WHAT BROOKS CONSIDERS ‘REALISM’…. The New York Times‘ David Brooks devotes his column today to offering President Obama some advice, which he considers “a little economic realism.” That’s probably not the best description of his economic vision.
Brooks doesn’t seem especially impressed with “Demand Siders” — those who believe additional economic stimulus will generate growth and create jobs. In some disappointing anti-intellectualism, Brooks derides these advocates for their “computer models” and “very high I.Q.’s,” as if those who’ve been exactly right about practically every recent economic challenge are just nerds with charts, unworthy of serious consideration.
More specifically, Brooks insists, “The Demand Siders don’t have a good explanation for the past two years.” Sure they do. A housing crash led to a financial crisis, exacerbated by an unregulated Wall Street. Global stimulus efforts helped create a global recovery, which is now threatened by European debt crises and austerity measures that focus on debt reduction instead of growth. The Demand Siders have a perfectly good explanation for the past two years.
Brooks added that “it is certainly true that the fiscal spigots have been wide open. The U.S. and most other countries have run up huge, historic deficits.” I’m not sure that’s true, either. The “fiscal spigots” should have been opened much wider, and while the U.S. deficit is huge, history shows plenty of instances in which it’s been much bigger.
Brooks thinks he’s right in part because the public is confused: “Only 6 percent of Americans believe the last stimulus created jobs, according to a New York Times/CBS News survey.” But I care less about what the polls show than what reality shows: the stimulus created millions of jobs and prevented an economic catastrophe. Brooks doesn’t have to like it, and the public doesn’t have to accept it, but facts are stubborn things.
Perhaps most troubling is the column’s fear-mongering.
These Demand Siders have very high I.Q.’s, but they seem to be strangers to doubt and modesty…. Are you really willing to risk national insolvency on the basis of a model?
As Dean Baker explained, threats about “national insolvency” from additional stimulus are silly.
Mr. Brooks doesn’t tell readers how he has determined that further stimulus carries this risk. He doesn’t explain how raising the country’s debt to GDP ratio by 4-8 percentage points over the next few years would jeopardize the creditworthiness of the U.S. government. This is certainly a rather strong assertion, given that even with this additional indebtedness, the debt to GDP ratio in the United States would still be far lower than it had been at prior points in its history.
Even after a decade of accumulating debt at a rapid pace, the U.S. would still face a lower debt burden than countries like Italy do today. Italy is currently able to borrow in financial markets at very low interest rates. Projections for 2020 show that the debt burden of the United States would still be less than half of the current debt burden of Japan, which still pays less than 2.0 percent interest on its long-term debt.
Financial markets also don’t seem to share Mr. Brooks view that national insolvency is a serious concern. The people who are putting their money on the line are willing to buy 10-year Treasury bonds at just 3.0 percent interest rates. That would seem to suggest that insolvency in not a real concern, but Mr. Brooks insists that President Obama should hesitate on stimulus because he thinks that insolvency is a problem anyhow, and the people who disagree with him are arrogant.
That far too many policymakers here and around the world seem to buy into Brooks’ vision is more than a little disconcerting.