Economics writer David Leonhardt, who I've characterized as the paper's neo-liberal economic conscience, sets the table for the Times again in a front-page "Economic Scene" column on Wednesday, "Pulling Back, Amid Echoes Of the 1930s." It occupies the same prominent space Liz Alderman's similarly themed, opinionated anti-"austerity" news story did on Tuesday, which in turn hit the themes of a column from all-stimulus-all-the-time Paul Krugman on Monday. (See a pattern?)
Leonhardt acknowledges the "austerity" arguments in a couple of paragraphs, but made his own Keynesian leanings apparent, and found criticism of massive federal "stimulus" on the part of "laissez-faire economists [and] Congressional Republicans" distressing, lamenting: "They're able to shout louder than the data."
The world's rich countries are now conducting a dangerous experiment. They are repeating an economic policy out of the 1930s - starting to cut spending and raise taxes before a recovery is assured - and hoping today's situation is different enough to assure a different outcome.
In effect, policy makers are betting that the private sector can make up for the withdrawal of stimulus over the next couple of years. If they're right, they will have made a head start on closing their enormous budget deficits. If they're wrong, they may set off a vicious new cycle, in which public spending cuts weaken the world economy and beget new private spending cuts.
On Tuesday, pessimism seemed the better bet. Stocks fell around the world, over worries about economic growth.
Longer term, though, it's still impossible to know which prediction will turn out to be right. You can find good evidence to support either one.
The parallels to 1937 are not reassuring. From 1933 to 1937, the United States economy expanded more than 40 percent, even surpassing its 1929 high. But the recovery was still not durable enough to survive Roosevelt's spending cuts and new Social Security tax. In 1938, the economy shrank 3.4 percent, and unemployment spiked.
Given this history, why would policy makers want to put on another fiscal hair shirt today?
The reasons for the new American austerity are subtler, but not shocking. Our economy remains in rough shape, by any measure. So it's easy to confuse its condition (bad) with its direction (better) and to lose sight of how much worse it could be. The unyielding criticism from those who opposed stimulus from the get-go - laissez-faire economists, Congressional Republicans, German leaders - plays a role, too. They're able to shout louder than the data.
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