Eduardo Porter, an "economics" columnist with the NY Times, has penned an article this morning in the NY Times that purports to address the lack of solutions to today's economic stagnation. Porter reports on a recent IMF sponsored conference of economists that was supposed to address problems posed by the "financial crisis of 2008."
According to Porter, the 2008 collapse discredited policies of lower taxes and de-regulation. You have to wonder what world Porter lives in. Was Sarbanes-Oxley an example of the deregulation? Were the Congressionally-imposed strengthening and rule-making for Fannie and Freddie examples of de-regulation? Exactly what is Porter referring to? Or do facts matter anymore when you have a convenient agenda ready?
Here is an example of the absurd conclusions that Porter draws in his article: "One lesson from the crisis -- first learned in the 1930s and corroborated in several contemporary analyses -- is that when interest rates lose their power to stimulate the economy, additional government spending can help generate real growth." Really? Could have fooled me!
Government spending in the US has exploded since 2008, as well as the national debt. And what have we gotten for this explosion in government spending? Economic stagnation -- the worst economic recovery since? Guess what -- the 1930s. Yes, the last time government spending was tried as a solution was the last time the economy failed, for a genertion, to recover from an economic downturn.
The way out of our current quagmire is easy and historically established. Go back to the early 1980s. Drastic tight money, high interest rates, major tax cuts and de-regulation spurred the most dramatic economic recovery in world history. All of this took place in the US under President Reagan in the bad old 1980s. The Clinton years benefitted from these policies, but Clinton couldn't handle prosperity. He and a Republican Congress raised taxes which began to produce economic contraction by mid-2000. Further regulatory nightmares, led by Sarbanes-Oxley, the dramatic push by Congress to expand Fannie and Freddie set the stage for the 2008 disaster.
What has been discredited is the idea that expansive monetary and fiscal policy can substitute for free market capitalism. The facts have turned naive Keynesiasm on its head. Free markets produce economic growth. Governments produce economic stagnation. The IMF wasted its time holding their conference last week. They would have been better served reading some economic history and learning the facts.