Recently, a slew of media commentators have been championing what Matthew Yglesias dubbed “neo-Hooverism” — the notion that the next president will have to significantly curb spending due to the financial crisis. In the Washington Post, columnist Ruth Marcus advocated that the next administration enact “the New Sobriety” by building “political consensus for painful but necessary budgetary choices.”
However, today, a group of economists and budget analysts — as well as Nobel Prize winner Paul Krugman — concluded that “the next administration should — initially, at least — open its wallet, not tighten its belt.”
As Krugman pointed out:
It’s politically fashionable to rant against government spending and demand fiscal responsibility. But right now, increased government spending is just what the doctor ordered, and concerns about the budget deficit should be put on hold […]
There’s a lot the federal government can do for the economy. It can provide extended benefits to the unemployed, which will both help distressed families cope and put money in the hands of people likely to spend it. It can provide emergency aid to state and local governments, so that they aren’t forced into steep spending cuts that both degrade public services and destroy jobs.
Krugman also wrote that this is “a good time to engage in some serious infrastructure spending, which the country badly needs in any case.”
But it’s not only media types who have bought the neo-Hooverist line. During the third presidential debate, Sen. John McCain (R-AZ) proclaimed that “Americans are hurting tonight and they’re angry and I understand that, and they want a new direction. I can bring them in that direction by eliminating spending.” McCain has also advocated a complete spending freeze, save for some “vital” programs.
However, Dean Baker, co-director of the Center for Economic & Policy Research, noted that “advocating spending cuts and/or tax increases in the wake of the downturn that we are now seeing makes about as much sense for the economy as nuking Silicon Valley.” Baker wrote, “if the advocates of such nuttiness get their way, then a Great Depression type downturn may be on the agenda.”