More than five years after the Great Recession officially ended in June 2009, a whopping 72 percent of Americans think the economy is still mired in a recession. And while they're technically wrong, it's not hard to see why they have that idea. Despite 56 consecutive months of private sector job growth, the labor force participation rate is at its lowest level since 1978. While the top 1 percent has bounced back just fine, middle-class wages remain stagnant. Can you blame the country for not breaking into "Happy Days Are Here Again"?
In his New York Times column this morning, Nobel Prize-winning economist Paul Krugman identifies what's behind the sluggish economy -- and it isn't "Washington gridlock" or "partisan squabbling." Instead, Krugman declares, it's "the destructive ideology that has taken over the Republican Party."
Since the recovery, Krugman writes, "America has been awash in savings," with both individuals and businesses reluctant to spend and make big investments. "And the mismatch between desired saving and the willingness to invest has kept the economy depressed," Krugman contends. "Remember, your spending is my income and my spending is your income, so if everyone tries to spend less at the same time, everyone’s income falls."
What's the solution? Given what Krugman calls our "huge infrastructure needs, especially in water and transportation" -- and considering the incredibly low interest rates on U.S. government bonds -- massive public investment in infrastructure is in order. Instead, infrastructure spending has plummeted in recent years, as Republicans have proven obstinate in their opposition to the Obama administration's proposals for infrastructure investments. Underlying that opposition is an ideology of "overwhelming hostility to government spending of any kind," Krugman argues. And thanks to the right-wing capture of the GOP, our economy remains depressed.
More from Krugman's column:
You can get a sense of this ideology at work in some of the documents produced by House Republicans under the leadership of Paul Ryan, the chairman of the Budget Committee. For example, a 2011 manifesto titled “Spend Less, Owe Less, Grow the Economy” called for sharp spending cuts even in the face of high unemployment, and dismissed as “Keynesian” the notion that “decreasing government outlays for infrastructure lessens government investment.” (I thought that was just arithmetic, but what do I know?) Or take a Wall Street Journal editorial from the same year titled “The Great Misallocators,” asserting that any money the government spends diverts resources away from the private sector, which would always make better use of those resources.
Never mind that the economic models underlying such assertions have failed dramatically in practice, that the people who say such things have been predicting runaway inflation and soaring interest rates year after year and keep being wrong; these aren’t the kind of people who reconsider their views in the light of evidence. Never mind the obvious point that the private sector doesn’t and won’t supply most kinds of infrastructure, from local roads to sewer systems; such distinctions have been lost amid the chants of private sector good, government bad.
And the result, as I said, is that America has turned its back on its own history. We need public investment; at a time of very low interest rates, we could easily afford it. But build we won’t.