It's time this country learned to live within its means. That goes for the government and the people in it, too.
Counterintuively, during a recession, the government is usually the only entity that's able to pump enough money into the economy to fuel growth and ultimately end the recession – i.e. the time that its spending is most critical is when its income is at a low. The Great Recession lasted so long precisely because the government tried to "live within its means" rather than getting out the jumper cables. This is also central to the current debate about the best course of action for EU countries, most notably Greece, at present.
The danger of simply cutting costs is that it may plunge the country into prolonged recession and ironically impair the country's ability to manage manage its debt effectively. Punditry aside, it's typically been the Democrats in recent decades that have put more effort into reducing the national debt (as Obama is proposing now through increased taxation).
At least in theory, if not always in practice, the entire American political spectrum agrees that US debt must be minded and that the current level relative to the GDP is sub-optimal. But the ability to repay debt is linked to the health of the economy, and the goal is to avoid being penny wise and pound foolish.
Yes, that's the theory. But look around you. Is it working?
No. We're doing way worse than those recessions where we instead responded by cutting taxes and actually living within our means.
This theory is wrong.
It's 2011. If this were going to work, it would have worked by now. It's not three months after the crisis anymore and it's past time to stop talking like it is. This approach is now a concrete failure, and I really don't buy the whole "it just wasn't big enough"; it's already far larger than it ever has been before, and what we've got is a far larger failure than ever before. (And I mean, policy failure, not just financial crisis size.) It's time for people to stop running around and talking as if the bastardized Keynesian economics the government is babbling about has any sort of connection to reality. They've have repeatedly utterly failed to correctly predict the effects of their policies, and that's the standard that matters in the end, more than anything else.
We've tried spending like drunken sailors. It's time to try... not.
I think perhaps I should have hammered on that point a bit more. Predictions were made based on a certain model; predictions failed. Anyone with a scientific viewpoint of the world ought to be able to see what that means: Model wrong. And the model being wrong has implications, not least of which is that your confidence level in all the people confidently lecturing us about the folly of actions like cutting government spending based on this model, this model already proved wrong, should be significantly lowered. After the performance of this economic model, after the endless month after month of "unexpected" economic news, we're really supposed to just keep pissing trillions more dollars away because by golly, hopefully, someday this model will start working if we just try hard enough? I recognize that pattern; it's a failure scenario, not an immanent-triumph scenario.
Second, the market is actually doing quite well, as predicted. Jobs, on the other hand, are not so great. Basic economics predicts that stimulus via infrastructure spending is the best way to accelerate growth in the job market -- which is exactly what we didn't do.
I have no idea where you got the idea that this recession was treated with an all-out spending spree. It wasn't. The same fiscal austerity measures that are failing Europe are going to be implemented in the US and fail just as badly.
Which is why I carefully qualified my statement with bastardized Keynesianism. I don't mean that as a pure insult; I don't particularly believe it's the best economic model, but I don't have much evidence either way w.r.t. the current situation, because it isn't what our government is actually using. It's what it claims to be using as cover, but take Keyne's theories and feed it the actions of our government, and the anemic recovery and ballooning debt is pretty much what it predicts too.
Proper government spending may be the best way out of a recession (I'm very skeptical about it, but it may be true), but even Keynesian theories would seem to say that no spending would better than spending that has a less-than-unity "multiplier". I am much, much less willing that most people to simply assume without actual evidence that spending must have a over-unity multiplier, and I don't see much evidence that our current spending does.
"I have no idea where you got the idea that this recession was treated with an all-out spending spree"
Reading what Keynesianism says and comparing it what money is actually being spent. The so-called "stimulus" has virtually no relationship to what the theories call for (it isn't quite zero, but spending that actually conformed to Keyne's theories were in the high single-digit percents of ARRA last I knew), and there doesn't seem to be any other really compelling philosophy behind ARRA, so barring some other coherent explanation of how the actions of the government are supposed to be helpful, I'll characterize it as an all-out spending spree. It isn't that big of a leap. You just have to look at what is actually being done, and not what is being said.
Yes, but what you said is:
Yes, that's the theory. But look around you. Is it working? No. We're doing way worse than those recessions where we instead responded by cutting taxes and actually living within our means. This theory is wrong.
This implies that the Keynesian theory of stimulus spending is wrong but you yourself admit that what is actually being done is not what is suggested by theory, it is some strange bastardized form. Actual Keynesian theory has been practiced in previous times and has succeeded relatively well. Even in this recession, the Scandinavian economic response is mostly Keynesian and they have weathered the recession very well.
Actually, we brought in the word "Keynesian" later. The original message I was replying strikes me as being based on the idea that it's just "spending", especially at the point where it claims that the Great Recession is from us "living within our means", which is a claim that just boggles my mind. The theory is that unqualified government spending is what pulls economies out of recessions; the reality is that isn't working, and also, it's not really Keynesianism. No contradictions.
Which recessions were those?
We'll survive. And when the resulting recession / depression ends, we'll be out of debt.
How long can we keep sweeping our multi-trillidon debt off our shoulders like a bad case of dandruff?
If you're feeling really wonky, you'd also adjust for sector-specific inflation. For instance, disproportionate increase in the cost of health care. Which I hear the government spends a couple dollars here and there on...