The way things used to be: A few years ago, I attended a meeting in which President Barack Obama asked a group of economists to give him unconventional ideas about political lines of action. I remember him perfectly saying: “Don’t tell me I have to spend a trillion dollars on infrastructure. I already know that, and I can’t do it ”.
The way things are now: the Democratic leadership has agreed on a proposal to spend 3.5 trillion dollars in public investments of various kinds, which must be approved by way of reconciliation, in addition to a bipartisan plan of 600,000 million dollars of spending on physical infrastructure. Still, some news reports refer to the deal as a defeat for the left because Bernie Sanders was proposing to spend even more. Obviously, the deal in question is just a proposal, and turning it into law in practice will require the consensus of each and every Democratic senator. Still, there is no doubt that there has been an astonishing shift – a marked shift to the left – in what is considered politically realistic.
And how has millionaire spending pick up momentum again? Let me offer you five explanations.
First: COVID-19 and the extraordinary measures taken to limit suffering during the economy’s induced coma have had a lasting impact on economic ideology. It was clear that disaster relief was necessary. Even the Republicans voted in favor. But the positive role played by the Government during the pandemic has contributed to generally legitimize an active role for the Administration.
Second: the myth of reaganomy it has become unsustainable. It used to be normal for conservatives to claim that Reagan’s tax cuts and liberalization ushered in an era of unprecedented economic success. In fact, sometimes I still hear it. However, now the answer to these assertions is, “But man, have you taken a look at FRED?” That is, have you taken the trouble to consult the figures available on sites like the wonderfully easy use Federal Reserve Database (FRED)? Overall economic growth has been slower since 1980 than in previous decades, and, thanks to growing inequality, much slower for an average family. Real wages for most workers have stagnated.
And while most voters don’t consult FRED, they do have an idea of what the underlying reality is. Donald Trump’s policies were a replica of the failed Republican orthodoxy, but the former president’s campaign slogan reflected public awareness that, indeed, the post-Reagan era had not been so great for workers.
Third: the debt alarmists have lost almost all their credibility. The fiscal crises that they haven’t stopped predicting have never happened. Leading economists have pointed out that although debt figures appear high, low interest rates mean the cost is likely to be easy to bear. The Biden Administration’s budget proposals state that, in fact, real interest payments – that is, adjusted for inflation – are negative. In addition, many of those who bullied the Obama administration with debt exposed their true motives by keeping quiet during the Trump years.
Now, it must be said that the millionaire spending plans in preparation include costs, that is, they include compensatory savings and increased income, so that they will not explicitly involve simple borrowing to pay for public investment. But the dissipation of the debt panic means that Democrats aren’t going to worry too much about how compelling those costs seem.
Fourth, the field of economics is much more evidence-based today than ever before, and economists have collected a great deal of data that points to the benefits of public spending, especially aid to families with children. Conservatives will continue to insist that all public spending is wasteful, because it is what they do, but the fact is that there is strong evidence that the kind of spending that the Democrats propose produces big payoffs. One subsection: as long as the spending is supported by both parties, it will be devoted to “hard” infrastructure, such as roads and bridges, which need a lot of work. But, for what it’s worth, the arguments in favor of the skyrocketing benefits of “soft” spending on people, who make up the bulk of the Democratic proposal, are even stronger.
Finally, Republicans have lost interest in politics. During the Obama years, GOP politicians mobilized their grassroots with lies about Obamacare and horror stories about the deficit. With President Biden, they are mobilized with lies about the stolen elections and insane claims about the fundamental theory of race. It is clear that the Republican descent into madness is a bad business. However, the insanity has had a perverse effect, and that is that it has helped pave the way for the Democrats’ economic and fiscal agenda. It is true that senators of the old guard continue to murmur the usual accusations of socialistsmanirbrokenjobsassinsBut the energy of the Republican Party is focused on defeating imaginary satanic conspiracies, and not on hindering the reality of Democratic spending plans.
Once again, the big spending plans on the table may not be approved. Democrats have a very narrow majority in Congress, and failure remains a possibility. But, right now, it seems that millionaire spending is back, and there is no shortage of good reasons for it.
Paul krugman He is a Nobel Prize in Economics. © The New York Times, 2021. News Clips translation