Progressives and the Economy

Look at the blog posts listed at your right for May and earlier months. They paint a picture of an economy not working. Our leaders sit atop a government structure that doesn’t know how to create jobs. The Democrats’ only formula—spend government money to stimulate economic growth the way Roosevelt spent us out of an 11-year depression during World War II—has failed. Now the progressives’ bag of tricks is empty. Time for Republicans to get government out of the way. Time to turn the economy over to entrepreneurs who do know job creation.

Or so you’d think. But progressives are in their own world.
Start with “Salon’s”Joan Walsh, who informs us:

Former Biden economic advisor Jared Bernstein (picture) wrote a really great piece about why he left the White House: It's pro-Obama, it's compassionate, it's fair-minded and it's also critical.

OK. So let’s hear what brother Bernstein has to say that Walsh considers so “really great”:

as the 2012 election season gears up, we are poised to have a fundamental debate about the size and role of the federal government. But absent straight talk and plain, understandable facts from both sides of the argument—about the costs and benefits engendered by this choice—it will be impossible for voters to make an informed choice.

Let me be clear about where I stand. I view the conservative agenda right now as trying to implement a large shift in who bears the risk of those events in our personal and economic lives that are inadequately handled by private markets. In my view, to get this wrong means significant disinvestment in public goods from education to infrastructure, diminished health and retirement security, more booms and busts—a move from “we’re in this together” to “you’re on your own.”

In 1935, in the midst of the Great Depression when most of the country was poor, unemployment was at 21%, and people were truly desperate for jobs, Roosevelt created the original entitlement program, social security, whereby workers would pay for help they receive in retirement with payroll deductions when they are healthy and able. Social security, not welfare, not aimed at the poor, paid for by the worker, covering every worker, wildly popular.

That was then. Now Bernstein says conservatives want to rip away the safety net that protects the casualties of the free enterprise system, presumably because conservatives say we have to cut government expenditures that rose from 20% to 25% of GDP since 2008 back to the pre-Obama era's 20%. Bernstein also says such cuts will hurt education, infrastructure, health, and retirement security, and make the economy’s ups and downs even more rocky.

I say Bernstein’s “really great” analysis is wrong. Even in its current shape, the American economy can afford to care for the truly needy. Bernstein isn’t focused on the poor; he is worried about changes to social security, Medicare, and Medicaid that affect the non-poor. That’s where entitlement reform will take place. Republicans are asking why continue to pay for the well-off to have full social security and Medicare benefits, and why should the non-poor be covered by Medicaid, a program meant for the poor? What made sense in 1935, when the whole country was poor doesn’t work out in 2011, when most are not poor.

We have documented how education doesn’t seem to benefit from money. Education needs reforms that don’t cost money, or that re-directed money can pay for. Similarly, there are more efficient ways to pay for health and infrastructure needs that don’t depend upon government bureaucrats, or that don’t kowtow to the plaintiffs bar by blocking tort reform.

As for the boom-bust economic cycle, Keynesian government stimulation of the economy didn’t work in 1933-1940 (see Amity Shlaes), and hasn’t worked in 2009-11. What works is supporting business efforts to invest and create jobs, taking advantage of the lower costs that come with the bottom of the business cycle, while caring for the casualties of the bust. When business finds government at its back instead of standing in front saying “Stop!”, it sets out to make money, and we all gain from the resulting economic growth.

Or was Adam Smith wrong?