Why We Would Be Better Off without the New York Times: Yet Another David Brooks Edition
Outsourced to Dean Baker:
David Brooks and the Power of Magical Thinking at the NYT: David Brooks doesn't like the stimulus.... Today he engages in... magical thinking.... His first invention is telling us: "deficit spending in the middle of a debt crisis has different psychological effects than deficit spending at other times." This is very interesting, what "debt crisis" is Brooks referring to? We can point to a debt crisis in Greece, and arguably Portugal and Spain, but it is not clear what that has to do with the argument for stimulus in the United States. There were debt crises in Latin America in the 80s, no one ever raised these in the context of the Reagan era budget deficits.... In the real world we would look to things like the ratio of debt to GDP in the United States (@60 percent).... The next thing we would do in the real world is look at the interest rates that the United States is currently paying....
Brooks then decides that the stimulus did not work because the economy is not creating many jobs. Again, in the real world we would be interested in the size of the stimulus in order to determine how much impact we would expect it to have.... In the real world, we are not surprised that $150 billion [a year] in net government stimulus cannot offset a decline of more than $1 trillion in private sector demand, but in the magical thinking of David Brooks this is a big disappointment....
Finally, Brooks recounts the stories of countries that grew successfully even as they pared back their budget deficits... Ireland and Denmark. These are both fine countries. But there is a very important difference between Ireland and the United States... small countries with very open economies.... If the governments in Ireland and Denmark cut back their spending it can be offset by increased net exports, especially if their currencies decline relative to the currencies of their trading partners. Does Brooks think this will happen in the U.S.?... [C]entral banks of these countries... respond[ed] to fiscal contraction by lowering interest rates. This is not an option in the U.S.... more magical thinking on Brooks' part....
Of course, there is nothing wrong with magical thinking, except when it is likely to affect real world policy...
