Arguments for More, Not Less, Government Spending

John Judis, a visiting scholar at the Carnegie Endowment for International Peace. writes the cover story for the October 6, 2011 New Republic on the economy and President Obama. It's called Doom: Our Economic Nightmare is Just Beginning. TNR has provided me with this pass-through link so non-subscribers may read it. It's long, but very interesting, particularly from a historical point of view. (Although the parts about the world monetary system were way over my comprehension abilities.)

It starts out by saying our current recession is not just similar to the 1929 depression, it is the 1929 depression redux. It then recaps economic history since then and politicians and nations' responses. Shorter version: Obama shouldn't fall prey to Republicans clamoring for deficit cuts and decreased Government spending. Austerity is not the answer and to recover, we need more, not less, Government spending. [More...]

In comparing past economic crises to the current one, Judis writes:

In each case, the financial crisis generated an overhang of consumer and business debt that— along with growing unemployment and underemployment, and the failure of real wages to rise— reduced effective demand to the point where the economy, without extensive government intervention, spun into a downward spiral of joblessness. The accumulation of debt also undermined the use of monetary policy to revive the economy. Even zero-percent interest rates could not induce private investment.

Finally, in contrast to the usual post-World War II recession, our current downturn, like the Great Depression, is global in character. Financial disturbances—aggravated by an unstable international monetary system—have spread globally. During the typical recession, a country suffering a downturn might hope to revive itself by cutting its spending. That might temporarily increase unemployment, but it would also depress wages and prices, simultaneously cutting the demand for imports and making a country’s exports more competitive against those of its rivals. But, when the recession is global, you get what John Maynard Keynes called the “paradox of thrift” writ large: As all nations cut their spending and attempt to devalue their currencies (which makes their exports cheaper), global demand shrinks still more, and the recession deepens.

TNR describes the article this way:

Judis argues that President Obama’s new jobs plan is simply too little, too late. In the most comprehensive explanation of our economic quagmire that you’ll read this year, Judis explores the structural forces undergirding the American economy to find out what it would take to restore prosperity. Then, he offers a devastating assessment of the toxic political culture that will almost certainly prevent any constructive measures from being taken.

I'm not as pessimistic as Judis that it's already too late. I have never understood the Republican clamor for spending cuts. Especially at a time when we have so many vulnerable people in need. Obama needs to just keep saying "No."

Obama knows the Republicans won't agree to the plan he laid out today. I'd rather he go down fighting for Democratic principles than continue to seek a compromise. At least today he telegraphed a message about what Democrats care about, reinforcing that there is a difference between us and them. I just hope he carries through and comes to understand that compromise and bi-partisan unity are not the answer when it means turning your back on your core constituents and their values.

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    I think it is already too late (5.00 / 1) (#1)
    by Militarytracy on Mon Sep 19, 2011 at 07:33:46 PM EST
    Our unemployment is rising again, we are not on any different course.  In fact, our President's announced plan of cutting spending and tax increases was exactly what Hoover did in 1930.

    We can't get our leaders off of the trajectory they are on and it is too late.  It would be better at this time if a Republican were in office, because the only different thing to do when it gets even worse is to vote a Republican in and what Republican wants to be the new FDR?  As a Democrat, this crisis was the worst time for us to get a Conservative Democrat coming into the oval office.  Obama won't seriously fight anyone to spend more.  He is on the record in one of his books as saying New Deal economics don't work anymore.  We are so screwed.  

    I agree (none / 0) (#2)
    by Ga6thDem on Mon Sep 19, 2011 at 07:51:46 PM EST
    it's pretty much too late. Obama had a chance to do the right thing and he didn't and now that's probably going to cost him reelection and we are probably going to have an austerity republican for the next four years extending the unemployment problem for longer than necessary.

    I honestly don't know that (5.00 / 1) (#4)
    by Militarytracy on Mon Sep 19, 2011 at 11:11:09 PM EST
    it will cost him re-election.  If it doesn't though, I don't think he will bring us through this and the road to recovery.  I don't think he has what it takes because this will take another FDR and he doesn't even believe in the economic remedies that that is going to require.

    "Austerity is not the answer...." (5.00 / 2) (#3)
    by NYShooter on Mon Sep 19, 2011 at 10:44:40 PM EST
    You know that, I know that, and every respected, expert economist knows that. So, why do we get the exact opposite proposals from both Democrats and Republicans?  They both have "squeezing the middle class" as their "meat and potatoes;" they only differ in the "sides."

    Something tells me there's another agenda being played in Washington, and helping the hard working middle class  attain the "American Dream" isn't one of them.

    Perhaps the agenda... (none / 0) (#14)
    by kdog on Tue Sep 20, 2011 at 08:22:56 AM EST
    is to put us out of a job and into a cage.

    I'm all for some austerity in the tyranny & blood sectors, and roll that cash over into job creation that doesn't involve senseless misery and an expansion of the safety net that is so desperately needed.  

    Might be enough where ya don't even have to raise taxes on anybody, so nobody has anything to whine about except those who get paid or get off on tyrannizing their fellow citizens.


    Too late ,eams dead (5.00 / 1) (#8)
    by koshembos on Tue Sep 20, 2011 at 01:36:17 AM EST
    The claim that "it is too late" make very little sense for the economy. When a patient dies, additional steps are too late. The American people is suffering, but is not dead.

    Obama will not rescue us; he became holier than Krugman in the last two weeks just because he wants to be reelected. It is not going to be one of the 17th century figures that are running for the Republican presidential candidacy.

