When Shakespeare\u2019s Richard the Third decried the \u201cwinter of our discontent\u201d, he meant that unhappiness had gone into hibernation. \u00a0He intended to awaken it. \u00a0No need for R-III-R in Washington these days. \u00a0With all problems diagnosed as \u201csystemic\u201d, systemic pessimism is everywhere.<\/p>\n
Two weeks ago, in her weekly Wall Street Journal<\/em> column ( http:\/\/tiny.cc\/4gkz6<\/a> ), Peggy Noonan pointed to reports of Americans giving up their citizenship. \u00a0She worried that popular gloom over economic decline and powerlessness to change an out-of-touch leadership could lead to civil unrest and national decline.<\/p>\n Last week Hudson Institute scholar, journalist, and economist Irwin Stelzer in The Weekly Standard<\/em> (at http:\/\/tiny.cc\/53ouc<\/a> ) wrote in similarly dirge-like tones, \u201cThe American economy is in serious trouble, and the remaining weapons we have available to prevent a double dip are few indeed. \u201d \u00a0Nothing in his column except a last sentence assertion of faith suggested the slightest hope.<\/p>\n Then this morning, again in The Wall Street Journal,<\/em> editor, publisher, and investor Mort Zuckerman added (at http:\/\/tiny.cc\/yyl7i<\/a> ), \u201cOur brief national encounter with optimism is now well and truly over.\u2026 We have a paralyzed system. Neither the Democrats nor the Republicans seem able to find common ground to address what is clearly going to be an ongoing employment crisis.\u201d<\/p>\n No wonder for all this gloom. \u00a0Each new report on the economy seems worse than the last: lost jobs, declining overall investment, federal deficits that could ruin the U.S. economy for decades to come. Pick your poison.<\/p>\n Non-ideological political players in Washington are puzzled. \u00a0The Obama Administration\u2019s confounding response has been increased spending and letting the Bush tax cuts expire. \u00a0This is not even a Keynesian approach. \u00a0Keynes would not have countenanced tax increases in what is now clearly the deepest job-losing period since World War II. \u00a0Indeed, it appears that, when not working in the White House, neither would key administration economic advisors.<\/p>\n You have probably heard of a 2007 paper by recently retired chair of the Council of Economic Advisors Christina Romer and her husband, Berkley professor (like his wife) David H. Romer. \u00a0It has been making the astonished rounds of opinion journals and bloggers. \u00a0\u201cThis paper investigates the impact of changes in the level of taxation on economic activity,\u201d they write, adding, \u201c[We] separate revenue changes resulting from legislation from changes occurring for other reasons.\u201d \u00a0Apparently they take this analysis to a level of detail never attempted before. \u00a0From it they conclude, \u201cThe resulting estimates indicate that tax increases are highly contractionary. \u00a0The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes. \u00a0The large effect stems in considerable part from a powerful negative effect of tax increases on investment. \u00a0We also find that legislated tax increases designed to reduce a persistent budget deficit appear to have much smaller output costs than other tax increases.\u201d (To download paper: www.econ.berkeley.edu\/~cromer<\/strong>\/Romer<\/strong>Draft307.pdf<\/a> <http:\/\/www.econ.berkeley.edu\/~cromer\/RomerDraft307.pdf><\/a> )<\/p>\n If that devastating analysis weren\u2019t enough to sink the president\u2019s program, how about another recent study, this one by Harvard professor Robert Barro (see http:\/\/tiny.cc\/f3zni<\/a> )? \u00a0You may have heard of it, too, as it has also been widely discussed. Barro looked at the Keynesian proposition that a dollar of government spending produces as much as $1.50 increase in gross domestic product. \u00a0He apparently applied more rigorous analytical tools than had been used previously and found that in fact a dollar of increased spending produces only eighty cents increase. \u00a0In other words, GDP goes down when government spending goes up.<\/p>\n