Monday, November 14, 2011

(Not) Defending austerity economics

Mike Konczal looks at Ezra Klein's sad defense and excuse-making for the Obama Administration's policy and political failure in What Can We Say About President Obama’s Economic Performance in Early 2010? Rortybomb 11/09/2011. One of Ezra's articles is Obama's Flunking Economy: The Real Cause New York Review of Books are not ones being encouraged by the White House (11/24/2011 issue; accessed 11/05/2011). I commented on it in Making excuses for Obama 11/08/2011. Konczal's post has links to others.

Konczal explains the basics of Obama's Herbert Hoover economics, starting from what the Administration knew at the time of Obama's 2010 State of the Union address, where he announced he would be pursuing austerity economics, including a veto threat against what he judged to be excessive spending:

President Obama announced the freeze and veto threat, and didn’t sound alarm bells [about unemployment], because he believed that the potential risks associated with not signaling to the bond market that deficit reduction was coming outweighed the reality of high unemployment and trying to expand the deficit immediately. 20+ million people not finding full-time work with certainty is bad, but just the possibility of the confidence fairy getting angry is far worse [in the austerity-economics view].

This stands in for policy more generally, and it leads directly to all the failures of Grand Bargains and two-deficits cartwheels when it came to plans for dealing with the unemployment crisis. It splits the party between those who have to argue for bond vigilantes and those who have to argue against. The deficit hawkery negates the most powerful market indicator we have for what the government should do – the interest rate. This approach puts boundaries on the range of acceptable ideas on what can be done for the economy – and places getting stimulus out the door through discretionary spending out of bounds. And meanwhile current interest rates have never been lower – they are negative in real terms for 10 years out. This was exactly the wrong call to make in early 2010.
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"It is the logic of our times
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That we who lived by honest dreams
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