Paul Krugman listens to Barack Obama:
Barack Herbert Hoover Obama: From today’s radio address:
Government has to start living within its means, just like families do. We have to cut the spending we can’t afford so we can put the economy on sounder footing, and give our businesses the confidence they need to grow and create jobs.
Yep, the false government-family equivalence, the myth of expansionary austerity, and the confidence fairy, all in just two sentences.... This is truly a tragedy: the great progressive hope (well, I did warn people) is falling all over himself to endorse right-wing economic fallacies.
As the most right-wing of Obama's economic advisors, Peter Orszag, says:
- We don't need to cut the deficit right now: we need to increase it this fiscal year, and next fiscal year, and perhaps the year beyond that.
- We don't need to cut spending over 2015-2020: we do need to reduce the deficit over that time frame, but we need to do it by increasing revenue.
- We do need to cut spending--to curb the growth of health-care spending--over the 2020-2050 time frame, and the Affordable Care Act was a bold and brave effort to do so that is highly likely to be successful if its policies are implemented.
Obama's administration has had four tools with which to manage aggregate demand:
Taxing and spending through the normal budget process--which requires the cooperation of congress, more particularly 60 votes in the Senate.
Taxing and pending through the reconciliation process--which requires 50 votes in the Senate and 218 votes in the House.
Banking policy through the Treasury and other regulatory agencies to take risk onto the government's balance sheet and thus enable private businesses to borrow at reasonable terms to fund investment spending. Of the banking policy tools, the most important are (a) Treasury assurances that banks are in fact solvent and well-capitalized which are informal bank guarantees; (b) use of the $700 billion authorized by TARP for financial market intervention; (c) use of government-owned Fannie and Freddie for mortgage market intervention.
Appointing officers to the Federal Reserve who will take its dual mandate seriously and strive, through both normal and extraordinary financial market interventions, to keep nominal GDP on its stable and predictable path.
The Obama administration did (1) to the extent that Congress allowed, and did (2a) through Tim Geithner's early-2009 bank stress tests.
The rest? Not so much. Instead of (2), (3b), (3c), and (4), Barack Obama has been relying on the confidence fairy, the myth of expansionary austerity, and the false government-family equivalence.