The next six months could determine whether the Great Recession has ended and the recovery continues or the economy slides back into a double dip.
So, what can the United States do now to avoid that double dip? The answer to that question is hanging in the wind. The political wind. The stakes could not be higher.
In one camp, we have the deficit hawks. And there is no one hawkier in Congress than our own Rep. Paul Ryan (R-Janesville).
“The debt is on track to exceed the size of our entire economy in the next 18 months. We have run out of road to kick the can down. If this is really about the future of our country, then leaders should make the tough choices they promised they would, put moral obligation before political expedience, and focus on what’s in the best interests of the next generation, not the next election,” Ryan said in the Republican Party’s weekly radio address recently.
“This is a time to make tough choices, not run from them. To that end, Republicans on the Budget Committee have already identified $1.3 trillion in specific spending cuts we would implement right now to make Washington do more with less and help small businesses put people back to work. These are specific, common-sense ideas, such as canceling unspent TARP bailout funds and ‘stimulus’ money, that would help us focus on creating more jobs, not more debt. We also propose reducing federal employment and freezing government pay. Instead of growing government, we need to restart the engine of economic growth,” Ryan said.
On the other side of the fiscal spectrum is Paul Krugman, the Nobel Prize-winning Princeton University professor, economist and New York Times columnist who wrote the 2008 book “The Return of Depression Economics.”
Krugman makes an historical argument to support his theory that the way to avoid a double dip is to throw more federal stimulus dollars at the problem right now. A few years into the Great Depression, with the economy showing signs of a rebound and unemployment rates beginning to subside, President Franklin D. Roosevelt succumbed to the deficit hawks and slowed down his stimulus spending. The result was an economic relapse. It was not until the spending and the lead-up to World War II that the economy finally recovered.
“Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as ‘depressions’ at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31,” Krugman wrote. “Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses. We are now, I fear, in the early stages of a third depression.”
Krugman warns, “And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.”
One of these two very bright gentlemen is going to be wrong. Very wrong. As a nation, let us have this earnest discussion of the facts and enact the policies needed to return to economic growth. We can afford no less.
Steve Jagler is executive editor of BizTimes Milwaukee.