Krugman graph on Real Government Spending

Paul Krugman’s book End this Depression Now is predicated partly on a simple argument that government must act in an economic downturn as the spender of last resort. Along the way he has to explain that this is currently not happening, that per capita government expenditures have trended down over the last two years, and that this can explain the weak recovery. In fact, by one set of statistics, “we haven’t seen spending cuts like this since the demobilization that followed the Korean War,” Krugman writes.

This is in fact the kind of recovery Republicans claim to want:

What should be done about the economy? Republicans claim to have the answer: slash spending and cut taxes. What they hope voters won’t notice is that that’s precisely the policy we’ve been following the past couple of years. Never mind the Democrat in the White House; for all practical purposes, this is already the economic policy of Republican dreams.

So the Republican electoral strategy is, in effect, a gigantic con game: it depends on convincing voters that the bad economy is the result of big-spending policies that President Obama hasn’t followed (in large part because the G.O.P. wouldn’t let him), and that our woes can be cured by pursuing more of the same policies that have already failed.

The numbers do not lie on this. It’s very clear that government expenditures began falling in 2010 and have not abated. We have had a growing investment gap since that time.

Krugman helps let Obama off the hook here, saying that the problem was how the GOP wouldn’t let him spend more. But he does point out that the spending boost from stimulus ran out by early 2010, at which point Democrats still held Congress. And as we’ve seen, the Obama Administration is heavily invested in letting everyone know that spending has decreased on their watch. Republican obstructionism adds to the tale, but this was a President talking about a pivot by the end of 2009, talking about shared sacrifice and “skin in the game” for everyone since before the inauguration. If the President wasn’t a willing participant in the shift to austerity, he certainly wasn’t a major oppositional force. And now he’s bragging about it.

There’s no question that Republicans will double down on the policies that stunted the recovery. There doesn’t seem to be much of a question that the current Democratic leadership will follow, and not be dragged kicking and screaming, into the same reality. And yet austerity has been a total failure all over the world.

The way to break the cycle, as Will Hutton writes, a change of course rooted in Keynesian economics must commence. And “although such proposals will be fiercely opposed by the British, German and American right they need to be beaten back. After all, it is their ideas that have brought us to this pass.” But this is the entire problem. Those ideas aren’t being challenged. We have a Democratic Party in the United States unwilling to engage in a battle of ideas. It’s been that way for 30 years. That’s why we’re where we are.

Larry Summers has found a way to restate stimulus in the language of market economics (that we should pull investment forward in an environment of low interest rates, just like any corporation would do), and perhaps that offers the best opportunity for a breakthrough. But it still attempts to fight these wrongheaded ideas about expansionary contraction through the back door. Nobody is challenging them head-on, regardless of what the facts show.