LEARNING THE WRONG LESSON…. Ezra had a fairly brief item today that summarizes a problem that comes up nearly every day.
Last year’s stimulus worked exactly as it was intended to work — in some ways, it even exceeded expectations — but it was too small. There was a hole in the economy, which turned out to be even bigger and more serious we realized at the time, and policymakers only filled part of it. Ezra noted that part of the problem may have been an assumption that Congress and the White House would get another bite at the apple.
If all we needed was the $700 billion package, then great. But if unemployment remained high and the recovery had trouble taking hold, surely there would be the votes for further stimulus and relief spending. No one in the political system could possibly look at 10 percent unemployment and walk away from it, right?
Wrong. Ten percent unemployment and a terrible recession ended up discrediting the people trying to do more for the economy, as their previous intervention was deemed a failure. That, in turn, empowered the people attempting to do less for the economy. So rather than a modestly sized stimulus offering room leaving the door open for more stimulus if needed, its modest size was used to discredit the idea of more stimulus when it became needed.
This may seem like madness, because it is, but this is a fine summary of the status quo. Democrats wanted a bigger stimulus, but couldn’t overcome Republican opposition. The recovery effort, then, was less successful, leading to a bizarre dynamic — political rewards for those who were wrong, political punishment for those who were right. Those who screwed up the most before, during, and after the crisis are the same folks strutting around, proud as can be, unaware and unconcerned about how foolish reality makes them look — because they’re winning.
My favorite metaphor continues to ring true. Imagine there’s a massive, dangerous fire. Those responsible for the blaze insist that some lighter fluid should take care of the problem, while the fire department recommends water. Forced to compromise, the fire department uses less water than is needed, and the blaze is only partially contained.
Those with the lighter fluid, who set the fire in the first place, see this and respond, “Told you so.”
Now, ideally voters would find this insane, and ignore the lighter-fluid crowd’s nonsense. But the public isn’t engaged at that level — they know what they see, and in this case, they still see the flames, and don’t understand why the fire department didn’t get the job done.
Ezra may be very well be right about the assumptions. To strain my metaphor a bit, maybe the fire department assumed they could always just send more trucks as needed. They couldn’t.
Look, this is pretty simple. Early last year, the economy stood at the brink of an extraordinary collapse. There were effectively four options:
1. Pass a massive, ambitious economic stimulus.
2. Pass a trimmed down economic stimulus that could overcome a Republican filibuster.
3. Do nothing.
4. Pass a five-year spending freeze proposed by confused congressional Republicans at the time.
Left with limited options, Democrats went with #2, and disaster was averted. We would have nevertheless been better off with #1, but we can all be very thankful #3 and #4 were rejected.
But the economy still needs more, and it won’t get it, in part because Republicans learned the wrong lessons, and in part because they hope to keep the economy down on purpose to improve the GOP’s electoral chances.