Policy

Just Think How Much Stimulation We'll Need If the Economy Ever Stops Growing!

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You don't need a weatherman (or a Weatherman) to know which way a Washington Post op-ed entitled "A Moment for Fiscal Courage" is gonna blow in these re-regulatory, sky-done-falled-already times. But Sebastian Mallaby earns extra credit for his sheer audacity in deploying proof-less axioms in the cause of having the government spend more money:

The upshot is that things are desperate. The unemployment rate in the headlines (which understates the real number) is heading toward 6 percent; home prices are falling hard; and the two forces that have averted outright recession ? a timely fiscal stimulus and strong growth abroad ? are fading. The Fed has cut interest rates as much as possible given the worry about inflation. Foreign central banks are similarly boxed in. With the world's inability to agree on anything, there's no prospect of a coordinated global response ? witness the breakdown in trade talks. And so the United States must act using the only tool it has: It is time for a second stimulus.

I'm old enough to remember when "unemployment heading toward 6 percent" was a scare phrase when said rate was heading downward, because the Phillips Curve-quoting consensus was that anything lower than 6 percent would trigger automatic inflation. Yet for the past 167 months, unemployment has indeed been lower than 6 percent for all but a seven-month stretch in 2003, during a time when total nonfarm employment increased from 115.2 million to 137.6 million, according to the Bureau of Labor Statistics. Things are desperate!

But wait, home prices are falling hard, right? Yes! All the way down to … 2004 levels. Which were still nearly double 1997 levels in real terms.

As for "outright recession," yes indeedy that has been averted, to the tune of 1.9% GDP growth in the second quarter. And much as I hate to see global trade talks break down, a "coordinated global response" to allegedly "desperate" economic situations worldwide (think: the 1997-98 Asian flu, or the peso crisis not long before that), are about the collective actions of central bankers, not trade negotiaters. And fer cryin' out loud, how come it's only spending more guvmint money that indicates "courage," rather than performing the much-rarer feat of spending less?

Am I the only one who feels like we're in for a long silly season of economic journalism?

We took a survey of leading economic grumpiness in our June issue.