TW: Below (and in a follow-up post) is a comparison of an ideologically myopic politicians trying to articulate economic policy versus an actual economist explaining our situation. I keep pounding the table on this as it is crucial for our nation (and the world) to move beyond supply side ideology ASAP, else we may end up in a very bad place (we may end up there anyway but we should at least not be stupid about it).
On one hand you have John Boehner grandstanding about adopting contractionary fiscal policy (e.g. a spending freeze) amidst a MASSIVE demand contraction. This would literally be akin to the policies followed by Herbert Hoover and his administration in 1929-1930. We are at risk of falling into a very destructive DEflationary cycle yet many Republicans claim to fear inflation. If the real problem is deflation and you initiate policy to fight inflation then bar the door, you will ensure massive deflation.
Then you have another republican, Paul Ryan, fretting about inflation, whilst in reality we are amidst a dangerous DEflationary spiral. He then shifts illogically to talking about tax cuts (this is what happens when you are myopic). If inflation were the real worry then tax cuts would add to the risk as they are expansionary fiscal policy.
So Boehner is arguing for contractionary policy (deflationary) and Ryan is arguing for expansionary fiscal policy (inflationary) even though he worries about inflation. They would have fit well in a Hoover Administration.
Unfortunately the politicians gets editorial space in the NYT and elsewhere, the economist (while appearing infrequently on cable business networks, he is not a media hog of the sort usually trolling CNBC etc.) generally toils in anonymity.
From Associated Press:
"The top Republican in the House is seizing on the latest spike in unemployment to call for a freeze on government spending and to urge President Barack Obama to veto a $410 billion spending bill.
Rep. John Boehner, R-Ohio, said the jump in unemployment to 8.1 percent and the loss of 651,000 jobs in February is a sign of a worsening recession that demands better solutions from both parties."
From Congressman Paul Ryan (Republican Wisconsin) in Int'l Herald Tribune:
"...And now the package threatens a return to the kind of stagflation last seen in the 1970s...
...Combine high inflation and high unemployment and you have stagflation. Hindsight shows how the pain of the late 1970s and early 1980s could have been avoided, yet we're now again planning to borrow and spend - and raise taxes - as President Jimmy Carter did
...To prevent stagflation, we should enact fiscal policy reforms that apply the lessons we learned from the 1970s. Keynesian stimuli based on borrowing and spending have not worked and will not work. One-time rebate checks do not increase the incentive to expand business operations and create jobs. But marginal cuts in tax rates do. We also must lower our job-killing corporate income tax rate, the highest in the industrialized world after Japan, and ease business worries by making it clear that there will be no tax increases in 2010
...Finally, we should tackle the entitlement crisis, which will be a $56 trillion liability that we have not figured out how to pay for. As members of the baby boom generation retire, and health care costs continue to spiral out of control, Social Security, Medicare and Medicaid will collapse. By reforming those programs and bringing their costs down to sustainable levels, we will show the world and the credit markets we are serious about reducing our debt."
TW: btw Jimmy Carter did not run big fiscal deficits and was not spendthrift. The big fiscal deficits started with Reagan, the only program Carter spent relatively heavily on was the start of the defense build-up that Reagan took to new heights. Carter's economic problems were related to oil prices going through the roof and his inherited Fed chairman not raising interest rates fast enough. Recall though that Carter appointed Paul Volcker, the only Fed chairman left with a stellar reputation. Ryan really has no idea what he is talking about. I agree the entitlements need to be addressed but they are not going to collapse. That is merely scare talk.
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