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Austerity's end strengthens U.S. recovery

Americans for Tax Reform President Grover Norquist talks during the Politico Playbook Breakfast at the Newseum in Washington, DC, November 28, 2012. (Photo by Jim Watson/AFP/Getty Images)
Americans for Tax Reform President Grover Norquist talks during the Politico Playbook Breakfast at the Newseum in Washington, DC, November 28, 2012.
For a variety of partisan and ideological reasons, the right finds it necessary to believe austerity helps the economy. Conservatives, on Capitol Hill and off, remain wedded to the idea that taking capital out of the economy and weakening demand will lead to more growth, all evidence to the contrary notwithstanding.
In an amusing twist, as the U.S. economic recovery gains strength, some on the right actually feel vindicated.

Grover Norquist would like Republicans to shut up about how bad the economy is, and instead take credit for the recovery. The prominent anti-tax crusader hasn't turned into a bullhorn for President Barack Obama's economic policies; he still thinks they're a drag on jobs and wages. But he's also grown critical of his fellow Republicans for making poor strategic and messaging decisions on several key issues. Rather than tying the economic recovery to spending cuts ushered in by the sequester and to the continuation of 85 percent of the Bush tax cuts, he said, some in the party have insisted their own leaders fumbled those items.

It's an interesting course correction for the right. In recent years, Republicans have said the combination of the Affordable Care Act, federal regulations, and higher taxes on the wealthy are crushing the economy. That argument obviously doesn't make any sense in light of the strongest growth and job creation in over a decade.
So Norquist is suggesting his party flip the script: sure the economy is starting to soar, he says, but that's only because deep spending cuts like "the sequester" gave the nation a big boost. Austerity took capital out of the system, some conservatives are now arguing, and just look at how great the results are!
It's important to understand the degree to which Norquist has the story backwards. Recent developments haven't bolstered conservative economic theories; they've done the opposite.
First, the national economy hasn't improved as a result of spending cuts, but rather, the end of spending cuts.

For a long stretch, government spending cutbacks at all levels were a substantial drag on economic growth. Now, finally, relief is in sight. For the first time since 2011, local, state and federal governments are providing a small but significant increase to prosperity. [...] Across the nation, state and local governments, Democratic and Republican alike, are spending on projects that were stalled. Teachers, who were laid off in droves in recent years, are being hired again. Even federal spending in some sectors is on the rise.

The more the public sector starts to reinvest, as opposed to scaling back, the stronger economic growth becomes. This is the polar opposite of Republican economic theory, and yet, the laws of supply and demand don't much care about politicians' ideology.
Second, as Danny Vinik explained, "one of the big reasons that the economy kicked into gear in the latter half of this year is that the Murray-Ryan budget deal alleviated much of sequestration. Fiscal policy, finally, is largely not standing in the way of stronger growth."
Paul Krugman last week seemed to anticipate Norquist's argument, and preemptively destroyed it.

Suppose that for some reason you decided to start hitting yourself in the head, repeatedly, with a baseball bat. You'd feel pretty bad. Correspondingly, you'd probably feel a lot better if and when you finally stopped. What would that improvement in your condition tell you? It certainly wouldn't imply that hitting yourself in the head was a good idea. It would, however, be an indication that the pain you were experiencing wasn't a reflection of anything fundamentally wrong with your health. Your head wasn't hurting because you were sick; it was hurting because you kept hitting it with that baseball bat. And now you understand the basics of what has been happening to several major economies, including the United States, over the past few years. In fact, you understand these basics better than many politicians and commentators. [...] [I]n America we haven't had an official, declared policy of fiscal austerity -- but we've nonetheless had plenty of austerity in practice, thanks to the federal sequester and sharp cuts by state and local governments. The good news is that we, too, seem to have stopped tightening the screws: Public spending isn't surging, but at least it has stopped falling. And the economy is doing much better as a result.

I can appreciate the dilemma facing Norquist and his allies when it comes to explaining the sudden economic surge. Indeed, after the strongest economic growth in 11 years, Republicans greeted the news with total silence -- literally.
And if I were in their shoes, I'd probably be speechless, too. But that's no excuse for peddling nonsense -- those hoping to credit austerity for a healthy recovery clearly have no idea what they're talking about.