We've been down this road so many times before that it becomes almost disheartening to have to revisit it once more. Basically, the Great Depression proved, by its severity and longevity, that Keynsian prescriptions for curing the ills in the economy associated with unemployment and reduced business activity did not and could not work. If they could work, the GD would have been over by the start of the 1930's and the 20% unemployment throughout the '30's never would have happened. Unfortunately FDR and his socialist administration never gave up in applying Keynesian policies and the GD lasted 11 years until the outset of WWII. Hard to believe we continue to make the same policy mistakes by electing another bunch of socialists to get us out of the current depression and unsurprisingly after 4 years of bad policy choices we are far from a recovery. Somebody, anybody, make these people go away so we can begin the recovery. The following excerpts from an article in the WSJ are the right policies for a recovery. Won't happen with the democrats in power.
Mr. Alesina, a professor at Harvard University, may be the last economist that Democrats want to deal with at the moment Americans are finding sympathy for spending cuts.
Ever since Ronald Reagan legitimized the
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Editorial page editor Paul Gigot on whether Republicans can trust President Obama's overtures. Photo: Getty Images
efficacy of tax cuts, Democrats have sought to discredit his idea and restore the New Deal theory of a Keynesian multiplier, which dates to 1931. It holds that more public spending will revive a struggling economy.
No president has believed more in the miracle of the multiplier than Barack Obama. Across four years he has led the country on a kind of Keynesian death march, pushing federal spending to 25% of GDP and producing weak growth. We're looking at four more years before the Keynesian mast unless the Republicans can offer an intellectually respectable alternative.
Mr. Alesina has identified the alternative. His, and others', work the past decade with how struggling economies revive suggests that the Obama spend-more solution is the opposite of what the U.S. should be doing.
There is general agreement on at least two things about the current U.S. economy. It is emerging from the deepest recession since the Great Depression, and its debt level is unsustainable. The path back to stronger growth, argues Mr. Alesina, is a combination of significant, permanent cuts in public spending and relatively small tax increases, if any.
This view isn't born of "right-wing" ideology. Mr. Alesina is an Italian, as are many of his co-authors. As Europeans, Mr. Alesina and his colleagues were forced to confront the biggest challenge facing Western economies the past 40 years. Europe rose from the ashes of war, but how would it rise from the ashes of debt, as benevolent postwar spending programs outstripped revenue?
Mr. Alesina and his colleagues wanted to answer the most basic question: What works?
They sought the answer (which they published in an August 2012 paper on "fiscal consolidations" for the National Bureau of Economic Research) by analyzing an International Monetary Fund history of all the fiscal plans that 17 OECD governments enacted between 1978 and 2009, including the U.S., Canada and Japan. Together, these countries tried everything to grow—raise spending, cut spending, raise taxes or cut them, in endless combinations. What helped?
"Adjustments based upon spending cuts," the economists concluded, "are much less costly in terms of output losses than tax-based ones. Spending-based adjustments"—that is, cuts—"have been associated with mild and short-lived recessions, in many cases with no recession at all. Tax-based adjustments"—tax increases—"have been associated with prolonged and deep recessions."
The debate over "failed austerity" is misleading because it emphasizes spending cuts but rarely mentions tax increases. "Austerity" plans, the Alesina studies suggest, fail to revive growth when they too heavily rely on raising taxes on income and capital—as across Europe and now in the U.S.
There is no magic ride back to prosperity. The Alesina team is describing the least-bad antidote for the long-term poison of destructive national debt. Fiscal plans based on large, permanent spending cuts are associated with renewed growth more than any alternative policy mix that has been tried. Indeed, spending cuts without big tax increases look to be the only thing that really works. The leading example the past 15 years is . . . Canada. And just an observation: The Dow proceeded to its high after the sequester happened. The cuts were the first credible step in rebuilding private-sector confidence.
The Patty Murray budget: A $975 billion spending cut and a $975 billion tax increase.
The Paul Ryan budget: $4.6 trillion of spending cuts and no new taxes beyond the fiscal-cliff increases.
Neither budget is anything the world has never seen. The available record suggests which of the two is the road to perdition.
