Not so long ago, Republicans used to portray themselves as sober, economic realists. They knew how the economy worked. When you actually dug down, however, it turns out this was really a big bluff – or more accurately, a decades-long “long con”. Their solutions never really boosted the productivity of the economy, but made it vastly more unstable and more unequal. To be fair, it took a long time to figure this out in its entirety.
But they still managed to talk a good talk, and – for the most part – they were not crazy. They had a basic understanding of macroeconomics and how things like monetary and fiscal policy affected growth. No longer.
Exhibit number 1: the complete intellectual dishonesty of the Romney economists – Glenn Hubbard, Greg Mankiw, John Taylor, and Kevin Hassett. The first three at least are well-respected and have well-deserved reputations (although Hubbard lost much credibility when he had to admit taking large sums of money from the financial sector on camera in the movie, Inside Job). Which makes the complete demolition of their arguments by Brad deLong all the more stunning.
Let’s face it, there is no real mystery why the economy is performing poorly today. We are five years after a major financial crisis, and all the evidence suggests that the economy takes an awfully long time to bounce back after financial crises. America is not (ahem, ahem!) exceptional in this way either! But it’s interesting to look at the numbers. Business investment has rebounded, growing at twice the pace under Obama as under Bush. So much for the famous stranglehold of regulation! Exports, which usually track investment, have also rebounded.
So what’s holding us back? A number of things. First, residential construction is still in the tank. No surprise there – and to be honest, do we really want or need another boom driven by housing? But there’s something else too. Government spending (more technically, government purchases of goods and services) is also in the doldrums. And this is where we can blame policy. Despite the bizzaro-world scenario peddled by Fox News and the right, the government sector has been holding back growth. It is a fact that the real growth of government spending is lowest under Obama than any other postwar president. It is a fact that unemployment remains so high today in part because of the huge decline in public hiring – if Obama had followed Bush in terms of expanding the number of public sector jobs, there would be an extra 1.4 million working today, enough to reduce the unemployment rate by 1 percentage point.
So we can say the following: the recovery is so lousy because we are still struggling with a financial crisis and a legacy of private debt. This is holding down private consumption. And here, it is a huge shame that there has been no action ro restructure private debt, especially housing debt, to relieve this millstone from the necks of millions of ordinary people. As we know, this has a long tradition in both Jewish and Catholic teaching. To make matters worse, the banks were bailed out, while homeowners were sent away emtpy.
Adding to our problems is the misguided belief that fiscal austerity is the path to short-term recovery. Of course, some might argue that too much government spending crowds out private spending, but you see this in rising interests rates – and interest rates have never been lower.
Back to the Romney guys. I won’t rehash all of deLong’s points, but the whole thing is worth a read. The worst is when they deliberately misinterpret the results of other economists. One finds that policy uncertainty is holding back growth. But while these guys claim “regulatory” uncertainty, he is really talking about Republicans playing chicken with the debt ceiling and other issues. This kind of dishonesty is shocking in economists of this caliber.
Exhibit number 2: Paul Ryan. It is quite stunning that this man is being portrayed by the media as “serious” on economics. I have no doubt that Ryan is “serious” in what he believes, but all seriousness stops there! Look at his plan – he basically assumes all non-entitlement non-military government spending will pretty much wither away (is he a closet Marxist?). Plus, you cannot be serious about reducing public debt when you put forward a deficit-reduction plan that increases public debt! You cannot be serious about reducing public debt if you want to increase military spending and give massive tax cuts to the upper class. It’s also highly immoral of course, as to the extent that Ryan tries to pay for his largesse, it is by cutting programs that benefit the poor, such as Medicaid. If you crunch the numbers, up to 30 million people could lose coverage under Medicaid to pay for Ryan’s tax largesse – this could come on top of the current level of uninsured, as he opposes the Affordable Care Act.
And then there’s the fact that Ryan doesn’t even understand the basics of modern macroeconomics. When somebody like Michelle Bachman speaks on economics, people snigger. And yet when Ryan speaks, people nod earnestly. Well, here’s an emperor-has-no-clothes moment: Ryan is pretty much at the same level as Bachmann! Take this gem: he is on record as saying that raising interests rates would provide stimulus to the economy in the current circumstances. That goes against everything we know about macroeconomics, and it goes directly against people like Milton Friedman who believed strongly in the power of monetary policy. Indeed, this was the essence of his original criticism of Keynes’s analysis of the Great Depression – Friedman discounted the role of fiscal stimulus and instead argued that the single biggest mistake of the Great Depression was tight monetary policy).
But there is a worldview in which Ryan makes sense – the worldview of Ayn Rand. It seems to explain his views on monetary policy, his views on the welfare state, his views on economics in general. It is important to point out that not only are Rand’s theories deeply immoral – the are also completely unhinged economically. What Scientology is to psychology, Ayn Rand is to economics!
So remember, Paul (and the modern GOP) want to take us back to a world before the New Deal, a partly imaginary world when there was no safety net, when market outcomes were virtuous, where the lazy were punished and the industrious rewarded, where inequality was lauded and not condemned, and where the role of economic policy was not to smooth economic fluctuations but to cut the rot from the system. Yes, folks we’ve seen this before. It’s been quite a while, I admit, but we’ve seen it all before. So how can Ryan say he has rejected Rand when he still embraces this entire worldview?