Kevin O’Rourke (via Paul Krugman):
One lesson that the world has learned since the financial crisis of 2008 is that a contractionary fiscal policy means what it says: contraction.
In other words, if government cuts spending during an economic downturn, it will deepen the economic troubles of its nation. That’s textbook. Literally. If you take an introductory course in macroeconomics, you learn the same thing.
President Obama’s handling of the U.S. Economic downturn has, pretty much, been textbook. We haven’t solved our employment troubles yet, but we have remained on top during an economic crisis that started here and has affected the entire world. Not only have we remained on top, those nations that have employed similar strategies have, overall, done better than those who haven’t.
Republicans are correct in saying that after three years, we can’t put all of the blame on George Bush. Bush was like a fire chief who decided that fires should be allowed to put themselves out. But when a fire raged out of control, he was replaced by a new fire chief who decided to use water. Three years later, the fire is still burning and with the benefit of hindsight we can see that more water would have been better. But that doesn’t mean we should go back to letting the fire burn.
The out-of-control fire is a world-wide economic downturn fostered by an environment of hands-off economic policies. There are two false economic arguments that might keep us from doing what’s necessary to put the fire out.
The first is the argument that stimulus spending doesn’t create jobs. That’s completely false. If we hire people to fix roads and bridges, then those people will have jobs. They’ll also hire subcontractors, and purchase supplies and services. With improved roads and bridges, entrepreneurs will have more opportunities to create even more jobs in the future.
The second argument is that we’re so deep into debt that we shouldn’t spend more. But no amount of tax cutting or government-shrinking is going to take care of our enormous debt. What we need is growth. Imagine a factory undergoing a financial crises because the machinery is broken and they can no longer produce the products that they have to sell. Now imagine the owner refusing to replace the broken machines because he doesn’t believe in spending money when times are tough. That’s what Republicans are advocating.
Just because we can’t put all of the blame on Bush doesn’t mean we should go back to the policies that sparked a world-wide economic crises. Expansionary economic policies, which means stimulus spending and tax cuts for the middle class and small businesses, have held our economy steady while the economies of nations that employed contractionary policies, like firing government workers and withholding aid for the poor, have only gotten worse.
If the fire’s still burning, it’s time for more water, not less.