[Vision2020] Triumph of the Wrong?

[Art Deco]

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October 11, 2012
Triumph of the Wrong? By PAUL KRUGMAN

In these closing weeks of the campaign, each side wants you to believe that
it has the right ideas to fix a still-ailing economy. So here’s what you
need to know: If you look at the track record, the Obama administration has
been wrong about some things, mainly because it was too optimistic about
the prospects for a quick recovery. But Republicans have been wrong about
everything.

About that misplaced optimism: In a now-notorious January 2009 forecast,
economists working for the incoming administration predicted that by now
most of the effects of the 2008 financial crisis would be behind us, and
the unemployment rate would be below 6 percent. Obviously, that didn’t
happen.

Why did the administration get it wrong? It wasn’t exaggerated faith in the
power of its stimulus plan; the report predicted a fairly rapid recovery
even without stimulus. Instead, President Obama’s people failed to
appreciate something that is now common wisdom among economic analysts:
severe financial crises inflict sustained economic damage, and it takes a
long time to recover.

This same observation, of course, offers a partial excuse for the economy’s
lingering weakness. And the question we should ask given this unpleasant
reality is what policies would offer the best prospects for healing the
damage. Mr. Obama’s camp argues for an active government role; his last
major economic proposal, the American Jobs Act, would have tried to
accelerate recovery by sustaining public spending and putting money in the
hands of people likely to use it. Republicans, on the other hand, insist
that the path to prosperity involves sharp cuts in government spending.

And Republicans are dead wrong.

The latest devastating demonstration of that wrongness comes from the
International Monetary
Fund<http://www.imf.org/external/pubs/ft/weo/2012/02/pdf/c1.pdf>,
which has just released its World Economic Outlook, a report combining
short-term prediction with insightful economic analysis. This report is a
grim and disturbing document, telling us that the world economy is doing
significantly worse than expected, with rising risks of global recession.
But the report isn’t just downbeat; it contains a careful analysis of the
reasons things are going so badly. And what this analysis concludes is that
a disproportionate share of the bad news is coming from countries pursuing
the kind of austerity policies Republicans want to impose on America.

O.K., it doesn’t say that in so many words. What the report actually says
is: “Activity over the past few years has disappointed more in economies
with more aggressive fiscal consolidation plans.” But that amounts to the
same thing.

For leading Republicans have very much tied themselves to the view that
slashing spending in a depressed economy — “fiscal consolidation,” in
I.M.F.-speak — is good, not bad, for job creation. Soon after the midterm
elections, the new Republican majority in the House of Representatives
issued a manifesto on economic policy — titled, “Spend less, owe less, grow
the economy” — that called for deep spending cuts right away and
pooh-poohed the whole notion that fiscal consolidation (yes, it used the
same term) might deepen the economy’s slump. “Non-Keynesian effects,” the
manifesto declared, would make everything all right.

Well, that turns out not to be remotely true. What the monetary fund shows
is that the countries pursing the biggest spending cuts are also the
countries that have experienced the deepest economic slumps. Indeed, the
evidence suggests that in brushing aside the standard view that spending
cuts hurt the economy in the short run, the G.O.P. got it exactly wrong.
Recent spending cuts appear to have done even more harm than most analysts
— including those at the I.M.F. itself — expected.

Which brings us to the question of what form economic policies will take
after the election.

If Mr. Obama wins, he’ll presumably go back to pushing for modest stimulus,
aiming to convert the gradual recovery that seems to be under way into a
more rapid return to full employment.

Republicans, however, are committed to an economic doctrine that has proved
false, indeed disastrous, in other countries. Nor are they likely to change
their views in the light of experience. After all, facts haven’t gotten in
the way of Republican orthodoxy on any other aspect of economic policy. The
party remains opposed to effective financial regulation despite the
catastrophe of 2008; it remains obsessed with the dangers of inflation
despite years of false alarms. So it’s not likely to give up its
politically convenient views about job creation.

And here’s the thing: if Mitt Romney wins the election, the G.O.P. will
surely consider its economic ideas vindicated. In other words, politically
good things may be about to happen to very bad ideas. And if that’s how it
plays out, the American people will pay the price.


-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
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