No time to be timid — tax cuts and spending hikes

“The movers and shakers of our society seem…oblivious to the terrible destruction wrought by the economic storm that has roared through America.” Thus writes the New York Times’ Bob Herbert, who notes in a weekend column that “nearly 44 million people were living in poverty last year, which is more than 14 percent of the population. That is an increase of 4 million over the previous year, the highest percentage in 15 years.”

And as for the middle-class, Herbert observes, they have “hobbled for years with the stagnant incomes that accompany extreme employment insecurity” and are now in retreat. The economic fear stalking America goes far to explain the severe fall in popularity of President Obama and the rise of the Tea Party.

For all of my fears of the social conservatism that is veined through the Tea Party movement, the public focus for most Tea Partiers is on the economy. But their economic solutions are not the right ones.

Understandably, they blame government. It was government that gave us the runaway juggernauts of Fannie Mae and Freddie Mac; it was homeownership encouragement from both sides of the political aisle that gave us the subprime fiasco; and it was the administration of George W. Bush that believed “deficits don’t matter” and presided over the greatest splurge of public spending since Lyndon Johnson.

So, why trust government now? For the Tea Partiers it is time to get back to basics — to the U.S. Constitution, to balanced budgets, to limited government. All noble aims. For many of them, though, read “no government” when they say limited government. But this isn’t the time to say “no government” — we need it to sort out the mess it co-authored.

Unfortunately, in the same way that Tea Partiers are going back to basics and mistaking the skyrocketing deficit as the problem, so various policymaking elites are returning to unsophisticated positions. Free market advocates are becoming more uncompromising; Keynesians more Keynesian. All are over-focused on ideology.

In this fevered political environment the administration is more timid than it should be. The U.S. needs another fiscal stimulus. Yes, this would add to the federal deficit, but when you have cancer, to survive you need to take some poisons as therapy. Convalescence can come later.

For Republicans — and the Tea Partiers — that is heresy. For them, “big government” explains the economy’s weakness, and high unemployment is evidence that the President’s fiscal stimulus failed. But this is wrong. As the Economist magazine notes, “the notion that high joblessness ‘proves’ that (the) stimulus failed is simply wrong. The mechanics of a financial bust suggest that without a fiscal boost the recession would have been much worse.”

There is growing confidence that America will escape a double-dip recession, but that is far from certain. The jobs market remains in a slump, the recovery is anemic, property prices continue to fall, and a further wave of home foreclosures is in the cards.

In 1937-38, fiscal and monetary contraction killed dead a recovery, sending the economy back into a prolonged slump that didn’t end until World War II.  And as Arthur Laffer argued in a Wall Street Journal op-ed earlier this year, tax hikes had much to do with the problem. “The damage caused by high taxation during the Great Depression is the real lesson we should learn. A government simply cannot tax a country into prosperity.”

That lesson seems belatedly to have been absorbed by Obama aides, who are now supporting the idea of extending the Bush tax cuts, except for the top two percent of earners.

  • bigsigh

    Obamacare is the problem! Companies are trying to figure out how to have no employees at all. Everyone will end up being an independent contractor. It will simply become too expensive to have employees. Universal healthcare here we come. The economy will never recover with 10% unemployment.

  • lht

    Jamie, good piece. I personally think the tax rates need to return to their former level. We need to face reality: we can’t (nor should we want to) rebuild a house of cards economy. If paying a couple of extra points on their marginal rates is going to put people in streets, they can’t afford their houses already. Of course tax cuts and spending juice the economy. If I concurrently stop paying my monthly Visa bill and using it twice as much, things are going to look good — for a while.

    Oh, well. Don’t sweat all the negative comments. As you undoubtedly know, this site skews toward the right, and the commenters pretty much repeat the same spurious “insights” we’ve heard for the past 20 or more years.

  • GA4Freedom

    The metaphor that should be used would be more like one of alcoholism. See the current economy is a result of the drunken stupor of borrowing and spending with no regard to reality… So your suggestion is to give the drunks more boos? The Tea Partiers, and me, say no,, Let’s force them into rehab and save them from themselves,, and safe our family (country) at the same time…

    I think my metaphor fits the current situation much better than yours.. But after all who’s the professional writer here…. DOW!!!

  • GA4Freedom

    So with the logic you use… If banging your head against the wall does not cure your head ache,, bang it against the wall some more…. isn’t that the definition of insanity?? But coming from you… I am NOT surprised.. lol..

    And using Cancer as a metaphor? In case you haven’t been in for treatment of late.. the most successful treatments include large doses of Pro-body supplements, vitamins, and diet… Spot treatments, detailed spot surgery, and using chemo and radiation very conservatively (no pun intended).. so,, before you use another metaphor I’d suggest looking into it first…

  • GA4Freedom

    One word,, Moron!!

  • gatortarian

    Why do I think I am going to disagree with every column you write? Government is not the solution, it is the problem. Please read some Milton Friedmen and Thomas Sowell and get back to us.

  • libertyatstake

    The problem is fear and loathing of statist policy. The seed money for a real recovery exists – it is being held back because BHO and the Progressives have made clear they think it’s theirs. The recovery will take off when the statists are removed from office.

    “Because the Only Good Progressive is a Failed Progressive”

  • sawdustking

    So when people buy government bonds instead of investing in the private sector, how exactly does that stimulate private sector job growth?