He seems to start out ok
The country is divided when different people take different sides in a debate. The country is really divided when different people are having entirely different debates. That’s what’s happening on economic policy.
Many people on the left are having a one-sided debate about how to deal with a cyclical downturn. The main argument you hear from these cyclicalists is that the economy is operating well below capacity. . .
Other people — some on the left but mostly in the center and on the right — look at the cyclicalists and shrug. It’s not that they are necessarily wrong to bash excessive austerity. They’re simply failing to address the core issues.
I don’t know that its useful to reinforce an already seemingly foolish partisan divide here, but the notion that there is crosstalk between the structs and the cycs seems like something that could have merit.
Yet, then he seems to impose an even greater degree of false-dichotomization than those in blogosphere.
Unlike the cyclicalists, we structuralists do not believe that the level of government spending is the main factor in determining how fast an economy grows. If that were true, then Greece, Britain and France would have the best economies on earth. (The so-called European austerity is partly mythical.) We believe that the creativity, skill and productivity of the work force matter most, and the openness of the system they inhabit.
If I am not a card-carry Cyclicalist then I am not sure who is, yet I don’t believe that government spending is the main factor in how fast an economy grows. Scott Sumner may be the leading pure money Cyc and I am sure he would laugh at this idea.
Even Delong, Summers and Krugman who clearly advocate more government consumption and investment and emphasize the long run dangers of hysteresis wouldn’t say that.
Brooks goes on
Structuralists face a tension: How much should you reduce the pain the unemployed are feeling now, and how much should you devote your resources to long-term reform? There has to be balance. For my taste, the Germans are a bit too willing to impose short-term pain on the diverse national economies in Europe. But they are absolutely right to insist on the sort of structural reforms they themselves passed in the 1990s.
What exactly is the limited resource that one is budgeting here? The time and attention of policy makers? If this is such a major issue then why not have the Fed and Treasury focus on stabilization, while whatever reforms folks have in mind are hashed out by the rest of the government?
In any case I don’t see why these aren’t complementary goals, generally speaking. I can comprehend the German Government’s position that a crisis is a terrible thing to waste and this is a good opportunity for some arm twisting.
I think its foolish and self-defeating but its comprehensible. Yet, here in the US what is the tradeoff? I don’t exactly know what reforms Brooks, Tyler Cowen and the rest have in mind but its not immediately clear why they are easier in an environment of high unemployment.
Especially if you are looking for Alex Tabarrok type investments in basic research, it seems clear that this is going to be a much easier sell in an environment with higher revenues and lower unemployment insurance payments.
Brooks end with this
Make no mistake, the old economic and welfare state model is unsustainable. The cyclicalists want to preserve the status quo, but structural change is coming.
Its obviously not clear to me that this is true. Even in our basic projections the only part of the welfare state that is “unsustainable” is health care, but its simply “unsustainable” anyway. That is, one way or another excess expenditure growth in health care will come to an end. This is simply a mathematical necessity.
Not, as always that the truth of this mathematical conjecture says nothing about how it will come to an end. If health care ate the whole economy then the nominal rate of economic growth would either speed up to equal health care expenditure growth or the Fed would wind up curbing health care spending by curbing total spending.
Even still suppose you want to reform the welfare state. Both theory and experience suggest that this is going to be easier when unemployment is low rather than when it is high.