Editor's Letter: A moot economic debate

last updated 8 January 2015

More stimulus. No, more spending cuts. No, fewer regulations. No—more stimulus! I hate to interrupt the compelling national debate over the relative merits of supply-side and Keynesian economics, but here’s what no one in Washington will admit: The debate is largely moot. No matter how many bridges and roads we rebuild, taxes we cut, or regulations we eliminate, the economy will be lousy. And it will stay that way for years to come. The primary reason we’re in this mess, David Wessel reminded us in The Wall Street Journal last week, is not any current government policy. It’s that Americans “went on a borrowing binge in the 2000s.” With interest rates near zero, and “irrational exuberance” driving up housing and stock prices, U.S. households took on $7 trillion in new debt between 2001 and 2007. And then the housing bubble popped, and the stock market had a coronary. Poof! Trillions in paper wealth vaporized. Americans are now in the process of “deleveraging”—paying off mountains of debt—but Wessel says that process is only “at halftime.”

We are not, in other words, in an ordinary economic cycle. We’re climbing out of an epic financial meltdown, unlike any since the Great Depression. Economists agree that consumer spending, hiring, and growth will be anemic for years to come, regardless of what Washington does. (Gov. Rick Perry’s “Texas Miracle” has produced an 8.4 percent unemployment rate, about 0.7 percent better than the awful national rate.) Admitting that, of course, would be a downer. The political theater in Washington, and in the Republican campaign, at least provides some diversion. Just don’t expect anyone to pull a rabbit, or 14 million jobs, out of a hat.