I haven’t started my copy of Michael Grunwald’s The New New Deal, which has all the wonks in the wonkosphere a-twitter about the hidden story of the stimulus. Grunwald appeared on an FDL Book Salon over the weekend if you want to get the gist of the book. And from what I’ve heard, there’s some value in his viewpoint. Clearly the Administration failed to even mention the stimulus from about mid-2009 on, and neglected all of the policies that actually did ameliorate the recession and invest in future growth.
But when Grunwald keeps running around saying things like this, as he did both in the book salon and on Up With Chris Hayes this weekend, I have to put on the brakes:
This is a response to many austerity questions: Obama has not pushed short-term austerity. He fought off the Republican push for short-term spending cuts; so far, the only tangible austerity measure that has been passed into law is the so-called “fiscal cliff,” which doesn’t take effect until 2013, and, if the history of Washington is any guide, will never take effect. It is true that Obama is very much interested in medium-term deficit reduction, particularly through the reduction of health care costs. Reasonable people can disagree – it probably won’t surprise readers that I agree – but he has been consistent about opposing short-term anti-stimulus.
This is simply not true. I’m sure it must be comforting to Grunwald to think it is. But it’s not. The best expression of the austerity that has been implemented at the federal level for the last two years can be found in this chart from Goldman Sachs (above). It shows pretty clearly that fiscal policy at the federal level turned negative in mid-2010. This doesn’t just mean that fiscal policy, after the stimulus began to run out, was relatively speaking less powerful. It means that federal fiscal policy, not combined with state and local but just confined to the federal level, dragged on growth starting in mid-2010, before the 2010 midterm elections. It really never recovered, save for a couple quarters of near-zero growth from fiscal policy in the middle of 2011.
And there are policies that correspond to this. The White House froze federal employee pay; it was one of the first items touted from their budget in 2010. They cut food stamps twice to pay for other priorities. They cut unemployment benefits in the most recent extension, so that the 99-week benefit has been reduced to 73. They cut $39 billion from the 2012 budget and imposed a spending cap for the next ten years. The Administration will tell you proudly that they have inaugurated the lowest rate of discretionary spending since the Eisenhower era.
To just ignore these efforts at short-term austerity and say they did not exist is really a fallacy. To be sure, there have been additional efforts at fiscal expansion as well. The Bush tax cuts were extended, with a payroll tax cut added on; unemployment benefits have continued, albeit in reduced form in the most recent extension; in 2010 a series of mini-stimulus bills, including money for state budgets for education and Medicaid, did pass. But the deficits have closed over the past few years. The President proudly champions this. Federal spending and deficits are all lower today than when the President took office. That equals short-term austerity. Heck, government purchases were way down DURING the stimulus in 2009, relative to Reagan’s response to the 1981-82 recession. That takes into account de facto austerity at the state and local level, but as I said before, even if you isolate the federal fiscal response, there has been austerity since mid-2010.
Grunwald risks his credibility by continuing to say this.