Congressional Republicans came to power earlier this year with a simple economic argument -- the government was spending too much money and a new era of austerity was required. In January of this year, the economy had been in a slow and inadequate recovery for some time. Jobs were being created each month. The stock market had come back. Few were discussing another global crisis or slow down in the U.S.
Many economists, including our own Rob Shapiro, warned that the recovery was too fragile to remove the fiscal and monetary stimulus put in place in 2009 all at once. That doing so would make the U.S. vulnerable to external shocks, which could push the economy back into recession. But in this new GOP-led era of austerity the stimulus was removed. And then the shocks came. Rising energy prices, disaster in Japan, a weakening Europe. And the American economy has slowed, worries about a global financial crisis have returned. And those who warned that a move to austerity in 2011 in the U.S. was premature now look prescient. Riding in from the airport last night a banker in my van asked me whether any one in Washington understood what happened in 1937 -- 1937 being the year the U.S. government moved to austerity prematurely and pushed the U.S. back into recession.
As the president gets set to unveil his "American Jobs Act" tonight, it is critical that policymakers and commentators come to recognize that to a great degree the GOP economic approach has already failed, and that this rush to austerity needs to be replaced by a different approach, one more suited to the economic and political moment we are in. Ploughing ahead with the current fiscal path will almost guarantee a further slowing of the U.S. economy and could trigger a European financial crisis, which could of course spread to our struggling banking sector. That the Super Committee process now in place ensures further austerity at year's end should worry all observers.
The economic and political backdrop to tonight's speech is different from what we have seen over the past two years. Since the fall of 2009 the U.S. economy had been in slow, tepid recovery. That has changed. Making the wrong move now could have dire consequences for the U.S. and global economies. It is critical for the president tonight to begin to challenge the austerity frame which has defined our economic debate, and replace it with a more nuanced framework appropriate for the economic moment we are in. The Republican-led austerity approach has been tried this year, and has already failed -- it is the central cause of current worsening economic conditions.
Given the climate the president doesn't have an easy job tonight, but that is what leadership is about, isn't it? Making your case for what you believe is right, and fighting like hell to see it through.
P.S. - For more of our thinking about the state of the economy see this recent roundup of our work. And be sure to read this terrific analysis by David Leonhardt in the NYTimes today.
Cross posted at NDN.org.