June 3, 2012
This Republican Economy
By PAUL KRUGMAN
What should be done about the economy? Republicans claim to have the answer: slash spending and cut taxes. What they hope voters wont notice is that thats precisely the policy weve 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 hasnt followed (in large part because the G.O.P. wouldnt 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 Mr. Obamas political team has done a very good job of exposing the con.
What do I mean by saying that this is already a Republican economy? Look first at total government spending federal, state and local. Adjusted for population growth and inflation, such spending has recently been falling at a rate not seen since the demobilization that followed the Korean War.
How is that possible? Isnt Mr. Obama a big spender? Actually, no; there was a brief burst of spending in late 2009 and early 2010 as the 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 the U.S. economy which had actually been recovering fairly fast until that point into the second leg of the Great Depression. In F.D.R.s case, however, this was an unforced error, since he had a solidly Democratic Congress. In President Obamas 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 the 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 Reagans presidency.
As I said, for all practical purposes this is already a Republican economy.
As an aside, I think its worth pointing out that although the economys performance has been disappointing, to say the least, none of the disasters Republicans predicted have come to pass. Remember all those assertions that budget deficits would lead to soaring interest rates? Well, U.S. borrowing costs have just hit a record low. And remember those dire warnings about inflation and the debasement of the dollar? Well, inflation remains low, and the dollar has been stronger than it was in the Bush years.
Put it this way: Republicans have been warning that 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 the Japanese never had to endure.
So why dont 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 its also true that the Obama team has consistently failed to highlight Republican obstruction, perhaps out of a fear of seeming weak. Instead, the presidents advisers keep turning to happy talk, seizing on a few months good economic news as proof that their policies are working and then ending up looking foolish when the numbers turn down again. Remarkably, theyve made this mistake three times in a row: in 2010, 2011 and now once again.
At this point, however, Mr. Obama and his political team dont 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 theyre 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 the 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 its 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 doesnt work.