Nobel laureate Paul Krugman explains why the the neo-Hooverite drive to balance budgets in a recession would be disastrous for our already-failing economy:
No modern American president would repeat the fiscal mistake of 1932, in which the federal government tried to balance its budget in the face of a severe recession. The Obama administration will put deficit concerns on hold while it fights the economic crisis.
But even as Washington tries to rescue the economy, the nation will be reeling from the actions of 50 Herbert Hoovers — state governors who are slashing spending in a time of recession, often at the expense both of their most vulnerable constituents and of the nation’s economic future.
Think about it: is America — not state governments, but the nation as a whole — less able to afford help to troubled teens, medical care for families, or repairs to decaying roads and bridges than it was one or two years ago? Of course not. Our capacity hasn’t been diminished; our workers haven’t lost their skills; our technological know-how is intact. Why can’t we keep doing good things?
It’s true that the economy is currently shrinking. But that’s the result of a slump in private spending. It makes no sense to add to the problem by cutting public spending, too.
In fact, the true cost of government programs, especially public investment, is much lower now than in more prosperous times. When the economy is booming, public investment competes with the private sector for scarce resources — for skilled construction workers, for capital. But right now many of the workers employed on infrastructure projects would otherwise be unemployed, and the money borrowed to pay for these projects would otherwise sit idle.
And shredding the social safety net at a moment when many more Americans need help isn’t just cruel. It adds to the sense of insecurity that is one important factor driving the economy down.
And once the crisis is behind us, we should rethink the way we pay for key public services.
As a nation, we don’t believe that our fellow citizens should go without essential health care. Why, then, does a large share of funding for Medicaid come from state governments, which are forced to cut the program precisely when it’s needed most?
An educated population is a national resource. Why, then, is basic education mainly paid for by local governments, which are forced to neglect the next generation every time the economy hits a rough patch?
And why should investments in infrastructure, which will serve the nation for decades, be at the mercy of short-run fluctuations in local budgets?
That’s for later. The priority right now is to fight off the attack of the 50 Herbert Hoovers, and make sure that the fiscal problems of the states don’t make the economic crisis even worse.
Anybody who has sat through economics 101 knows that cutting taxes and raising government spending are expansionary fiscal policies. Obama has pledged to do both, launching a two-front offensive against our flagging economy.
History shows us that deficit spending will be a key part of resolving our current economic downturn. Balancing the budget is a luxury, an option only available when there are enough spare funds to put toward our deficit. At the moment–and in the forseeable future–there aren’t, since we need the federal government to help keep the American people afloat.
I don’t doubt that Republicans, now out of power, are suddenly going to start caring how much the federal government spends and how big the deficit is. But we should resist their siren song of neo-Hooverism. The federal government can do a lot of good, partiuclarly in times of severe economic crisis. Republicans want to hamstring the federal government, preventing them from solving this mess, thus accomplishing two goals: one, proving the Reaganite dogma that the federal government is always bad, and two, prolonging the economic crisis long enough so that they can blame the Obama administration for it.
For the GOP to make a comeback, they need a crisis they can blame on Obama. They see the economy as an opening, where they can use reasonable-sounding appeals to balance the budget in order to criticize the Democratic recovery plan. But in this economy, Hooverism is not reasonable–it’s the most disastrous course we can take, and we should see hollow peans to a balanced budget as exactly what they are: shallow attempts to keep the economy bad through the 2010 elections.