A Sum of Zeroes?

In his column this week, Paul Krugman called the economic policies of President Obama's first term "far from adequate." And judging by what we heard in the President's speech on Thursday, that's likely to continue.

After President Obama's speech, Matt Yglesias summarized the President's economic policies as basically giving up on demand-side economics. Despite his knowledge of a very bad jobs report coming out on Friday, there was no mention of any sort of aggressive fiscal or monetary policy. Indeed,  he did much the opposite; he emphasized raising taxes, cutting spending, and balancing the budget. And his proposed solutions to our economic problems were only long-term ones—improving access to education, for example. These fiscal and structural reforms are important for the long-run health of the economy, but, as Keynes famously noted, there's one small problem with the long run....

What about the near-term? As Paul Krugman frequently points out, there is an incredible human and social toll to delaying our economic recovery. Too many people have been out of work for too long, and the longer we wait to jump-start the economy, more and more people—from students on up—will never acquire the skills they need for a long-term career. These days, when we get the monthly jobs reports, unemployment only goes down because people stop looking for work. The human costs of the Great Recession are enormous, and we'll be feeling their effects for a generation to come.

Boosting near-term economic growth requires aggressive policy, both fiscal and monetary. With real interest rates at or below zero, this is the perfect time to borrow money to engage in massive fiscal stimulus. On the monetary side, more aggressive quantitative easing coupled  with higher inflation tolerance could reduce real interest rates and further spur growth.

So why aren't we doing it?

Let's start with two assumptions. First, let's assume that "Krugmanomics"—the Keynesian view of the world—is, as a practical matter, correct: the sluggishness of the economy is being caused by a severe lack of aggregate demand, and boosting aggregate demand would jump-start the economy. Massive government-funded infrastructure projects, a bailout of underwater homeowners—name your favorite demand-side stimulus, and we should do it. Second, let's assume that President Obama—a smart man with smart advisors—knows this and understands this. So why was his speech on Thursday so fundamentally anti-Keynesian?

The obvious answer is that the Republican Party has made Keynesian economics politically unpalatable. But this, in some respects, merely begs the question. Why is the Republican Party so anti-Keynesian? Generally, Republican anti-intellectualism has an ulterior motive. Republicans reject science when it hurts their donors (e.g. global warming and energy policy), but economic growth would certainly help the standard Republican constituency, so that's not a good enough reason. Republicans reject science when it interferes with religious convictions (e.g. evolution, contraception, etc.), but that doesn't seem to apply in this case, either. The most cynical view of things is that Republicans see the ouster of President Obama as such an important goal that they are willing to sacrifice American jobs and lives to accomplish it, but this attributes to Republicans in general a level of malice that I am unwilling to believe.

So, what's the issue? Partially, the problem is that this is a very complicated subject. I have devoted a great deal of time in the past four years to reading and listening to discussions of economics, re-reading my college macroeconomics textbook, and generally trying to understand the economic issues that face us. And even so, I am no more than a novice when it comes to macroeconomics. So, I can't blame most people for not understanding the issues. While I am willing to attribute malice to people like John Boehner or Mitch McConnell, I think the average Republican Congress is simply not smart enough or educated enough to grasp the issues and just does what the leadership says.

But the problem is that the Republicans have won. In the face of the most pressing problem facing America today, Republican opposition to basic economic principles has increased the misery of American families. Meanwhile, because the average voter has little capacity for understanding the debate, the Republicans have convinced many Americans that President Obama's policies have failed, despite the fact that the Republicans are the ones responsible for that failure.

So what's the solution? Democracy seems to have failed us, but it does not seem that there is any better solution. As Winston Churchill (a Nobel Prize–winner, it turns out) once noted, democracy is the worst form of government—except for all of the others.