There are two competing theories on how to pull us out of the economic slump we’re in, but you’d hardly know it from the debate going on in Washington. Conservatives, who want us to cut our way to prosperity, keep drowning out those who think we should be pumping money into the economy by spending more on teachers, research, roads, bridges, and other public works.
The small-government, budget-cutting “austerity” advocates speak in strident, confident voices, while the proponents of more government spending — the people called “Keynesians” (after the 20th-century British economist, John Maynard Keynes) — speak in apologetic, barely audible tones, as though they’re afraid of offending someone.
President Barack Obama is the latter. He sounds defensive when he puts forward one of his anemic “stimulus” plans and is always careful to balance expenditures with money from a tax increase for the rich.
He’s even gone so far as to bring out the stale comparison equating a government in debt with families that live beyond their means. There’s only one solution for indebted households and nations, conservatives say — belt-tightening.
And that’s pretty much what Obama said last year: We’ve run up too much debt, and now we have to start tightening our belts. It was a shot into every Keynesian’s heart.
“No, no,” I wanted to shout. “That’s their argument, not yours.” Fortunately, I didn’t shout it. (When you start yelling at the television set, you’re only one step away from wearing a tag with your name and address on it, so when you go out, you can find your way back home.)
New York Times columnist Paul Krugman is a Keynesian, but not of the shrinking-violet variety. He’s a Nobel-Prize-winning economist who speaks in a loud, clear voice that irritates the heck out of conservatives. That is to say, he speaks sense.
But not “common sense.” Common sense is on the budget-cutters’ side. When your family has run up a lot of debt, cutting back on spending seems self-evidently the right thing to do. Why are governments different?
Krugman answers that as well and succinctly as anyone I’ve read.
“An economy is not like an indebted family,” he wrote a few weeks ago. “Our debt is mostly money we owe to each other; even more important, our income mostly comes from selling things to each other. Your spending is my income, and my spending is your income. So what happens if everyone simultaneously slashes spending in an attempt to pay down debt? The answer is everyone’s income falls … and, as our incomes plunge, our debt problem gets worse, not better.”
“When the private sector is frantically trying to pay down debt,” he adds, “the public sector should do the opposite, spending when the private sector can’t or won’t. By all means let’s balance our budget once the economy has recovered — but not now. The boom, not the slump, is the right time for austerity.”
Sounds good to me, but they were still teaching Keynes when I was in school.
In Europe today, apparently not so much. But there’s some indication that the hardliners are backing off from their most draconian prescriptions.
Not all conservatives are stupid, you know. The intelligent ones fear that more deficit spending in the face of a huge national debt will trigger inflation that, in the long run, will mean ruination. It’s better to let the economy crash and rebuild it from the ground up, they say.
Personally, I prefer to delay whatever long-term medicine we might need, because it’s entirely possible that we’re able to make things better now without government austerity. As Keynes, a witty man, once said of economists who counseled the long view:
“In the long run, we are all dead.”