Rock, meet hard place. Despite the urgent need to pull the United States
out of the economic
, economists and politicians are stuck on the question of
the best policy. The stimulus package has failed to
inspire widespread confidence in political leaders and voters,
especially in light of recent jobless
. These deficit-spending doubters "understand something that is hard to quantify"
Deficit spending in the middle of a debt crisis has
different psychological effects than deficit spending at other times. In
times like these, deficit spending to pump up the economy doesn't make
consumers feel more confident; it makes them feel more insecure because
they see a political system out of control. ... It doesn't make political leaders feel better either.
Lacking faith that they can wisely cut the debt in some magically
virtuous future, they see their nations careening to fiscal ruin.
The New York Times columnist claims to have found a
middle ground between full-tilt stimulus spending and radical deficit
reduction. "We are exiting a period of fiscal stimulus and entering a
period of fiscal consolidation," declares Brooks. "The challenge for the
United States requires reducing deficits while at the same time making
the welfare state more efficient, boosting innovation in areas like
energy, and spending more money on growth-enhancing sectors like
infrastructure." Economic bloggers are split as to whether Brook's column
offers an accurate, compelling picture.
- 'One of My Favorite David Brooks Columns'
Cowen in his blog, Marginal Revolution. "There are, of course, ways
to explain these other histories," writes Cowen. "The point is not that
aggressive fiscal policy is always bad. The point is that there are
plenty of coherent models where fiscal consolidation is better than
fiscal expansion. "Lack of confidence in a nation's fiscal future" is a
key condition for many of those models to hold. Is that not possibly the
- I'm Not So Sure notes Ezra
Klein. For Klein, Brooks
glosses over some important trade-offs that affect the psyche of average
Americans. "Small businesspeople might be unnerved by deficits, but
they're also unnerved by GDP contraction," notes Klein. "A small coffee
shop might not like government spending in the abstract, but they
really don't like closing because there are no more construction workers
around to buy coffee, and so they may quite like the effect of
deficit-financed tax credits for home buyers." Klein asserts that the
issue of a sound economic policy has nothing to do with deficits, but
rather "whether they like what would happen in the absence of
countercyclical deficit spending even less."
- You Missed Something
The Atlantic's Derek
Thompson evaluates Brook's theory. "Is it possible that deficit
spending is scaring consumers and small businesses? Absolutely.
Confidence in a nation's finances impacts business decisions. Is it also
possible that 16 percent underemployment, a slow consumer recovery
following massive debt overhang, a devastated real estate market, and a
stock market swaying to the rhythms of a wobbly euro zone is also
scaring consumers and small businesses? Absolutely. Brooks doesn't
mention it." Brook's explanation is a little too simple for Thompson.
"There are so many factors in a recovery besides government spending
levels. Consider Sweden, whose remarkable escape from debt in the 1990s
-- which included both significant tax increases and spending cuts --
was chiefly driven by exports that coincided with the U.S. consumer
experiencing one of the greatest economic runs in modern history. The
spending cuts might have helped. But exports might have helped more."
- Get Out of the Armchair The
Avent isn't totally satisfied with Brook's solution to America's
problems. "The stimulus package itself has not been a big contributor to
current deficits, which are primarily due to the revenue shortfall
associated with a deep and painful recession," writes Avent, attempting
to dismantle the relationship between economic stimuli and deficits at
the heart of Brooks' thesis before attacking the columnist himself.
"This kind of armchair psychologising is Mr Brooks' stock and trade. I
have to say, I find it annoying and logically wanting ... The column
concludes with a plea to cut middle-class entitlement spending and
invest in infrastructure. And I certainly hope that America takes steps
over the next decade to slow growth in health spending, to address
structural obstacles to growth, and to invest in public goods like
infrastructure and basic research. Those steps, alongside some tax
reform, will go a long way toward fixing the long-run budget picture,
which is all anyone should really be worried about."
- This Is
About Government, Not the Economy sighs Left
Coast Rebel. "The professorial progressive-statist leadership today
is too stupid to understand the above example in bold. Essentially that
is what the Tea Party movement is all about - a government that has
grown to be big enough that it can take it all away. Massive trillion
dollar 'stimulus' bills that are grab-bag giveaways that future
generations will pay for, endless bailouts and crippling debt."
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