Why, you may be wondering, do politicians refuse to take the necessary fiscal steps to dislodge the unemployment rate from its elevated perch of 9.1%? Why, to the contrary, do they seem if anything intent on austerity measure that will push it in the wrong direction?
I can think of three reasons:
1) They want the President to fail;
2) They don’t believe fiscal measures will work;
3) They irrationally fear a higher budget deficit, even temporarily.
Re 1, what can anyone say? If you’re will to throw the economy under the bus to gain political advantage, you, not the millions hurt by your actions, should be the one who loses their job.
Re 2, I’ve got more sympathy for you. Folks have a hard time accepting counterfactuals—the idea that things would have been worse absent the Recovery Act. But the evidence is at this point pretty plain to see: here, where the economy improved while the Recovery Act was in place and stumbled as fiscal stimulus come off too soon, in the UK, where austerity is clearly stifling growth, and in southern Europe as well.
Re 3, it can’t be emphasized enough that temporary spending measures, even large one, are not what drive the long-term debt problem. Note how the Recovery Act—all $800 billion of it—adds nothing to the growth of the debt/GDP ratio starting around now. The culprit there would be the Bush tax cuts—it’s the permanent spending, not the temporary stuff that whacks you here.
I’m all for laying the groundwork to get on a sustainable budget path once the private sector is back in the business of creating jobs for people here in America. For now, the question regarding budget deficits should be: are they large enough to help pick up the slack until that moment arrives?