Monday, August 10, 2009

Back from the Abyss

Paul Krugman says that the economy, by no means in great shape, is doing better, and it’s all thanks to Big Government.

Probably the most important aspect of the government’s role in this crisis isn’t what it has done, but what it hasn’t done: unlike the private sector, the federal government hasn’t slashed spending as its income has fallen. (State and local governments are a different story.) Tax receipts are way down, but Social Security checks are still going out; Medicare is still covering hospital bills; federal employees, from judges to park rangers to soldiers, are still being paid.

All of this has helped support the economy in its time of need, in a way that didn’t happen back in 1930, when federal spending was a much smaller percentage of G.D.P. And yes, this means that budget deficits — which are a bad thing in normal times — are actually a good thing right now.

In addition to having this “automatic” stabilizing effect, the government has stepped in to rescue the financial sector. You can argue (and I would) that the bailouts of financial firms could and should have been handled better, that taxpayers have paid too much and received too little. Yet it’s possible to be dissatisfied, even angry, about the way the financial bailouts have worked while acknowledging that without these bailouts things would have been much worse.

The point is that this time, unlike in the 1930s, the government didn’t take a hands-off attitude while much of the banking system collapsed. And that’s another reason we’re not living through Great Depression II.

If the GOP had had their way, we’d probably be a lot worse off. With a few notable exceptions, nearly every Republican voted against the stimulus packages, and those that did were pilloried by the right-wing and bigmouths on the radio. If the economy crashes, they reasoned, well, that’s the way the cookie crumbles; we can’t spend our way out of debt, blah blah blah. (But of course we can spend our way into a war….)

All in all, then, the government has played a crucial stabilizing role in this economic crisis. Ronald Reagan was wrong: sometimes the private sector is the problem, and government is the solution.

And aren’t you glad that right now the government is being run by people who don’t hate government?

It’s way too early to say the recession is over, and Dr. Krugman notes that we will still have months of high unemployment. But I also get the feeling that the biggest reason the Republicans were against the recovery efforts was because it made the Democrats and President Obama look like they actually knew what they were doing, and that doesn’t poll well for them.