the national interest

The Arguments of the Great Recession Are Over. Hooray.

One day, we'll look back on this and laugh.

Five years after the financial crisis, the general expert consensus is that the Obama administration did a good but not great response job. The financial rescue measures saved the banking system from wreaking deep, widespread destruction, but preserved it well enough to live on as a noxious political-economic force. Financial reforms reduced but did not eliminate systemic risk. The auto bailout worked better than anybody could have hoped. The stimulus prevented Depression-level unemployment but wasn’t large enough to avoid a deep, grinding recovery with mass unemployment.

I’ve seen lots of charts keyed to the five-year anniversary of the crisis — it’s like Christmas for chart bloggers — but this one, via Derek Thompson, sums up the situation best:

Photo: The Atlantic

That’s the basic story. Consumer demand is strong enough to sustain a recovery, but not strong enough to give workers any bargaining power. In the short run, the labor market is still slack. In the long run, the dominant trend of the previous two decades — skyrocketing inequality — is resuming.

There’s a good argument about the adequacy of the Democrats’ response to this state of affairs. But say this much: It is a response to this state of affairs. If you look at President Obama’s economic strategy, you see a combination of policies addressing these conditions in some form. You have proposals to replace sequestration, which is a millstone around the economy’s neck, and implement some infrastructure and other short-term stimulus. You’ve got some additional inequality-reducing proposals to reduce tax deductions for the rich and promote early childhood education.

It is hard to understand just how the Republican Party agenda connects to these circumstances at all. A few years ago, you could certainly find a lively intellectual defense for the GOP’s position. In September of 2008, conservative pundit and McCain campaign adviser Donald Luskin argued that the economy was in outstanding shape — “on the brink not of recession, but of accelerating prosperity.” In the spring of 2009, The Wall Street Journal editorial page declared that high deficits were already sending bond prices through the ceiling. In 2011, Megan McArdle made the case that income inequality may have peaked and was already falling:

Income inequality has been rising for so long that people have started to assume that it has just kept rising, even when the data show otherwise. We don’t want to spend years focused on income inequality, only to learn that the financial crisis fixed it for us.

All those empirical arguments lent support, at least broadly, to the Republican platform. If the economy were not heading into a massive depression, or if deficits were driving interest rates high, then opposing large fiscal stimulus would make a lot of sense. Likewise, if sky-high inequality were receding, then long-term concerns about the gap between the top one percent and everybody else ought to weigh a bit less heavily on us.

But none of these arguments were true. And conservatives have made precious little effort to replace them with other arguments.

The right has consumed itself with a lively internal argument about the direction of conservatism and the Republican Party — libertarian populism, conservative reform, and all that. But this discussion has ignored the front and center economic questions. Do conservatives still think cutting short-term deficits will increase rather than retard growth? Academic support for that position has almost entirely collapsed. I don’t even see many conservative intellectuals defending it in columns. And yet the Republican Party marches on, opposing any effort to lift short-term austerity policies that economists almost all believe are holding back the recovery. It’s as if the head of the austerity monster has been sliced off, but the body lurches forward regardless.

Meanwhile, however Republicans resolve their long-term vision debate, they have coalesced around a short-term vision. It is to repeal Obamacare without a replacement, maintain short-term austerity, weaken labor laws, loosen financial regulation, and defend every tax deduction enjoyed by the affluent. I don’t see how this policy mix could be remotely defended in light of actual circumstances. Almost nobody on the right seems to want to defend it. But nobody seems interested in placing even the slightest pressure on the Congressional party to alter its stance, either.

The great economist Paul Samuelson once said, “Let those who will write the nation’s laws if I can write its textbooks.” He seems to have been too naive. The great economic arguments of the recession are over, and it turns out not to matter.

Debates of the Great Recession Are Over, Hooray