority of that money would be hoarded by the rich, who just can't possibly be the equivalent of millions of consumers: the wealthy would most likely stick it into savings accounts, where it would sit and rot, according to several economic studies of how tax cuts for the rich actually work in the real world.   So cutting government spending means pulling money out of the economy, not freeing it up for the magical wonders of capitalism to do its thing.

The real losers in this scenario would be rank and file Americans.  Spending cuts means job losses, huge amounts of job losses, teachers, firemen, scientists, construction workers, and on and on.  And this has a ripple effect.  When lots of people lose their jobs, they're not spending money, which makes businesses suffer, who then lay off their workers in response, which increases unemployment even more.  Now get this.  When you create high unemployment you NECESSARILY cut deeply into tax revenue; fewer paychecks for fewer employees means fewer people are paying taxes.  All of which makes the deficit WORSE.  Not better.  That is, the conservative solution to a problem that doesn't even need to be solved right now is to make the problem a whole lot worse.  It makes no sense.  It's crazy.  But for some reason it's the conventional wisdom.  Probably because people prefer to buy the hype about the wise conservatives instead of actually thinking it through.

I've had enough of this.  Liberals may very well not be geniuses with money, but then neither are conservatives.  Actually, given that the conservatives want us to increase unemployment, depress the economy, and greatly increase the deficit, I'd say that conservatives are not only not geniuses with money, but that they're also total morons.

We would do well to completely ignore any and all advice they have for us on matters pertaining to the economy.  We'd be better off getting recommendations from a preschool class of four year old children.