John Boehner said Tuesday the Republicans got “90 percent of what we wanted” from the budget deal. So presumably he and his colleagues are willing to take responsibility for some 450 points of today’s mammoth 513-point drop in the Dow Jones Industrial Average.I find it incredible but those on the right see a world in which debt is the problem and they want governments to shrink. They think austerity is the answer. They look at the lessons of the Great Depression and say "if only Herbert Hoover had 8 more years he would have fixed things". Instead FDR came in and used deficit spending and enlarged social programs to help get people out off the ditch. The Republicans and Hoover are convinced that this interfered with "entrepreneurial spirit" and that "given enough time" the tight-fisted Hoover policies would have created a robust economy.
I’m being a bit facetious – but only a bit. It’s always dangerous to read too much into one day’s move in the stock market.
Yet the stock sell-off – not just today’s, but that of the last days – cannot be easily dismissed. It marks Wall Street’s largest losing streak since 2008.
Republicans repeatedly assured the nation that once the debt-limit deal was done – capping spending, cutting the budget deficit, and getting “90 percent” of what they wanted — the economy would bounce back.
Just the opposite seems to be happening.
Call it the Republican’s double-dip recession.
Now that the deal is done, Obama and the Democrats will have a much harder time passing anything close to the stimulus necessary to breach the gap between what consumers (who are 70 percent of the economy) are willing to spend and what the economy can produce at or near full-employment.
Not incidentally, the Commerce Department’s revised data for what happened to the economy in 2008 and 2009 shows the drop to have been far greater than had been supposed. The economy plunged 8.9 percent in the fourth quarter of 2008 – the steepest quarterly decline in more than half a century. And in 2009 household buying declined almost 2 percent (compared with a previous estimate of 1.2 percent). That’s the biggest contraction in almost sixty years.
This means the original stimulus should have been much larger in order to offset the drop. With cash-starved state and local governments simultaneously scaling back their own spending, the federal stimulus needed to be even bigger.
So much for Republican claims that the original stimulus “didn’t work.” Of course it didn’t, given the size of the slide.
I look at the world and say "Hoover had 3 years and things only got worse under him" and "austerity doesn't work". It is clear to me that John Maynard Keynes got it right. It is clear that when private sector spending disappears you have to substitute public spending or your economy will shrink.
The only problem with Keynesianism is that it never got a fair try out. Clinton was going the Keynesian thing of running up a surplus during good times, but Bush and the Republicans came along and said "give the money back to the people" so when the Little Depression hit, there was no surplus. Now the idiot Republicans use this very fact to claim that no stimulus is possible and austerity is the only path to prosperity. But that is like saying refusing to eat is the way to put on weight. It isn't logical.
But ideologues don't see the world. They see their prejudices reflected back at them because they peer at the world through their ideological eyeglasses.
Robert Reich points at the policies that haven't been tried and need to be implemented:
We need a bold jobs bill to restart the economy. Eliminate payroll taxes on the first $20,000 of income for two years. Recreate the WPA and the Civilian Conservation Corps. The federal government should lend money to cash-strapped states and local governments. Give employers tax credits for net new jobs. Amend the bankruptcy laws to allow distressed homeowners to declare bankruptcy on their primary residence. Extend unemployment insurance. Provide partial unemployment benefits to people who have lost part-time jobs. Start an infrastructure bank.