Paul Krugman recently pointed out that free-market fundamentalists have been wrong about everything -- yet quite incredibly they now dominate the American political scene more thoroughly than ever!
But how did this happen? Clinton raised taxes and presided over spectacular job growth; the Bush who followed him cut taxes and presided over anemic growth (even before our economic crisis) -- so howinhell did we end up with bipartisan agreement on even more tax cuts?!
The answer from the right is that the economic failures of the Obama administration show that "big-government policies" don't work. (But what "big-government" policies could those possibly be?!)
The fact is that the Obama stimulus -- which itself was almost 40% tax cuts -- was far too cautious, and far too small, to turn the economy around. And that's not 20-20 hindsight: many economists, including Krugman, warned from the beginning that the plan was grossly inadequate. (Obama asked for a stimulus that was four times larger than the one Congress granted him.) So what kind of "big government policy" was this? (The allegation is ridiculous.)
As Krugman pointed out: A policy under which government employment actually fell, under which government spending on goods and services grew more slowly than during the Bush years, hardly constitutes a test of Keynesian economics!
Granted that in the face of Congressional skepticism about government, it wasn't possible for President Obama to get more. But even if that's true, it only demonstrates the continuing hold of a failed doctrine over our politics.
It's also worth pointing out that everything the right said about why Obamanomics would fail was wrong. Two examples:
- For two years we've been warned that government borrowing would send interest rates sky-high; in fact, rates have stayed consistently low by historical standards.
- For two years we've been warned that inflation, even hyperinflation, was just around the corner; instead, disinflation (deflation) has continued, albeit around a comparatively small core of inflation -- inflation that is now at a half-century low.
So why are we letting ourselves be ruled by what can only be
called "zombie economics"?! (Reaganomics has been thoroughly discredited -- it's essentially dead -- yet in some sense it still rules American politics.)
Part of the answer, surely, is that people who should have been trying to slay zombie ideas have tried to compromise with them instead. And this is especially true of the president.