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The Destructive Conservative Myth That Keeps Our Economy in Tatters

We are guided by our superstitions. The newest one? We can grow the economy by shrinking it.

 A man is wise with the wisdom of his time only and ignorant with its ignorance. Observe how the greatest minds yield in some degree to the superstitions of their age. —Henry David Thoreau

Throughout human history societies have been informed and instructed by the superstitions of their age. For thousands of years we believed a single person—a king, a pharaoh, a high priest— should have life and death power over us. Any other social structure was unthinkable. We believed the gods that brought drought could be appeased only by animal and, sometimes, human sacrifice.

Today these superstitions seem ridiculous. How could thinking people ever have believed such preposterous notions?

But here we are. August 2011. And the zeitgeist has given birth to a new superstition. One that will bewilder future generations as much as the belief in the absolute power of pharaohs or drought reflecting the anger of the gods does ours.

What is this new superstition? The belief that we can grow the economy by shrinking it.

The idea defies common sense. And yet in just two short years it has become the fundamental guiding principle of public policy.

The story begins with the financial and economic collapse of 2008. Housing starts ground to a halt. By early 2009 unemployment was in the process of doubling. The economy was all but dead in the water.

With private investment having all but dried up, the government stepped in. The three year stimulus bill, passed in early 2009 was too modest, a result of President Obama’s mistaken belief that if he asked for less and made tax credits to business almost as large as the direct job creation component Republicans would be supportive.

Many thought the stimulus was too small. Some thought it too large. But conservatives offered a nonsensical bizarre proposition. The additional spending was useless. Rick Scott, the Republican candidate for governor in Florida, accused his Democrat opponent of having “backed the failed stimulus bill, which created debt, not jobs.” The Koch brother-funded group Americans for Prosperity launched a series of ads that claimed the “$787 billion stimulus … failed to save and create jobs.” Presidential candidate Michelle Bachman recently declared, “had the President done nothing we would have seen 288,000 jobs created this week . Instead, we’re losing jobs.”

A delighted Fox News has spread the narrative far and wide.

How can anyone believe the government could borrow hundreds of billions of dollars, much of it from foreigners, spend it domestically and not create any new jobs? A reasonable person might argue that in the long run the increased debt might raise interest rates and higher interest rates might slow economic growth. A reasonable person might argue that in the long run increased debt might lead to higher inflation, which might have a damaging impact. But to argue that in the short term injecting $800 billion of new spending into the economy has no positive economic is lunacy.

Governments that were going to lay off people did not. Bridges that would not have been built were. Millions of households that would not have had spending money did.

The most credible analysis concludes that as of June 2011 the stimulus resulted in an increase in full time employment of between 1.6 and 4.6 million.

Conservatives argue that left to its own devices the private sector would have quickly righted the economy. Well, the private sector largely was left to its own devices. We should remember that a stimulus of about $250 billion a year was injected into a national economy approaching $15 trillion. History proves otherwise.

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