Legal Commentary

The Triumph Of Zombie Economics

By Big Tent Democrat

Paul Krugman:

How, after the experiences of the Clinton and Bush administrations — the first raised taxes and presided over spectacular job growth; the second cut taxes and presided over anemic growth even before the crisis — did we end up with bipartisan agreement on even more tax cuts?

[. . . T]he Obama stimulus — which itself was almost 40 percent tax cuts — was far too cautious to turn the economy around. [. . .] A policy under which government employment actually fell, under which government spending on goods and services grew more slowly than during the Bush years, hardly constitutes a test of Keynesian economics.

We're all supply siders now. Yesterday, the NYTimes editorialized:

All other things being equal, those measures could help to raise economic growth by as much as a percentage point. All other things, however, will not remain equal.

New stimulus spending is undermined if it is offset by cuts in existing spending — and, in the next Congress, Republicans will clamor for immediate budget cuts. Senator Mitch McConnell, the Republican minority leader, praised the tax-cut deal last week, precisely because he believes it will begin to force spending cuts. John Boehner, the incoming House speaker, has called for a spending level in 2011 that is more than $100 billion lower than President Obama wanted, though he has not said which programs he would cut to achieve those savings.

So the fight has just begun, and only one thing is sure. Unless Mr. Obama finds his voice and develops a plan to rebut calls for premature spending cuts, the tax-cut deal will not do as much good as he says it will. [. . .] he needs to say “no” to spending cuts that would undermine the stimulus in the tax-cut deal[.]

There is little confidence that Obama will say no. As Krugman writes:

Right now Mr. Obama is hailing the tax-cut deal as a boost to the economy — but Republicans are already talking about spending cuts that would offset any positive effects from the deal. And how effectively can he oppose these demands, when he himself has embraced the rhetoric of belt-tightening?

The Deal was a terrible mistake.

Speaking for me only

Full post as published by TalkLeft on December 20, 2010 (boomark / email).