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Monday, December 29, 2014

Paul Krugman: The Obama Recovery

The economy is doing better. Will it continue?:

The Obama Recovery, by Paul Krugman, Commentary, NY Times: ... As you may know, back in 2010 Britain’s newly installed Conservative government declared that a sharp reduction in budget deficits was needed to keep Britain from turning into Greece. Over the next two years growth in the British economy, which had been recovering fairly well from the financial crisis, more or less stalled. In 2013, however, growth picked up again — and the British government claimed vindication for its policies. Was this claim justified?
No, not at all. What actually happened was that the Tories stopped tightening the screws — they didn’t reverse the austerity that had already occurred, but they effectively put a hold on further cuts. ... And sure enough, the nation started feeling better.
To claim that this bounceback vindicated austerity is silly. ...
Meanwhile, back in America we haven’t had an official, declared policy of fiscal austerity — but we’ve nonetheless had plenty of austerity in practice, thanks to the federal sequester and sharp cuts by state and local governments. The good news is that we, too, seem to have stopped tightening the screws: Public spending isn’t surging, but at least it has stopped falling. And the economy is doing much better as a result. ...
What’s the important lesson from this late Obama bounce? Mainly, I’d suggest, that everything you’ve heard about President Obama’s economic policies is wrong.
You know the spiel: that the U.S. economy is ailing because Obamacare is a job-killer and the president is a redistributionist, that Mr. Obama’s anti-business speeches (he hasn’t actually made any, but never mind) have hurt entrepreneurs’ feelings, inducing them to take their marbles and go home.
This story line never made much sense. The truth is that the private sector has done surprisingly well under Mr. Obama... What held us back was unprecedented public-sector austerity... Sure enough, now that this de facto austerity is easing, the economy is perking up.  ...
Will this improvement in our condition continue? Britain’s government has declared its intention to ... engage in further austerity, which does not bode well. But here the picture looks brighter. Households are in much better financial shape than they were a few years ago; there’s probably still a lot of pent-up demand, especially for housing. And falling oil prices will be good for most of the country...
So I’m fairly optimistic about 2015, and probably beyond, as long as we avoid any more self-inflicted damage. ...

    Posted by on Monday, December 29, 2014 at 12:24 AM in Economics | Permalink  Comments (69)


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