Has austerity hampered economic growth?

Here is an argument that it has.

In recent recessions, government spending has increased. Not in the current recession. Here's one factoid. Government jobs have been cut, which keeps the unemployment rate high. In previous recessions they increased.



A CBO report argues that austerity has cut GDP growth by .8 percent.

From Jeffery Sachs: Economic Policy Beyond Gimmicks

A noted economist takes the president and Congress to task for pursuing short terms fixes to the economy when the problems we face - in his mind - are structural. Part of his criticism should sound familiar to students who just finished reading Fed 10. Interests who are now benefiting from existing policies are resistant to any change that might undermine those benefits. This is what Jonathan Rauch referred to as Demosclerosis. He calls for policies that focus on investments, not temporary boosts to consumer spending:

The big mistake of Obama and his economic team from the start was to treat the downturn as a temporary recession, albeit a very big one. A temporary recession requires a temporary fix. A structural crisis requires long-term strategies. Here we are in 2012 without any long-term strategies except to wait out the crisis.

Real solutions require fresh strategies to break free of vested interests in energy, healthcare, education, and infrastructure. In other words, in today's political environment, real solutions won't happen any time soon. We are stuck.

.... The question for America is how we are going to break free of this low-level trap. First, we will need a government that is not subservient to the status-quo corporate interests blocking innovation in key sectors such as health, transport, and energy. Second, we need a government that can strategize, not just improvise. Third, we need to end the nonsensical bluster against government. Our specialist scientific agencies are still doing amazing things right before our eyes this year: exploring Mars and unlocking the complex mysteries of the human genome. We could be doing a lot more to solve our social and economic problems and to re-establish our prosperity if we put our confidence back into science, technology, advanced training, and public-private partnerships.

From the Washington Post: Just how effective is the payroll tax cut?

Here's an overview of the debate regarding whether payroll tax cuts have an impact on jobs and the ecoonomy.

Some random posts on the impact of the ARRA - the stimulus bill.

Just what the title says. I've been researching the impact of Obama's stimulus bill (and stimulus measures in general) and have run into various helpful sources, thought I'd share them if you'd like to dig into them also:

- Bush stimulus may have had only modest impact.
- How We Know the Stimulus Is Working.
- White House Report Claims Stimulus Success -- Despite 3.5 Million Job Losses.
- Obama says stimulus is responsible for 2 million jobs saved or created.
- Did the stimulus work? A review of the nine best studies on the subject.
- Wikipedia: Multiplier.
- Wikipedia: Fiscal Multiplier.
- Stimulating Spending with the Fiscal Multiplier.
- CBO Report.

Together these help focus on a question that ought to recur over this semester: What actual impact can government have on economic and social affairs? What role ought government have? It's one thing to wish for a specific outcome, its another to ensure this is likely to occur.

Can housing policy be an effective stimulus?

A major story throughout this semester will be what government (fed, state, and local) can and cannot do to prevent a second recession. I'll highlight stories to that effect as they come along.

Here's one from the Washington Post that asks whether effective housing policy might do the trick. One of the reason why Texas did not suffer as much through the recession as bad as other states is that regulations (greater ability to build lots of homes and restrictions on what one could do with home equity loans) ensured that homes were not overvalued and fewer homes now are underwater (worth less than the mortgage).

Is housing relief an appropriate stimulus to the economy?