Saturday, September 28, 2013

Just Stop Cutting Spending

It's a shame that we have to keep repeating the economic fact - proven repeatedly over the last 80 years - that government spending grows the economy. The more people struggle because of high unemployment and high poverty, the more government needs to spend to create jobs and eliminate poverty.

We have to keep repeating that fact because for the last 80 years, conservatives have been repeating the lies - proven to be lies repeatedly over the last 80 years - that government spending on jobs, supporting the middle class and raising people out of poverty harms the economy.  Although government spending on handouts to rich people and corporations and on warmaking is always good.

That Wall Street is choking on record profits while Main Street is still starving is entirely the consequence of cutting government spending.  The fault entirely of austerity.


Krugman looks at the numbers and tells us what he sees: the moribund American economy is due to austerity:
[H]ow much of our depressed economy can be explained by the bad fiscal policy?

To a first approximation, all of it. By that I mean that to have something that would arguably look like full employment, at this point we wouldn’t need a continuation of actual stimulus; all we’d need is for government spending to have grown normally, instead of shrinking.

Here’s a comparison of two series. One is actual government purchases of goods and services since the Great Recession began (this is at all levels; most of the fall has been state and local, but the Federal government could have prevented that with revenue sharing). The other is what would have happened if those purchases had grown as fast as they did starting in the first quarter of 2001, i.e., in the Bush years.

As you can see, the gap is large and has been growing rapidly; it’s currently at about 400 billion 2009 dollars, or more than 2 1/2 percent of GDP. Given reasonable multipliers, this suggests that real GDP is somewhere between 3 and 3.75 percent lower than it would have been without the austerity. And given the usual Okun’s Law rule of half a point of unemployment per point of GDP, this in turn says that without the austerity we’d have an unemployment rate well under 6 percent, maybe even under 5.5 percent.

I don’t want to pretend to spurious precision here. Instead, I just want to make the point that given what we know and have learned about macro these past five years — and given the modest recovery that has taken place — we’re now at a point where, to repeat, to a first approximation the depressed state of the economy is entirely due to destructive fiscal policy.
Read the whole thing for Digby's revelation of just who these dastardly austerians are.

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