Rock, meet hard place. Despite the urgent need to pull the United States out of the economic doldrums, economists and politicians are stuck on the question of the best policy. The stimulus package has failed to inspire widespread confidence in political leaders and voters, especially in light of recent jobless numbers. These deficit-spending doubters "understand something that is hard to quantify" writes David Brooks:
Deficit spending in the middle of a debt crisis has different psychological effects than deficit spending at other times. In times like these, deficit spending to pump up the economy doesn't make consumers feel more confident; it makes them feel more insecure because they see a political system out of control. ... It doesn't make political leaders feel better either. Lacking faith that they can wisely cut the debt in some magically virtuous future, they see their nations careening to fiscal ruin.
The New York Times columnist claims to have found a middle ground between full-tilt stimulus spending and radical deficit reduction. "We are exiting a period of fiscal stimulus and entering a period of fiscal consolidation," declares Brooks. "The challenge for the United States requires reducing deficits while at the same time making the welfare state more efficient, boosting innovation in areas like energy, and spending more money on growth-enhancing sectors like infrastructure." Economic bloggers are split as to whether Brook's column offers an accurate, compelling picture.
- 'One of My Favorite David Brooks Columns' declares Tyler Cowen in his blog, Marginal Revolution. "There are, of course, ways to explain these other histories," writes Cowen. "The point is not that aggressive fiscal policy is always bad. The point is that there are plenty of coherent models where fiscal consolidation is better than fiscal expansion. "Lack of confidence in a nation's fiscal future" is a key condition for many of those models to hold. Is that not possibly the case today?"
- I'm Not So Sure notes Ezra Klein. For Klein, Brooks glosses over some important trade-offs that affect the psyche of average Americans. "Small businesspeople might be unnerved by deficits, but they're also unnerved by GDP contraction," notes Klein. "A small coffee shop might not like government spending in the abstract, but they really don't like closing because there are no more construction workers around to buy coffee, and so they may quite like the effect of deficit-financed tax credits for home buyers." Klein asserts that the issue of a sound economic policy has nothing to do with deficits, but rather "whether they like what would happen in the absence of countercyclical deficit spending even less."
- You Missed Something The Atlantic's Derek Thompson evaluates Brook's theory. "Is it possible that deficit spending is scaring consumers and small businesses? Absolutely. Confidence in a nation's finances impacts business decisions. Is it also possible that 16 percent underemployment, a slow consumer recovery following massive debt overhang, a devastated real estate market, and a stock market swaying to the rhythms of a wobbly euro zone is also scaring consumers and small businesses? Absolutely. Brooks doesn't mention it." Brook's explanation is a little too simple for Thompson. "There are so many factors in a recovery besides government spending levels. Consider Sweden, whose remarkable escape from debt in the 1990s -- which included both significant tax increases and spending cuts -- was chiefly driven by exports that coincided with the U.S. consumer experiencing one of the greatest economic runs in modern history. The spending cuts might have helped. But exports might have helped more."
- Get Out of the Armchair The Economist's Ryan Avent isn't totally satisfied with Brook's solution to America's problems. "The stimulus package itself has not been a big contributor to current deficits, which are primarily due to the revenue shortfall associated with a deep and painful recession," writes Avent, attempting to dismantle the relationship between economic stimuli and deficits at the heart of Brooks' thesis before attacking the columnist himself. "This kind of armchair psychologising is Mr Brooks' stock and trade. I have to say, I find it annoying and logically wanting ... The column concludes with a plea to cut middle-class entitlement spending and invest in infrastructure. And I certainly hope that America takes steps over the next decade to slow growth in health spending, to address structural obstacles to growth, and to invest in public goods like infrastructure and basic research. Those steps, alongside some tax reform, will go a long way toward fixing the long-run budget picture, which is all anyone should really be worried about."
- This Is About Government, Not the Economy sighs Left Coast Rebel. "The professorial progressive-statist leadership today is too stupid to understand the above example in bold. Essentially that is what the Tea Party movement is all about - a government that has grown to be big enough that it can take it all away. Massive trillion dollar 'stimulus' bills that are grab-bag giveaways that future generations will pay for, endless bailouts and crippling debt."