With midterm elections drawing near, it's becoming increasingly difficult to convince Congress that more government money is needed to pull the United States out of its economic slump. Instead, lawmakers seem to be banking on expansion and investment from private businesses.
Hopefully they were paying attention to Tuesday's stock plunge -- attributed to news of slowing economies from the U.S. to China -- which, in the view of David Leonhardt of the New York Times, suggested that "pessimism seemed the better bet."
One day of trading isn't necessarily a referendum on economic policy, of course. Leonhardt equivocates on the question of longer-term spending versus austerity, writing, "You can find good evidence to support either one." But investors remain consistently reluctant to let their money ride, consumer confidence is in the gutter, and the U.S. Census Bureau hired more than ten times as many Americans in May as the entire private sector put together.
As the Los Angeles Times outlines, state and local governments are still heavily dependent on soon-to-expire federal stimulus funding to avoid making painful cuts to social services that benefit millions of desperate Americans. The U.S. government isn't alone in its hesitation to keep spending, but the devastating effects of austerity measures in Ireland offer a bleak picture of what may come if Congress continues on a similar path.
There is precedent for premature economic optimism in the United States, as well. In 1937, the middle of the Great Depression, significant relative economic expansion had prompted President Roosevelt to cut spending and Congress to raise taxes, cratering the still-fragile national economy and spiking unemployment. Though Leonhardt argues that America will have to endure some painful cuts in the future, he writes, "The parallels to 1937 are not reassuring."
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