Tyler Cowen Cannot Admit Defeat of Austerity Policy – And So He Purposely Re-writes History

If the Facts Don’t Work for Conservatives – Make Up New Facts

The war of austerity vs Keynesian economic policy is over, Keynesian economic policy has won (More on the battlefield statistics later).  But austerians are furious, they cannot grasp the concept of being wrong.  So a typical response to the fact that the U. S. economy is growing, albeit slowly, and the deficit is shrinking is this one from respected but often wrong Tyler Cowen.

Mr. Cowen's false premise is that the U. S. implemented austerity policies.

For instance, we have been told that the United States has been engaged in a good deal of fiscal austerity in the last few years.

We also were told that fiscal self-austerity was quite possibly self-defeating (or here, pdf) or at the very least fairly close to self-defeating.  That is, it would make budget balance harder rather than easier.

Uh, no Tyler, you have your continents mixed up.  You have been told correctly that Europe instituted austerity.  And it was self-defeating (six straight quarters of recession type defeating).    In the United States we had a stimulus program (you can look it up, see any entry like “Republicans Outraged over Stimulus”.  What you were told, and what is true is that the Obama Stimulus was too small and way to misguided to produce a strong, fast recovery, so as a result the United States got a weaker, slower recovery.  But no austerity, and nobody told you that the U. S. did have austerity.  You are making that up.

So Mr. Cowen's wonderment that the budget deficit is falling in the face of austerity is baffling only on his part.  The budget deficit is falling because the recovery is working. Keynesian economics produced a recovery, and recoveries result in higher tax revenues and lower government spending on programs like unemployment compensation and other safety net programs.  This has happened so repeatedly in the history of this country that one would think even Conservatives would have noticed.

Tyler says he is a happy person

I am myself comfortable arguing something like “when underlying fundamentals are sound, and/or there is monetary accommodation, an economy can withstand fiscal consolidation just fine.”  That is simply a more specific variant of the above.

but he is not in Greece, Ireland, Italy, Spain, Portugal, Cypress or France (to name a few countries that contradict his comfort).  People in those countries that have experienced fiscal consolidation are have contracting economies, high unemployment and children are going to school hungry.  The fact that Mr. Cowens is comfortable does not make them comfortable. 

The other factor here is tax increases, which are producing higher revenues and which will slow the recovery somewhat, but hopefully (unless one is a Republican) the momentum in the United States economy is fairly strong, and looks to be strong enough to overcome the fiscal drag that is being pre-maturely thrust upon the nation.

Of course, if Republicans get their way and a real austerity program is implemented than the economy will fall back into recession.  But this will also confirm Keynesian economics, and just further confuse people like Mr. Cowen.  So that is just another reason why everyone hopes Republicans stay in the minority.  We don't want Mr. Cowen to be confused.