Friday, September 9, 2011

Not on Perry's Reading List

How ironic was it that the GOP presidential candidates forum was held in a library -- the Reagan Library, but still. Instead of a background of books, we saw a humongous, gas-guzzling jumbo jet hovering over the proceedings. And one by one, the candidates demonstrated that reading books, at least science books, is not one of their habits as they fly back and forth across the country campaigning for president.

After the jump, what's not on Rick Perry's reading list.

We can put economics along with biology (evolution) and climatology (global warming) on the list of textbooks that Rick Perry never opened at Texas A&M University and hasn't sought out since. No matter how many climate scientists agree, Perry is stubbornly unwilling to consider climate change to be "settled science." On the other hand, with regard to economics, a soft science dealing with human behavior, Perry is insistent that the matter is settled:

the other thing this president's done, he has proven for once and for all that government spending will not create one job. Keynesian policy and Keynesian theory is now done. We'll never have to have that experiment on America again.

Perry's assertion will come as a surprise to Paul Krugman, owner of a Nobel Prize in Economics. He wrote the book on economics. Literally. "Principles of Economics," 2nd ed. (2009).

The truth is that recent events have been a stunning confirmation of the usefulness of hard thinking in general, and the Keynes-Hicks model in particular.

It'll also be a surprise to Joseph Stiglitz, another owner of a Nobel Prize in Economics. He also wrote the book. Literally. "Freefall: America, Free Markets, and the Sinking of the World Economy."

First, we must dispose two myths. One is that reducing the deficit will restore the economy. You don't create jobs and growth by firing workers and cutting spending. The reason that firms with access to capital are not investing and hiring is that there is insufficient demand for their products. Weakening demand -- what austerity means -- only discourages investment and hiring.
The second myth is that the stimulus didn't work. ... The administration did make one big error, which I pointed out in my book "Freefall" -- it vastly underestimated the severity of the crisis it inherited. ... Without the stimulus, however, unemployment would have peaked at more than 12 percent. There is no doubt that the stimulus could have been better designed. But it did bring unemployment down significantly from what it otherwise would have been. The stimulus worked. It was just not big enough, and it didn't last long enough: The administration underestimated the crisis's durability as well as its depth.

Where Krugman and Stiglitz might agree with Perry is that Keynesian policy (not theory) seems done. The GOP certainly, and increasingly the Democratic administration and the Federal Reserve too, show little interest in actually applying Keynesian solutions to the economic problems our country faces.

The economic policy that's in place now is the theory of expansionary austerity, the notion that cutting government spending and laying off, say, teachers will cause consumers to open their wallets (not the laid-off teachers presumably) and cause businessmen to reopen their factories (not the businesses that sell to laid-off teachers or government presumably). Expansionary austerity is not working, not here, not in Europe, not anywhere that is suffering from a slump like the US is experiencing.

The next time Perry finds himself in a library, he ought to read the book.

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