I’m late to this, but I’ve been busy. It’s bad enough to address anyway.
Why are Very Respected Opinion pieces allowed, if the opinions aren’t vetted for rigor? From Mr. Brook’s NYT Op-Ed Prune and Grow I posit a question. Does Mr. Brooks even think about what he writes on paper, for salary?
This quote is one of the most ignorant things I have ever read:
…Furthermore, they understand something that is hard to quantify: 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. Deficit spending doesn’t induce small businesspeople to hire and expand. It scares them because they conclude the growth isn’t real and they know big tax increases are on the horizon.
This is categorically crazy stuff, but that’s because Brooks took almost his entire piece from Roberto Alesina’s April 2010 paper Fiscal Adjustments: Lessons from Recent History, from Harvard, so it must be right! I think Brooks misappropriates a lot from the article.
Alesina makes a lot of the 1980’s and 90’s fiscal consolidations and studies showing how such consolidations have resulted in growth in European countries. However, the recession of the 80s, and the much smaller ones in the 90s, were caused by inflation, not deflation. The studies take place from two different causes of recession and shouldn’t be compared. It makes sense that in European inflationary recessions, cutting spending of entitlements and government wages would be the most effective way to stimulative growth because it shows the government is responding to inflationary pressures, since these studies were only done in Europe, where countries have larger percentages of government workers and higher entitlement spending. Implementing such measures in the US would likely not be as effective, even in inflationary recessions – but we’re not in one of those.
So, the study isn’t performed over any deflationary period, studies only European countries, and offers fiscal tightening that was only effective for European socialist states in the 80s and 90s, none of which is pertinent to the American situation today, but what else does it get wrong? Oh yes, that fiscal consolidation is not politically damaging.
I’ll let Brooks speak for himself, it’s a repeat from the dandy up top:
It scares them because they conclude the growth isn’t real and they know big tax increases are on the horizon. 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.
There’s no relationship between spending levels and reelection. Yes Reagan got reelected in a landslide and he managed to cut non-military discretionary spending, but he raised military spending (so total fiscal contraction were less than this chart demonstrates), but how is Reagan the only model ever for conservatives? Nixon you’ll see was easily reelected with high increases in non-defense discretionary spending. And again, no president below was reelected during a deflationary recession. Only two presidents have dealt with it, FDR and Obama, and only one party has been voted out of office (both times) by not proposing enough government deficit spending during deflationary recessions, the Republicans. This tells me that consumers don’t get scared when the government spends in deficit during recessions, as there’s no electoral relationship to support it. So, I really have no idea what the fuck Brooks is talking about.
And more: Seems that the confidence of British investors has dropped to a fifteen year low after the British government enacted deep spending cuts. BBC – superior to almost all American reporting.