Ben Bernanke made a final appearance yesterday to discuss the economy and the role of the Fed in trying to keep the economy running. I think he gets a lot of credit for keeping the country and the world out of a second Depression. The Great Recession has been quite painful, but we did avoid going over a much more cataclysmic cliff.
Bernanke apparently made frequent comments about how he did the best he could to stimulate the economy in the face of fiscal austerity measures imposed by Congress which had the effect of depressing the economy. Obviously, he thinks that the Republican choices to impose austerity and spending cuts have harmed the economic recovery.
I know that the Republican dogma is that the way to stimulate the economy is to cut taxes and shrink the government, and I used to believe that myself. But, quite frankly, the data of the last thirty years just doesn't support that belief.
Reagan cut taxes and the government and over his 8 years there was an 18% increase in jobs and a 12% increase in family income. So, back in my Republican days I thought that was pretty good proof that the thing to do was cut the government, unfetter the markets, and stand back and let the economy roar, and everyone benefited.
Then, Clinton raised taxes and over his 8 years there was also an 18.6% increase in jobs and also a 12% rise in medium income. Oops, the Reaganomics dogma was not looking so certain.
Then, George W cut taxes and it all went south – over his 8 years there was 1.6 million fewer jobs and a 2.7% decline, not increase - decline in family income. You can try to explain away W’s economy by excusing it as being the victim of the financial crash of 2008, but the reason there was a financial crash of 2008 is that the Reaganomics ideology was to deregulate the financial industry, and a deregulated financial industry turned the financial industry into a greed monster that sucked billions from the middle classes with a manufactured housing bubble that bankrupted and unemployed millions while making multimillionaires of a few thousand financial manipulators.
By the way, the financial catastrophe ended my Republican days. As many have said, there is no education in the second kick in the head from a mule. (It didn't start me on a new era of Democrat days, I am now officially independent)
So, it is now apparent to me that economic growth is a function of many forces, and that cutting taxes and the government does not produce jobs and economic growth. The experiment of the last thirty plus years just doesn't support the ideological belief in cutting taxes and government austerity as something that grows the economy.
And, indeed, Bernanke is quite clear in his criticism of Republican austerity policies. He points out that the Congressional Budget Office estimates that the Republicans’ budget cutting reduced the country’s economic growth by 1.5%. That’s millions of jobs.
It’s a painful thing to change your political beliefs. I have done it twice in my lifetime, and other changes may be ahead of me, but I no longer believe in Reaganomics or austerity as a way to grow the economy and jobs. It’s an obsolete ideology to my mind.
The data just doesn't support the belief.