The government needs to spend money in an economic crisis

Austerity Principles, or How to Save an Economy in Crisis:

Automatic stabilizers work. In the U.S., when it comes to fiscal policy in times of economic crisis, there isn’t much disagreement between the political parties. But if a separate debate over the proper size of government is allowed to intrude (as it has), the result is gridlock.

Policy makers should instead agree in advance to a system of automatic stabilizers that kick in during recessions. These include unemployment insurance extensions and relaxed eligibility standards for food stamps when the jobless rate exceeds, say, 6 percent. By the same token, lawmakers could agree to spend, say, 20 percent more on public works programs when unemployment increases. Automatic stabilizers offset about 20 percent of an economic shock after two years, according to research by Federal Reserve economists. The effect is even bigger in Europe, where automatic stabilizers are more prevalent.

Republicans shouldn’t care if the U.S. spends more this year and less next year so long as the permanent size of the government remains the same.

Maybe there wasn’t disagreement between Democrats and the Republicans of yesteryear, but the Tea Party Republicans from 2010 and 2012 would beg to differ. These are the people who would rather jeopardize the health of children than provide the poor with assistance.

If any good has come out of the last 5 years, it’s that there will be a solid case for  stimulus and stabilizers the next time we have a severe recession.

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