    Judis point about the depression does not make much sense either. It is wrong and and pointless. Obama is a con man with the talent to run a small town supermarket. But one day, may be 5 years from now, a liberal leader will rise and start the country of the way back.

    Some of us are saying it is too late (none / 0) (#11)
    by Militarytracy on Tue Sep 20, 2011 at 07:52:56 AM EST
    to avoid a Depression, I never give up on the people.  The downward spiral of unemployment has started though.  And even while it is ongoing our leaders are still arguing about cutting.  If they cut anything at this point it only leads to more unemployment.  They can't stop talking stupid and demanding solutions that are not solutions to our problems now, they can't stop believing that if they fix the balance sheet the confidence fairy will eventually fix everything.  We are in the unemployment downward spiral that was key during the Great Depression.

    If the GOP's penchant for spending cuts (5.00 / 2) (#10)
    by Anne on Tue Sep 20, 2011 at 07:14:47 AM EST
    is hard to understand, imagine how incomprehensible it is for many of the rest of us to be seeing the New Democrats - led by Obama - jumping of their own volition onto that particular bandwagon, and doing it with much enthusiasm; when Democrats are pushing for more cuts than Republicans, something's seriously wrong.

    Obama has always known what it is that Democrats want - and have expected over the course of his term; he's also been well aware of what some of the smartest economic minds - that don't have a Wall Street/banking industry allegiance - have been saying all along.  And he's also had the lessons of history - including what has been happening in Europe - most of which he has chosen to ignore, believing, I guess, that under his so-called leadership, magic can happen where it has never happened before.

    Obama isn't telegraphing this new message because he's decided we're right, or the economists are right, or that maybe Hoover got it wrong, he's doing it because he sees it as his best path to victory; hey, if he can't govern like a Democrat, he can just play one on the campaign trail - he'll be all over the media saying all the right things, and maybe enough people will buy into it that it will get him another four years to keep governing from his comfort zone - which is not even in the same zip code as Democratic, liberal or even progressive.  And maybe he can kill the Democratic brand once and for all.

    I hope you enjoy the contrast Obama's drawing between Democrats and Republicans on the campaign trail, because when and if he is re-elected, you won't see that again.

    Hoover (none / 0) (#5)
    by Abdul Abulbul Amir on Mon Sep 19, 2011 at 11:16:13 PM EST

    Hoover increased spending and substantially increased tax rates.  Obama is Hoover II.

    Hoover cut government spending (none / 0) (#6)
    by MO Blue on Tue Sep 20, 2011 at 12:45:08 AM EST
    Hoover and the Republicans turned to cutting government spending and raising taxes on the assumption that a government, like a business, should not respond to hard times by going further into debt. In a news conference in December 1930, Hoover declared, "Prosperity cannot be restored by raids upon the Public Treasury." In fiscal year 1933 (which began in June 1932), federal spending actually decreased. By March 1933, when Franklin Roosevelt took office, the unemployment rate had climbed to 24.9 percent from 3.2 percent in 1929.

    Sounds like today's refrain that insists (none / 0) (#7)
    by caseyOR on Tue Sep 20, 2011 at 01:16:08 AM EST
    the government budget is like a family's budget, and so we must all tighten our belts.

    You know, that quote (I am paraphrasing ) that says those who do not learn from history are doomed to repeat it seems ever more applicable to our current problems.

    Why is this happening? Bernanke is supposed to be an expert on the Great Depression. Is he intimidated by Geithner and his merry band of Wall St. thugs? Is he afraid they'll give him the Brooksley Born treatment? Or is Bernanke of those experts who is knowledgable about his immediate area (Great Depression) but blind to how that plays out in the real world?

    I don't know, but I am getting tired of all theses Ivy League graduates and faculty getting it so consistently wrong. So much for that exclusive and vaunted education.


    Beginning to think that they are in no (5.00 / 1) (#9)
    by MO Blue on Tue Sep 20, 2011 at 01:38:52 AM EST
    hurry to fix things for ordinary folks.

    This economic crisis provides widespread opportunities for the Masters of the Universe to push through an agenda that will continue to drive down wages, provide free labor to companies, produce a compliant work force, force people to pay for health insurance that will not provide care and allow massive transfer of funds from the poor and the middle class to the mega rich and push through laws that deprive people of their constitutional rights and provide the government with more avenues to keep the peons in line.  


    They really can't fix things (none / 0) (#13)
    by Militarytracy on Tue Sep 20, 2011 at 08:00:15 AM EST
    the way they have decided to play this out.

    Bernanke came to believe in (none / 0) (#12)
    by Militarytracy on Tue Sep 20, 2011 at 07:59:22 AM EST
    the high wire act that has become shadow banking.  He argued and fought for deregulation for years and years because he wanted to believe that a lack of regulation had nothing to do with the Great Depression.  He was wrong, but how can he embrace all that at this point?

    Many people have studied things only looking for certain items in the big picture that they wanted to see, in order to support things that they wanted to believe.


    You are mistaken (none / 0) (#15)
    by Abdul Abulbul Amir on Wed Sep 21, 2011 at 01:08:42 PM EST

    Government spending rose every year from 1928 to 1933. It rose both in dollar terms and as a percent of GPD.  

    Also like Hoover, who increased marginal income tax rates from 25% to 65%, Obama wants to increase taxes on those most likely to invest in new jobs.