Saturday, July 30, 2011

I Could Almost Wish . . .

If the Republican Party were sane, I could almost welcome its coming to power in 2012 (or sooner). If I believed we could recover quickly, I would almost welcome a default. But it isn't and we won't, so I have to hold on, closing my eyes and wishing for the best.

Why would I want to Repoublican Party to come to power in 2012? The answer is simple. Up till now we have been fighting the recession with fiscal and monetary expansion and, at the least, have not succeeded in achieving a strong recovery. Is a stronger stimulus called for. Maybe so, but the political will for one is not present. Republicans have made the case that the deficit is causing the recession and what is needed is deep spending cuts to free up resources for more productive uses.

If the Republican Party were sane, I would say fine. The "spend more" party has not brought about an economic revival, so let's give the "spend less" party a chance. One of two things will happen. Either it will work and the economy will recover, or it will not and the economy will get worse. If the economy gets better -- well, that's what we want after all. It would require rethinking a lot of my economic beliefs, but that seems a small price to pay for a real recovery. If the economy gets worse, then austerity will be discredited and stimulus will get a second chance. Granted, there will be a lot of personal hardship along the way, which I would prefer to avoid. But apparently the only way to discredit austerity is to try it and watch it fail. It worked with the US in the Great Depression. It worked in Asia and Latin America in the 1990's. And apparently nothing less is going to work today.

As for a default, well Megan McArdle has an excellent post up on why any attempt at an overnight 40% cut in government spending would discredit the concept VERY rapidly and probably dampen enthusiasm for spending cuts for quite some time. She thinks Republican will get the blame for such a catastrophe and be swept from office. I'm not so sure.

Be that as it may, either way the human costs will be considerable, and, as a liberal, such things upset me. But either way, if the damage could be rapidly repaired, I would consider it worth while to discredit austerity once and for all.

Unfortunately, I have no such confidence. I don't fully understand the implications of what a default will mean -- and neither does anyone else, really. But by all accounts, it will deliver a shock to a very weak economy and cause a downturn. Quite possibly, it might damage our credit rating to the point of forcing austerity and preventing any further stimulus. Almost certainly, when the economy turns down, the President will get blamed, and the Republicans will sweep in 2012.

I suppose dealing with the realities of power might eventually sober them up, but who knows how much damage they can do in the meantime? Maybe I'm letting my imagination ru away with me. Maybe President Bachman, with her newly elected Tea Party Congress won't decide that a second Great Depression is a small price to pay for getting rid of the New Deal. Maybe they won't decide that a Great Depression without a safety net is better than a Great Recession with a safety net. So maybe they won't try to force overnight 40% spending cuts, or elminate unemployment insurance, food stamps and Medicaid. Maybe they won't end Frank-Dodd, the SEC, the FDIC, and possibly the Federal Reserve. Maybe they won't sell off the national park system to timber and mining companies. Maybe they won't consider the end of 80% of all home mortgages an acceptable price for ending Fannie and Freddie. Maybe they won't revive the gold standard. But given the current mood of the Tea Party, I don't want to bet the nation's future on any of these things.

And even if the newly empowered Tea Party do only one or two of these things and are ridden out on a rail at the next election, it will be very difficult to put Humpty Dumpty together again.

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