06 January 2015

Economic Recovery?

Jeffrey Sachs believes the economy has recovered.  And Sachs believes that Paul Krugman contradicts himself when he states that the economy needs more fiscal spending and that there has been an "Obama Recovery".

Unfortunately, Sachs is guilty of reading shallowly and not thinking through his position.  What Krugman does point out is that the Republicans have claimed that Obama's policies will utterly destroy the economy.  Supposedly Obamacare is a job-killer and supposedly Obama is anti-business.  And yet a recovery is occurring anyway.  And, unlike the Bush Recovery, Obama's recovery is driven by private sector employment and not public sector employment.

Meanwhile, Sachs claims we are still practicing Austerity in the United States because the deficit is falling.  Sachs seems to be unaware that state spending is up quite a bit as we emerge from the depths of the recession.

Also, Sachs seems to think that everything is golden now that we've had a couple of quarters of good GDP growth following a poor 2013-2014 winter quarter.  He doesn't seem to be aware that GDP is far below potential.  Unemployment stands at 5.8% not because we have been adding jobs at a fantastic pace, but because we have been losing workers.

Yes, the economy is starting to show signs of improved strength.  This improvement comes as austerity is ending: it's been a year since the sequester and state spending has improved.  But the economy would be in a much stronger place if the Serious People had not blocked a strong fiscal stimulus years ago.  The economy would be in a much stronger place if Europe were not practicing Austerity and were contributing more to the global economy.

It doesn't make any sense to avoid borrowing idle money offered to us at low interest rates and using that money to invest in infrastructure and productivity.  Once we have restored the economy to full potential -- once the labor force is back up to snuff and wages are starting to grow again -- when spending on safety nets has been reduced and tax receipts are rising from a stronger economy -- when interest rates have normalized and capital is no longer idle -- then there is plenty of time to raise taxes to eliminate the deficit and start paying down the debt.


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