Economist's View: Paul Krugman: States of Depression
Adjusted for inflation, Reagan-era spending rose 10.2 percent in the first 10 quarters of recovery, Obama-era spending only 2.6 percent.Why did government spending rise so much under Reagan, with his small-government rhetoric, while shrinking under the president so many Republicans insist is a secret socialist? In Reagan’s case, it’s partly about the arms race, but mainly about state and local governments doing what they are supposed to do: educate ... children, invest in infrastructure for a growing economy.Under President Obama, however, the dire fiscal condition of state and local governments ... has led to forced spending cuts. The fiscal straits of lower-level governments could and should have been alleviated by aid from Washington... But this aid was never provided on a remotely adequate scale. ...We’re talking big numbers here. If government employment under Mr. Obama had grown at Reagan-era rates, 1.3 million more Americans would be working as schoolteachers, firefighters, police officers, etc...And once you take the effects of public spending on private employment into account, a rough estimate is that the unemployment rate would be 1.5 percentage points lower..., or below 7 percent — significantly better than the Reagan economy at this stage.One implication of this comparison is that conservatives who love to compare Reagan’s record with Mr. Obama’s should think twice..., in reality Reagan was much more Keynesian than Mr. Obama, faced with an obstructionist G.O.P., has ever managed to be.More important, however, there is now an easy answer to anyone asking how we can accelerate our economic recovery. By all means, let’s talk about visionary ideas; but we can take a big step toward full employment just by using the federal government’s low borrowing costs to help state and local governments rehire the schoolteachers and police officers they laid off, while restarting the road repair and improvement projects they canceled or put on hold.