We’ve been revisiting some familiar territory lately, looking back at the crash of 2008, the response to it, and the slow recovery in the years since. Rob wrote about Obamanomics the other day, conceding that no one knows what it is. The discussion of just about anything in national life tends to morph into an argument about Obama, but I think that distorts our understanding.
Obama has had some economic policies he has talked about, and he called some economic shots early in his first term. But Obama hasn’t been the sole author of economic policy. For while he wanted more government spending to stimulate the economy, after 2010, he didn’t it. Moreover, government spending at state and local levels was dramatically reduced.
Paul Krugman offers the graph above, explaining that “it’s worth considering just how unprecedented US austerity has been. Look at total government spending — federal, state, and local — and correct it for inflation, as measured by the core personal consumption expenditures deflator (the Fed’s preferred measure). (It doesn’t matter much which measure you use, but this one has less noise). Smooth it out by looking at three-year changes. Here’s what you get.”
What you get is more proof that the Austerians, not the Keynesians, have been running fiscal policy the last four years, and that austerity doesn’t work.
Ben Bernanke came back to this theme over and over again at his final press conference Wednesday. The Fed has used every monetary policy tool available to pump up the economy, he said, but “on the whole, except for in 2009, we’ve had very tight fiscal policy. People don’t appreciate how tight fiscal policy has been.” He noted that government employment is down 600,000 jobs from the trough of the recession, and after the previous recession, the government had added 400,000 jobs by this point.
It’s not all that complicated. When you’re trying to reduce unemployment, it doesn’t help to create more of it by laying off hundreds of thousands of government workers. When you want more money circulating in the economy, you don’t take money out of the household budgets of hundreds of thousands of families.