Blumner's latest column tries to inform her readers that liberal policies deserve great credit for rescuing the country, and therefore Democrats should be rewarded with continued political power.
The next election should be a contest over which economic world view — laissez-faire or Keynesian — turned out to be the better one, and on that score the Democrats should win.Blumner's simplistic analysis overlooks the fact that tax cuts are a type of Keynesian stimulus. Need proof? Just look at the stimulus package that Blumner wants to count as a triumph of Democratic economic policy. Of the $787 billion price tag, $288 billion was in the form of tax cuts. The Republican Party tends to favor lowering taxes more so than the Democratic Party, and Republicans were on board with the tax cutting portions of the stimulus bill. The objections occurred because Democrats were counting all manner of run-of-the-mill government spending programs as stimulus. And of the remaining $499 billion, "almost $200 billion remains unspent." Depending on the span of time over which the tax cuts were calculated, about half of the stimulus was in the form of tax cuts through the present.
So, Blumner offers us what President Obama likes to call "a false choice."
Back to the Blumnerian rant:
Deregulation got America into this mess — decades of it — the kind of laissez-faire economics enacted by the Chamber of Commerce, former Federal Reserve Chairman Alan Greenspan and Republican leaders. America barely survived life under their tie-regulators-hands approach to markets. Wall Street sucked up the wealth in this country, hollowing out our productive sectors, while bankers got drunk on risk. It was only after $17 trillion in American household wealth was wiped out in 18 months that Greenspan acknowledged how bankrupt his views were.Did Blumner forget to mention that much of the $17 trillion only existed because of the same policies she decries? Oopsie! Did Blumner likewise forget to mention that government regulation encouraged the housing bubble that set off the banking crisis in the first place? Double oopsie! Keep those in mind as Blumner continues:
Blinder and Zandi go on to write that the TARP "has been a substantial success, helping to restore stability to the financial system and to end the free fall in housing and auto markets." And on the $787 billion fiscal stimulus, the authors say that the stimulus alone will add nearly 2.7 million jobs and 2 percent to GDP in 2010.Meh. Blumner is accurate in relating the 2.7 million figure, but did a substantial round up to reach the 2 percent figure. Here's how Blinder and Zandi phrased it:
Nonetheless, the effects of the fiscal stimulus alone appear very substantial, raising 2010 real GDP by about 3.4%, holding the unemployment rate about 1½ percentage points lower, and adding almost 2.7 million jobs to U.S. payrolls.Blinder and Zandi may be rounding up to reach the 1.5 percentage point figure, and if so then Blumner's estimation is even worse than a 33 percent inflation. Why not just stick with 1.5? Maybe that didn't sound good enough?
Again, the Republicans would have acted to stimulate the economy. But the bill would have relied more on tax cuts and probably would have spent less money--hopefully on things having a greater chance of improving economic performance down the line. The bill for the stimulus eventually comes due, after all, and that is a legitimate concern of the voting public.
Perhaps Blumner's worst spin comes from her downplaying of the Republican role in TARP, which Blinder and Zandi believe was more beneficial than the stimulus package. She grudgingly allows that TARP was "passed while George W. Bush was president" though perhaps she wants her readers to think that it passed in spite of the president's veto. Bush, of course, was the principal force behind TARP, and much of the Republican resistance was due to the lack of accountability of the program. Blumner is correct on one minor point, in that TARP has received more criticism than it deserves. The program was effective in averting a severe credit crisis and the loaned monies have been substantially repaid--over half according to Zack's Equities Research. A bailout via loan is not as bad as a gift bailout unless the borrower defaults.
The big hole in the column is Blumner's failure to acknowledge the drawbacks of a government-managed economy. Yes, government intervention can soften the landing when times are tough. But the policy has the effect of slowing the climb and lowering the eventual peaks. Is it that trade off worth the price, especially if the U.S. follows Greece and Spain toward fiscal oblivion? Spain, by the way, was one of the Western European socialist nations Blumner would have had us emulate just a few short years ago.
Which reminds me. If you want to try to predict the next Western European socialist nation Blumner will suggest as the appropriate pattern for the U.S. to copy, take a stab at it in the poll in the sidebar (lower right).