The End of the Argument on Jobs and Fiscal Policy

[Donnachaidh]

http://news.firedoglake.com/2011/02/14/the-end-of-the-argument-on-jobs-and-fiscal-policy/

It’s hardly surprising that Paul Krugman says better what I’ve been saying for a few days about Obama’s thinking on the budget and the economy in general.

The important thing, I think, is that he has effectively given up on the idea that the government can do anything to create jobs in a depressed economy. In effect, although without saying so explicitly, the Obama administration has accepted the Republican claim that stimulus failed, and should never be tried again.

That’s exactly true. Republicans basically started in with that argument even before the stimulus passed. It’s why they denied a single vote for the stimulus in the House, and almost none in the Senate. In fact, one of the Republican votes, Arlen Specter, had to switch parties after voting for the stimulus, and another supporter, Florida Governor Charlie Crist, had to switch to an independent.

Throughout 2009 and 2010, Republicans consistently made the argument that the stimulus failed, skillfully using the Administration’s own statistics on job creation to make their case. The Administration’s fatal flaw here was the poorly designed projection, showing unemployment peaking much lower than reality, and Republicans used that perfectly. They made a blunt argument unsupported by the facts that deficit spending to raise aggregate demand doesn’t work. And over time, they’ve worn down the defenses of the entire Democratic party. You won’t find more than a handful of Democrats in Washington willing to state the truth – that the stimulus worked in doing what it intended, but it was too small for the dramatic economic hole the nation faced, and needed to be – still needs to be – bigger. In fact, we may need to go further than “too small,” because if you take into account state government spending, which cratered in 2009 and 2010, there wasn’t really much of a fiscal stimulus at all:

More at the link --

[Horse with no Name]

1. And the downside of that is

it will institutionally fail and then it will never be tried again.

[mmonk]

2. Too small and too much of non stimulus (like 40% of it tax cuts).

Demand stimulates employment. If their goods are not being bought here, they aren't going to be hiring here regardless of the various tax rates.

[bhikkhu]

3. More the end of an era, I would say

The economy at a fundamental level describes tangible objects and activity which money itself is simply a proxy for; tangible object and activity require energy. In the past economic growth has been possible, or even easy, because surplus energy was available. That isn't the case now, and money thrown at the problem is not changing the underlying (geological) reality.