A few days ago, I had the priviledge of getting a hangover. I deserved it - I drank way to much with friends who are moving to London soon! R & N, we will see you in sunny London soon!
However, economies are not human, and we do not need to suffer through a Bush years economy hangover. We do not need to suffer in now and in the future because Bush and Co. engineered a flawed economy based on credit expansion in the past.
Paul Krugman writes about this in his blog today. A Chicago economist claims that the reason we have such high unemployement is that people do not want to work, and that the recession we are staring in the face is a result of the mal-investment of the last few years. Paul dismisses him with ease, and we should say this loud, again and again:
We do not need to face an economic hangover from the Bush years.
Take a look at Paul K's classic internet article on the subject of hangovers:
Powerful as these seductions may be, they must be resisted—for the hangover theory is disastrously wrongheaded. Recessions are not necessary consequences of booms. They can and should be fought, not with austerity but with liberality—with policies that encourage people to spend more, not less. Nor is this merely an academic argument: The hangover theory can do real harm. Liquidationist views played an important role in the spread of the Great Depression—with Austrian theorists such as Friedrich von Hayek and Joseph Schumpeter strenuously arguing, in the very depths of that depression, against any attempt to restore "sham" prosperity by expanding credit and the money supply. And these same views are doing their bit to inhibit recovery in the world's depressed economies at this very moment.
Many people are currently calling for a recession because they cannot imagine that we can have a balanced economy without one.
But we do not need a hangover from the Bush economy. We just need to approach the situation rationally, and use basic Keynesian theory to make our hangover go away. In this case, we need a good bit of spending, and only a payroll tax holiday combined with infrastructure spending will be large enough to overcome this hangover.
Even conservative economists are wondering if Obamas proposed spending will be enough to stimulate the economy. We face the danger of a hangover from the Bush years if we do not spend enough.