Wednesday, December 14, 2011

What if the economy improves?

In my last post, I argued that Obama could win re-election -- and it wouldn't be miraculous -- if the economy only continues to improve gradually between now and next November.  But how is it possible for the economy to improve?  From what we've heard from Obama, Paul Krugman, and others, the economy is stuck in a rut that it cannot jump out of except by massive government debt spending -- more stimulus.  And since the last stimulus was too small, I can only assume that something as puny as Obama's latest jobs bill, which is only a fraction as large, would have even less of an effect.

What, you think the economy might be able to recover on its own?  That is a very serious admission if you are a Keynesian.  That changes the argument from "We absolutely must have stimulus spending for the economy to improve" to "We need stimulus spending if we want the economy to improve fast enough."  Since even Keynesians (or many of them, anyway) admit that we have a serious debt problem (at least, when there is a Republican president), we would have to balance the faster improvement of the economy against the greater debt load our country would be taking on.  If the economy is capable of working unemployment down to 8% in the next year, I would argue that our economic problems are not so serious that they require us to dig an even deeper hole that we will have to find some way to get out of later.

But what if the economy does not get better?  Does that prove that a stimulus was necessary?  No, because we have other things dragging on our economy that we have not had in the past:  the new health care mandate, along with ever greater regulations.  I am confident that our economy would grow out of even these problems eventually; people are amazing, and they have managed to improve economies under some of the most repressive regimes, of which ours is not even close.  But there is a cost to these regulations, of course, and that is slower growth.

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