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I agree with you that it's necessary to look at evidence. But the evidence actually pretty overwhelmingly supports the general Keynesian framework for a financial crisis like this. Look at the data on austerity measures/spending vs. growth worldwide in this crisis (http://krugman.blogs.nytimes.com/2012/02/18/austerity-and-gr...), or any data on similar circumstances (the US "double-dip" in 1937 during the Great Depression, before WWII deficit spending brought us out of it, Japan in the 90s, etc.). The real question is, where is there ANY evidence/what is the model for the opposing view? Does it in any way match up with what really happened over the past 4 years? (because the AD-deficit/Keynesian view does) Responding to the complaint about Obama's economic advisors being wrong is easy - they were wildly optimistic. However, plenty of economists including Paul Krugman were saying this at the time (http://www.nytimes.com/2009/01/09/opinion/09krugman.html?par... - note the date Jan 9, 2009, before Obama was even sworn in). The math is pretty basic - according to the aggregate demand view of the crisis you have a combined housing/financial shock that totaled at least 6% of GDB. The stimulus was MAYBE 1.5% of GDB, and that's being generous with assuming that high end tax cuts are just as effective as outright spending money (I would argue that they are not, since in a saver's economy, much of that money is just saved straight away). The Obama stimulus package was 4+ times too small to address the magnitude of the problem by this model; no one who has this view of the world is surprised that unemployment is still high (the only surprise was that Obama's advisors had such a rosy-eyed, not data-driven view of the world. They deserve a LOT of criticism for that). Your "fall back on models that we do understand and have a lot of data for, like how businesses and households manage debt" is completely at odds with reality for two reasons. One is that it doesn't really imply what you say it does; most rational, not capitally constrained businesses/households (and the US is emphatically not capital constrained - bond yields are as low as they've ever been) invest when they have absurdly low interest rates - you're basically getting free money from the market, it's not a rational response to cut back in a situation like that. The second, and arguably more important, argument, however, is that the government occupies a fairly special position in the economy, since it alone among economic actors will never run out of money. Therefore, the government has the unique ability to act in a counter cyclical manner - it can counteract the collective saving of businesses/households to stimulate demand during recessions, and pull back when the private sector is roaring. (You give me 5% unemployment and 4-5%/yr GDP growth and I will be all for govt deficit reduction) |