Matthew Yglesias: The Problem With The Economy? Too Much Fiscal Conservatism

Yes, really. That’s what he’s arguing,

If fiscal stimulus is so great, then why hasn’t the Obama administration’s massive stimulus program helped improve the economy? Well, via Mark Thoma, the answer is that there hasn’t been any net fiscal stimulus, all the Obama administration’s efforts plus the automatic stabilizers have done is mitigate the contractionary impact of state and local policy…

…Looked at comprehensively, what the country has been implementing is a mild version of the conservative policy prescription for boosting growth–fire bureaucrats and trim spending.

That first sentence explains the dilemma for the Left. Conservatives almost unanimously opposed Obama’s trillion dollar stimulus because we said it would add to the debt without spurring the economy. On the other hand, liberals admitted it would run up the deficit, but said we had to do it to get the economy moving and create jobs.

So, who was right? Conservatives. Who was wrong? Liberals.

Now, a double dip recession is starting to look even more likely. In fact, per Arthur Laffer’s very plausible analysis, the only thing that may have prevented us from going back into recession already is the fact that the Bush tax cuts expire next year and are driving economic activity that would normally occur in 2011 into 2010.

The problem here is that liberals mistakenly believe that the government can drive the economy despite the fact that Keynesian stimulus of the sort that Obama tried has failed over and over again.

But, but, but…liberals say, we’re borrowing money from other countries and spending it now. How can it not spur economic growth?

Simple: People who think that way are only looking at one part of the equation. Yes, more money is being pumped into the economy. However, the increased amount of debt is making people very nervous and worried that taxes are going to go up. Moreover, taxes ARE increasing. Government is expanding rapidly. Expensive regulations:  are:  increasing. Producers are being demonized and attacked. Businesses are scared to hire new workers because they’re afraid of what the government will do next.

There’s no magic formula for “fixing” a rotten economy, but we should have learned by now that some things work better than others. You want to improve the economy? Get the government out of the way. Cut taxes, slash burdensome regulations, be fiscally responsible, and stop trying to turn American into Venezuela. Implement those policies and the economy will start to turn around.

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