A Credibility Problem on “Stimulus” Spending
Democrats are outraged at the continuing reluctance of Republicans to sign on to additional deficit spending, even in the politically popular area of extending unemployment benefits. Economist, Nobel laureate, and relentless partisan attack dog Paul Krugman preaches more, more, more, more, and more spending in the name of “stimulus”. And the New York Times warns that failure to continue spending may repeat mistakes of the 1930s, where Keynesian orthodoxy holds that a major cause of the Great Depression lay in the failure of government to accelerate deficit spending.
In a way, their argument is tempting. All we need to make the economy finally turn the corner back toward full employment is just one more round of government pump-priming, especially for teachers (government worker unions including teachers unions just happen to be major supporters of the Democratic Party). Tomorrow we can think about deficit and debt reduction, lest we head the way of Greece, where budget profligacy combined the the intransigence of politically powerful unions has resulted in financial collapse.
But therein lies the credibility problem. Tomorrow we’ll hear from the Krugmans of the world that just one more round of “stimulus” is still required. Tomorrow those who question the need for more government handouts will still be judged to be heartless bastards. And tomorrow the teachers unions and other government workers will still be powerful and will still be enamored of more spending to hire more union members and pay them more, more, more.
The same cycle will happen the day after that. And the day after that. And the day after that. ”Just one more round” is never enough. And those who worry about the sustainability of endless “stimulus” don’t get answers, they just get their motives attacked. Politics and petty hatreds trump basic economics and fundamental logic (which is apparently not included in the Nobel process). But inevitably, the music will stop and the entire American economy will be left standing without a chair.
And you can be sure that Krugman will not take the blame.
UPDATE: Some comments have said that Krugman’s more-spending insistence is justified because of the “emergency” that the economy is in. Comparisons to the Great Depression seem to evoke quite a lot of crisis reaction in spite of the huge dissimilarities of both type and process between the deflationary hard-money financial system of the 1930s and the globalized bond markets of today. The problem, however, is that it appears that Krugman (or others like him) will always find a way to claim that a “crisis” or “emergency” exists that requires more spending, more deficits, more debt, and zero tolerance for even mild cutbacks. Also, as one comment heatedly insists, budget cuts will always be morally intolerable even in the face of bankruptcy — welcome to Greece, 2010, coming soon to a theater near you. That is why the more-spending position lacks credibility even when the “emergency” gauntlet is thrown. It is quite apparent that the “emergency” never ends and that in the “spend now, behave later” prescription, “later” never comes.
