I have to admit I chuckled when the WashingtonPost WonkBlog declared, “The economy is holding up surprisingly well in a year of austerity.” Of course, this isn’t that surprising to those of us who never really bought into the sequestermongering. But it’s nice to see even the liberal, mainstream, doom-peddler types admitting that the economy isn’t acting very doomy right now:
Housing prices rose faster over the past year than they have in the past seven, according to data out Tuesday. Consumer confidence hit its highest level in five years. The stock market rallied another 0.6 percent as measured by the Standard & Poor’s 500, leaving it just short of an all-time high reached last week. And the national retail price of gasoline fell for six days straight through Monday and is down 16 cents a gallon since late February.
Since it never shows up, the inevitable pain of austerity keeps getting pushed back. The world didn’t collapse on New Year’s Day because, well, the spending “cuts” were delayed two months and the tax jumps took a little while to get figured into people’s paychecks. The world didn’t collapse on March 1 because, well, the departments would take awhile to adjust to the changed budget of the sequester. Now the pain is apparently delayed until later this year, or maybe even next year!
(Maybe the only thing surprising about the sequester is that the experts are so surprised. How long before “sequester doom” becomes the left’s “hyperinflation”?)
Is Spending Always the Answer?
It certainly may be true that the pain of the sequester will eventually ricochet through the economy, but it sure looks like the Keynesians have a pretty unfalsifiable position. When we increased spending and the economy was still bad, the response was: Oh, it was worse than we thought! We should be spending more! Now when we decrease spending and the economy gets better, the response is: Oh, it wasn’t as bad as we thought! But it would be even better if we were spending more!
Again, it’s not impossible for those positions to be true. But to a non-Keynesian it sure feels like they’re spinning any circumstances through their existing bias to justify more spending.
What About the Tax Increases?
Of course, conservative fiscal hawks have their bias problems, too. Tax increases are always supposed to be bad, but in January the payroll tax for all working Americans and the income tax for rich Americans both returned to previously higher levels. And what happened?
The deficit shrunk faster than expected! The economy is still adding jobs! Despite all that rhetoric about not raising taxes on wealthy job creators, apparently we are nowhere near that part of the Laffer curve where increased taxes leads to lower revenue! (Not that this should be a surprise; the economy had healthy periods with those exact tax rates in the 90’s.)
But conservatives still have plenty of conservativey explanations for the healthy economy, like the huge boom in oil and gas output. We could even speculate that some of the limited government expenditures are reducing its influence over the private sector and leaving more room to grow, although I doubt the marginal differences here would be enough to noticeably offset the short-term effect of the direct missing government dollars.
Conservatives have a big excuse waiting in the wings next time the economy turns sour, too: Obamacare (indeed, many conservatives aren’t even waiting). Any dip in the stock market or rise in inflation or slowdown in job creation will be blamed on the disincentives created by that giant healthcare legislation, and in some cases, they may actually be right. In a complex economy, both sides are pretty good at spinning both good and bad news as evidence that strengthens their pre-existing positions!
As for me, I’m hesitant to put increased confidence in any of my left-right biases about the effects of taxing and spending based on the economy’s post-sequester behavior so far. But the surprise of the experts does increase the confidence in my bias that those experts are overconfident in their ability to predict effects, not only of the stimulus and the sequester but also of a lot of the other interventions (a.k.a. reforms) they’re so fond of proposing.