Wednesday, January 26, 2011

Spending Private Ryan

I would give President Obama about a C on the State of the Union address. That seems to be the general reaction if this tongue in cheek dialog between Gail Collins and David Brooks typifies the response. The President still presents issues in a laundry list, as I whined about in rhyme a few months ago. While I agreed with most of the items, what was missing was a narrative of how people of modest means can lift themselves up through their own efforts, as my parents' generation did, and what changes in the economic environment the government can foster to help make this happen. The brief discussion he had about competitiveness doesn't translate well into a personal narrative. His mention that parents should turn off the TV so kids do their homework was fine on personal responsibility, but it only focused on the educational issue, not on personal responsibility in other areas, especially in how each of us manages our own debt. There was a lot that might have been said but wasn't.

The Republicans seem to have fallen into a trap that Mencken identified a long time ago:

“Complex problems have simple, easy to understand, wrong answers.”

They have a single issue - substantially reducing the Federal deficit and doing so through spending cuts rather than tax increases. They ignore in this how much private saving is happening as well as the state of the economy - still very weak. They fear the deficit only, not the Paradox of Thrift. Their mental model has the Crowding Out Hypothesis relevant, although interest rates remain abnormally low. Before the State of the Union I watched the News Hour which had a segment with the Senators from Illinois,who were to sit together while listening with the speech. Mark Kirk, the new Republican Senator, was pleasant enough in demeanor but he towed the Party line completely.

I thought it my obligation to watch the Republican response given by Paul Ryan, but I shut it off pretty soon after he uttered these lines:

Unfortunately, instead of restoring the fundamentals of economic growth, he engaged in a stimulus spending spree that not only failed to deliver on its promise to create jobs, but also plunged us even deeper into debt.

The facts are clear: Since taking office, President Obama has signed into law spending increases of nearly 25 percent for domestic government agencies — an 84 percent increase when you include the failed stimulus.

I just couldn't take it. Nobody knows whether the the stimulus worked or not, because we can't run the experiment without the stimulus to see what would have happened. That there was a realistic chance of having another Great Depression seems to be ignored by the Republicans. Ryan is hailed as the economic brains in the Republican party. But to me he is just another mouthpiece. In doing some background checking before writing this post, I found testimony Peter Orzag gave before the House Budget Committee in September 2008, four months before Obama was inaugurated as President, where he argued that the recession would lag behind the freezing up of the credit markets. It is true that the new administration low balled the forecast of the severity of the recession. But that doesn't mean the stimulus failed.

The economy needs spending now. Where will it come from?

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