stimulus

Fraudulence of the Fiscal Hawks

In 2011, House Republicans, led by Paul Ryan, issued a report full of dire warnings about the dangers of budget deficits.

.. Citing the horrors of big deficits, Republicans refused to raise the federal debt ceiling

.. How big were these horrifying deficits? In the 2012 fiscal year the federal deficit was $1.09 trillion. Much of this deficit, however, was a direct result of a depressed economy

.. If anything, we should be using this time of relatively full employment to pay down debt, or at least reduce it relative to G.D.P.

.. They are providing more stimulus to an economy with 4 percent unemployment than they were willing to allow an economy with 8 percent unemployment.

.. But let’s be serious: Their views haven’t changed at all. They never really cared about debt and deficits; it was a fraud all along. All that has changed is the fact that a Republican now sits in the White House.

.. How do we know Republicans were never sincere about the deficit? It was obvious, even at the time, to anyone who looked at their fiscal proposals. These proposals always involved giant tax cuts for the wealthy — funny how that worked — offset by savage cuts in social benefits.

.. even at the peak of their deficit-hawk posturing, all Republicans really had to offer was redistribution from the poor to the rich.

.. pretending to care about the deficit served several useful political purposes. It was a way to push for cuts in social programs. It was also a way to hobble Obama’s presidency.

.. Republicans weren’t just vehemently opposed to fiscal stimulus; they were also vehemently opposed to monetary stimulus. Basically, they were against anything that might help the economy on President Obama’s watch.

.. imposing austerity in a depressed economy, then running up the deficit when we’re already near full employment

The Trump Recession is coming

History suggests that the next recession is not far off. The current expansion, though relatively weak, has been steady since June 2009, making this the third-longest upward climb on record. Juiced by the tax cut, the United States is on track to record 107 months without a recession in April, passing the boom of the 1960s in duration. That will leave only the decade-long, 120-month run in the 1990s — when the end of the Cold War met the rise of the Internet to create a Golden Age for the U.S. economy — to be beaten.

.. Trump might ask George H.W. Bush what it’s like to have a recession arrive during a reelection campaign.

.. By delaying the inevitable, Trump’s tax cut may prove to be a double-edged sword. The recession that might have arrived in 2018 and passed like a summer storm will likely be shoved back a couple of years. If the piper presents his bill in the midst of Trump’s reelection campaign, the president better look out, because Democrats going back to John F. Kennedy score their wins when Republican presidents stumble into late-term economic woes.

.. Perhaps Trump should have followed Ronald Reagan’s example, accepting a recession early in his first term and trusting the recovery would come in time to lift him to reelection. That option is gone now. Having juiced the economy with tax cuts, Trump must either find a way to skim the froth — prod the Fed for rapid rate increases? unsettle the world with ill-advised trade wars? — or cross his fingers and power through. My prediction is that he’ll throw open the government’s liquor cabinets and pour out every stimulating drop he can get his hands on in a desperate effort to keep the party going through 2020.

What a morning-after that is likely to be.

The trouble with Democrats’ infrastructure job promises

Their $1 trillion construction spending plan is supposed to create 15 million jobs. Don’t count on it.

In 2011, the unemployment rate for construction workers hovered around 15 percent, while the overall unemployment rate was around 9 percent. So there were plenty of unemployed workers who would jump at a chance for a job rebuilding a road or fixing up a school. That’s not the case today: The unemployment rate for construction workers has plummeted to around 5 percent, while the overall unemployment rate is 4.7 percent. Those numbers are near what economists consider “full employment”—any lower, and inflation could start to rise. In fact, in the construction industry itself, experts are more worried about a shortage of workers than a surplus.

.. Second, if the Democrats’ infrastructure proposal does provide a huge stimulus to the economy, its effects would likely be offset—deliberately—by the Federal Reserve. In 2011, the Fed had set interest rates at essentially 0 percent. If the government had launched a major infrastructure plan, the Federal Reserve would surely have welcomed it—in fact, Ben Bernanke, then the chair of the Fed, had been imploring Congress to do more to stimulate the economy.

.. That doesn’t mean a trillion-dollar infrastructure plan is a bad idea. There are good structural reasons to rebuild America’s roads, bridges and airports. And it’s possible that a future economic crisis will cause millions of construction workers to lose their jobs, forcing the Fed to drop its interest rate back to zero.