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Hullabaloo


Tuesday, June 28, 2011

 
Cutting to prosperity

by digby

The latest polling shows a deeply insecure and pessimistic public on the issue of the economy. But in my view, there's an even worse problem, one that is likely to persist long after this crisis is past:

But another result from the Bloomberg poll suggests a fair amount of of public confusion about how to turn things around. Fifty-five percent of respondents said cuts in government spending and taxes would be more effective at creating jobs than maintaining or increasing government spending.

The question is confusingly formulated, because economists usually think of tax cuts and spending increases as part of the same stimulus-based approach, not as opposing approaches. But at root, the results appear to indicate that most Americans think cutting spending, not increasing it, is more likely to create jobs.

But that's almost the opposite of what most experts--on both sides of the political divide--believe. "That wouldn't square with the way we normally think about economic activity in a depressed economy," Andrew Samwick, a former chief economist on President Bush's Council of Economic Advisers, told The Lookout. When the economy suffers from a lack of demand, as it does now, Samwick explained, most economists think increasing spending is the more effective way to generate that demand and get things moving again.

Why has the opposite view begun to take hold? In part, Samwick argued, it's thanks to the efforts of congressional Republicans, who want budget cuts and lately have hammered home the view that government spending has stymied growth. "You have the Speaker of the House talking about job-killing government spending," said Samwick, now a professor of economics at Dartmouth College. "But they have not been tasked with making clear exactly how the government is killing jobs."



It's true that Republicans have hammered this misinformation home. But has anyone really countered it? I hear the Democrats all fetishizing the deficit as well and in the context of people's angst about the economy and jobs, they hear they same logic from them.

I knew this was how it was going to end up if the Democrats didn't find a way to explain why the Republicans were all wet about the deficit being the most important thing in the world at a time of low demand and high unemployment. My personal preference was that they come out swinging saying that this level of joblessness was completely unacceptable in the United States of America and that if the private sector won't hire people the government has to step up and do it for them. I think people might understand that. Instead we got "Americans have to tighten their belts and so does the government" --- and here we are.

I think we're probably too far down the deficit rabbit hole now and I honestly don't know what it would take to turn this around. The liberal economic argument doesn't even exist these days except to the extent that you should cut taxes in a recession. Unfortunately everyone also agrees that deficit reduction is the first priority, meaning we must slash government --- which offsets any stimulus the tax cuts might provide. It's daft, and yet we're doing it.

Maybe after a full blown depression or a long and painful lost decade people will ask whether any of this makes sense. Right now, there's just nothing to do but fasten your seatbelt and hope you make it out of the train wreck alive.


Update: Via Susie, I see that we have some current information on the subject. Too bad the Democrats are jumping on the "slash spending" bandwagon too or they might be able to make something of it. On the other hand, maybe people hate these Republicans so much that people won't realize that many of the Democrats have basically acquiesced to their ideas.

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