Hoover v. Keynes
Posted: Monday, October 8, 2012 7:00 pm
By DOUGLAS COHN
and ELEANOR CLIFT
WASHINGTON — The just-released September unemployment rate of 7.8 percent — the lowest in four years — was anticipated a year and a half ago in our April 6, 2011 column:
President Obama let the debate over this year’s budget get away from him. It shouldn’t be about how much money to cut; it should be about spending the money that we have more wisely. This is the wrong time to pull government money out of the economy. We should be doing just the opposite, keeping the spending in place so those government dollars can do their work and keep fueling the economy.
The spending is beginning to pay off. Last month, the private sector created 216,000 jobs, and the unemployment rate moved down a notch to 8.8 percent. If that job growth can be sustained, we could be down to 8 percent unemployment by fall, and lower by Election Day next year, and for every percentage point shaved off the unemployment rate, more tax revenue comes into the Treasury.
That’s what John Maynard Keynes, the British economist, was talking about when he advised FDR to spend his way out of the Great Depression. Roosevelt was skeptical and didn’t listen to Keynes to the extent he should. It took World War II spending to fully lift the economy from the grip of the Depression. Obama studied Roosevelt, as he did other great presidents, and he embraced Keynesian spending to combat the economic downturn that was underway when he took office in January 2009.
Obama has been on the defensive ever since, letting the Republicans frame the arguments instead of making a forceful case for government intervention. Obama has not used the Bully Pulpit as effectively as he should, and now midpoint in the economic recovery, he’s falling into the trap of retrenchment when he should be continuing to expand the investments that make the country competitive. Watching the debate in Washington, it’s like Herbert Hoover versus John Maynard Keynes, and sadly Hoover is winning.
Hoover was a good man, a humanitarian who championed food relief after World War I, but when the Depression rolled in, he was curiously passive. He didn’t realize the extent of the economic damage, and he responded with a renewed focus on balancing the budget. Sounds familiar, doesn’t it? Republicans advocate a balanced budget. They say government must tighten its belt in the same way that individual households are trimming their budgets.
Millions of Americans are unemployed, many facing foreclosure, and the Republican Congress wants to cut back on the government programs that they depend on. GOP lawmakers argue that government spending is crowding out private dollars, and if they shrink the federal budget, the private sector will rush in to create jobs. There is no evidence to support this theory; indeed all the evidence is on the other side. Government money leverages private investment, which is why Obama is traveling the country and visiting new industries that are generating clean energy with the help of federal tax incentives.
Another myth that the Republicans have generated is that tax cuts to top earners translate into jobs. If that were true, then the eight years that President Bush spent in office should be distinguished by substantial job growth. Instead, the Bush administration created a net 3 million jobs over 8 years, a record so lacking that those years have been labeled “the lost decade.” By contrast, President Clinton created 23 million jobs during his two terms in office, and he raised taxes on those in the top tax bracket.
It’s never too late for Obama to get off the defensive and counter the gloom-and-doom of the Republicans about putting too much debt onto our children and grandchildren. The budget debate should be about investing in the future and getting a return on that investment. As soon as the impasse over the 2011 budget is resolved, the debate moves to 2012 and beyond. Obama’s slogan is “win the future,” and it’s an opportunity for him to take hold of the conversation and demonstrate there’s more to leadership than budget cutting. Published in The Messenger 10.8.12