Paul Krugman points us to the fact that the U.S., despite still not doing well, is doing better than all other first world nations. The most obvious answer is that other countries have hopped full on the austerity bandwagon. As Mr. Krugman is fond of saying again and again, it turns out that contractionary fiscal policy is contractionary.
National economics is a strange creature. It generally behaves almost the exact opposite of what a family economic plan would look like. In the middle of a familial recession (someone gets laid off, etc.), it makes complete sense to cut back on the cable bill, go on a diet, maybe even (god forbid!) cut the internet. You also try to keep paying the things that matter for daily life; food, housing, health etc. This is an experience almost every adult alive has faced at one time or another. It also makes complete sense to try to apply what we know to something that, on the surface, looks like the exact same problem. In this case, though, it ends up being a matter of knowing just enough to be dangerous.
At the national level, calling for austerity during a recession is like calling for a family to stop feeding itself. In some instances, quite literally. Republicans like Newt Gingrich are fond of calling Obama the “food stamp President” and it is true that the amount of money put towards food stamps has skyrocketed under Obama’s watch. In a time of massive unemployment, Republicans criticize Obama for the government feeding its citizens who can’t afford food! It’s mind boggling. Especially because President Obama did absolutely nothing to cause the increase. Eligibility rules haven’t changed, only the number of eligible citizens has.
But beyond feeding its citizens, there’s a whole lot the government can and should do to help people get back on their feet. Where this would give the most bang for the buck is repairing our crumbling infrastructure. The government should be borrowing as heavily as possible right now to fund that.
I know what you’re thinking, “But…but…but, what about the debt! It’s a very high number!” It’s true. But in the situation we’re in, it’s a meaningless high number. Say someone came up to you and offered you money. All you have to do is give it back in ten years. In fact, they’ll actually let you keep a little bit of it without paying it back. That is the situation the federal government finds itself in now. The government should be taking as much of that offered money as possible and invest it in our infrastructure. This will provide jobs to a segment of the population that needs it most and give them money to spend which will immediately give the nation economic returns. Our improved infrastructure will facilitate economic movement. Which will, in turn, grow the economy. This is a no brainer!
Then, when the economy is back on its feet and we are close to full employment once again, we look to the debt. When times are tough, the government should be spending money like a sailor on shore leave, when times are good, the government should be pinching every penny to save for the next rainy day. That’s not an easy thing to wrap your head around. Economic models show that it works, though.