Tuesday, August 11, 2009

Here Are A Few Suggestions

Contra Paul Krugman's column today, Megan McArdle doubts that the federal government's response to the financial crisis validates "big government":
...We did three things differently than we did in 1932:

  1. We didn't follow a contractionary monetary policy
  2. We shoveled gigantic wads of cash into the banking system without much regard for who it was going to, or what they might spend it on
  3. We maintained a high level of spending that kept aggregate demand from contracting as powerfully as it did in 1932.
Only the last, I think, can be seen as a vindication of "Big Government" in the sense that Krugman means. It's also totally unsustainable, and it will be interesting to see what happens to the economy as the government is forced to pull back on the stimulus over the next year or so by either raising taxes, or cutting back on spending. [...]

I'm not sure what we just went through validates any reasonable philosophy of government, except "give officials room to make ad-hoc decisions, and hope they don't do too badly."
The set-up of that response is awfully misleading. Right-wing critics of "big government" generally have rather harsh critiques of the American welfare state, which is comparatively modest (as a percentage of GDP, we spend about half as much on welfare services as the highest spenders - Denmark and Sweden - and spend substantially less than nearly every European nation). As Krugman points out, when the Great Depression hit, most of the "big-government" safety nets that have helped people avert the worst today - Medicare and Social Security being two of the most prominent - didn't exist. So the existing structures of what conservatives derisively call "big government" are as important in evaluating the weathering of this crisis - and the effectiveness of "big government" generally - as the spending decisions made by Congress, the Fed, and the President.

And as for McArdle's shrug that the only lesson from this crisis is "give officials room to make ad-hoc decisions, and hope they don't do too badly": how about admitting that there is a proper time and place for Keynesian macroeconomic policy? How about abandoning visceral opposition to any kinds of government intervention in the economy? How about recognizing that government sometimes has to behave differently from individuals - so when individuals are cutting back, governments can and should spend more? When John Boehner advocated that the government "tighten its belt," it wasn't just some guy talking - it was arguably the nation's most powerful Republican actually suggesting that the government cut off spending in the middle of an economic crisis - possibly pushing the country into a depression - either to show solidarity with American citizens, or attempt to balance its budget during a recession, or some other wacky idea that he apparently saw as the solution to our economic woes (I won't pretend to understand what goes on in that guy's head).

The government's ability to mitigate the worst of this crisis was due in part to actions that, granted, cannot be continued indefinitely, but to suggest that weathering this storm says nothing about the virtues of big government takes some pretty remarkable libertarian tunnelvision.

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