Thursday, October 13, 2011

The Real American Jobs Act – a 1937 Redux?

Manu Raju reports on the latest GOP political gimmick:

So they’re planning to roll out a jobs plan that amounts to a conservative’s dream agenda: targeting labor and environmental regulations, enacting a balanced-budget amendment to the Constitution, lowering corporate and individual tax rates, encouraging energy production and expanding free trade, according to a draft obtained by POLITICO.

Expanding free trade and reducing regulations will do little to shore up the lack of aggregate demand and hence will have little effect on GDP and employment. Drill baby drill isn’t exactly the solution to the Great Recession either. So let’s focus on the fiscal side of this proposal – balancing the budget as one cuts tax rates likely means massive reduction in government spending.

Bruce Bartlett noted that a similar turn to fiscal austerity led to the 1937 recession:

During 1937, Roosevelt pressed ahead with fiscal tightening despite the obvious downturn in economic activity. The budget deficit fell from 5.5% of GDP in 1936 to 2.5% in 1937 and the budget was virtually balanced in fiscal year 1938, with a deficit of just $89 million. The result was a huge economic setback, with GDP falling and unemployment rising. For this reason, Obama's economic advisers have been warning for some time that stimulus must be continued until full employment has returned.

The Republicans actually want to call their proposal to repeat this policy mistake “The Real American Jobs Act”?


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