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Saturday, July 03, 2010

On Second Thought

After thinking more about it, I'm not so sure I got things right in the last post. The problem is that the argument is inconsistent. I said that the public mood was against more stimulus spending due to worries over the debt, but later I argued that when the election comes, people will care more about jobs than the deficit.

Could those both be true? Perhaps. For example, suppose that people have been convinced that deficit spending does not lead to new jobs (despite plenty of evidence showing otherwise). In that case, they wouldn't favor increasing the deficit even if jobs is the primary concern. But then why blame the administration for not doing more?

Another possibility is that Congress misunderstands what people want. They think voters are worried about the deficit when it's really jobs that matter. That would explain reluctance to spend more now, and why this will backfire when the election comes (this was part of the argument I made).

It's also possible that Congress thinks deficit spending will help, but understands that it will be difficult to connect any improvement to the economy to the the increased deficit spending. Thus, whether or not they will receive credit for the improvement in the economy (i.e. credit for an economy that isn't as bad as it would have been) is uncertain, but blame for the increase in the deficit is relatively assured. In the extreme case where most members of Congress don't think further deficit spending would have much if any effect, they wouldn't see any benefit from increasing the deficit even further, only costs (even though, as just noted, the evidence says the benefit is there).

Maybe people really do care more about the deficit than jobs because they have been misled about multipliers, are confused about how short-run austerity impacts the long-run debt, or for other valid reasons (I'm having trouble thinking of those). But I don't think that's the case.

Finally, it's possible that deficit reduction helps with some constituents and hurts with others, and one group has more political clout than the other.

I am with a group of people trying not to be too rude by blogging instead of paying attention to what's going on around me, and some of the looks I'm getting suggest I need to put the iPad away, so I can't give this much thought. Thus, instead of thoughtlessly rambling further and saying more things that I'll be inclined to correct later, let me turn it over to you. An all out effort to sell additional stimulus has been missing. What is it that Congress and the administration are afraid of? Why aren't the administration and its allies in Congress pushing day and night, in public and behind closed doors, for more stimulus?

    Posted by on Saturday, July 3, 2010 at 03:17 PM in Economics | Permalink  Comments (130)


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