The ‘clear and present danger’ to the economic recovery

THE ‘CLEAR AND PRESENT DANGER’ TO THE ECONOMIC RECOVERY…. We’ve talked quite a bit recently about the expected consequences of the conservative Republican economic plan. As is now clear, the GOP is convinced we can expect brighter days, just as soon as they’ve taken money out of the economy, and forced hundreds of thousands of American workers from their jobs.

There is, however, an economic philosophy underpinning this approach. Republicans probably don’t actively dislike the country; they’re simply following a theory that tells them the economy will grow, magically, if the budget deficit they helped create shrinks, and if spending cuts help instill “confidence” within the private sector.

Paul Krugman reminds us today that no serious person should take this theory seriously.

The clear and present danger to recovery, however, comes from politics — specifically, the demand from House Republicans that the government immediately slash spending on infant nutrition, disease control, clean water and more. Quite aside from their negative long-run consequences, these cuts would lead, directly and indirectly, to the elimination of hundreds of thousands of jobs — and this could short-circuit the virtuous circle of rising incomes and improving finances.

Of course, Republicans believe, or at least pretend to believe, that the direct job-destroying effects of their proposals would be more than offset by a rise in business confidence. As I like to put it, they believe that the Confidence Fairy will make everything all right.

But there’s no reason for the rest of us to share that belief. For one thing, it’s hard to see how such an obviously irresponsible plan — since when does starving the I.R.S. for funds help reduce the deficit? — can improve confidence.

Beyond that, we have a lot of evidence from other countries about the prospects for “expansionary austerity” — and that evidence is all negative. Last October, a comprehensive study by the International Monetary Fund concluded that “the idea that fiscal austerity stimulates economic activity in the short term finds little support in the data.”

Indeed, look at Britain and Germany — two examples the right thinks support their philosophy, but don’t.

What congressional Republicans are pushing, in other words, is a radical experiment: (1) slash funding in education, health care, job training, and national security, among other things; (2) temporarily make unemployment much worse, on purpose; (3) wait for the Confidence Fairy to suddenly make the private sector start aggressively hiring, despite their lack of customers; and (4) profit watch the money come rolling in.

This experiment doesn’t work in theory, and it looks even worse in practice.