Dueling Theories

For John, BLUF:  Two Economists, three opinions.  Nothing to see here; just move along.

It is The Washington Examiner and it is Senior Political Analyst Michael Barone, but his we could become the new Japan could be correct.  The meat of the story is here:

Barack Obama has been trying to stimulate the economy with record-high government spending funded by higher tax rates and Fed Chairman Ben Bernanke's low interest rates.

But as Stanford economist Michael Boskin points out in the Wall Street Journal, "Japan tried that, to little effect, in the 1990s."  Slow growth has become the new normal there.

There are alternative policies. One is to cut government spending, or cut it more than you raise taxes.  As Boskin points out, the Netherlands in the mid-1990s and Sweden in the mid-2000s "stabilized their budgets without recession [with] $5-$6 of actual spending cuts per dollar of tax hikes."

(Yes, Professor Boskin was an appointee in the Administration of George H W Bush.)

The problem with slow growth is that it makes it hard for us to sustain the social contract we have today.  What can't go on for ever, won't.

In the other corner of the ring is Professor and New York Times Columnist, Paul Krugman.  His view was and is that we did not stimulate the economy sufficiently at the beginning of the Obama Administration.  Here is his Thursday last Column, where he talks about the Dow hitting a new all-time high.♠

Is it any wonder that the US Congress is deadlocked, given that economists are (1) divided and (2) very sure, individually, that they are correct?

Regards  —  Cliff

♠  There is this satirical take on Professor Krugman, from The Daily Currant.