Amid a general shift toward optimism on the economy, two prominent liberal economists are joining those warning that it's too soon to dial back government spending. Why? Paul Krugman and Robert Reich have been the two most prominent voices
warning against premature declarations of victory, even though Krugman was also one of the first to congratulate Big Government on its recent economic policy. Both are concerned
about one thing: jobs. With escalating unemployment, they argue that maintaining or boosting stimulus money is the best way to revive job prospects. Their cases:
We Can Afford a Stimulus--We Can't Afford Complacency In the New York Times, Paul Krugman makes a two-part argument against the creeping sense of complacency on the state of the economy.
- All is not well. Sure, he says, government "expansionary policy saved us from a possible replay of the Great Depression," but the economic outlook with regard to jobs is dismal. Projections not only "impl[y] an enormous amount of suffering over the next few years," but with "unemployment that remains that high, that long," suggest "long shadows over America's future."
- The government can and must do more. Yes, "recovery and reconstruction" spending "would worsen the government's own fiscal position. But ... conventional wisdom greatly overstates this case." His explanation:
[S]pending money now means a stronger economy, both in the short run and in the long run. And a stronger economy means more revenues, which offset a large fraction of the upfront cost. Back-of-the-envelope calculations suggest that the offset falls short of 100 percent, so that fiscal stimulus isn't a complete free lunch. But it costs far less than you'd think from listening to what passes for informed discussion.
Forget Debt: Spend Fast. Or Risk more Glenn Beck. Robert Reich's diagnosis and recommendation is nearly identical to Krugman's, but his argument is slightly different. "Unemployment," he writes, "will almost certainly [be] in double-digits next year--and may remain there for some time." An interesting side effect: "Unemployment of this magnitude and duration," writes Reich, "also translates into ugly politics, because fear and anxiety are fertile grounds for demagogues wielding the politics of resentment against immigrants, blacks, the poor, government leaders, business leaders, Jews, and other easy targets." If you think it's bad now, he says, just wait till the midterm elections.
So "[w]ho's going to buy the stuff we make or the services we provide, and therefore bring jobs back? There's only one buyer left," Reich says: "[t]he government." Concern about government debt is entirely misplaced, he argues, pointing to the remarkable payback of war debt in the 1950s.
But if government doesn’t spend more right now and get Americans back to work, we could be out of work for years. And the debt will be with us even longer. And politics could get much uglier.