The Austerity Delusion - NYTimes.com

[shipperx]

Excerpt:

Portugal’s government has just fallen in a dispute over austerity proposals. Irish bond yields have topped 10 percent for the first time. And the British government has just marked its economic forecast down and its deficit forecast up.

What do these events have in common? They’re all evidence that slashing spending in the face of high unemployment is a mistake. Austerity advocates predicted that spending cuts would bring quick dividends in the form of rising confidence, and that there would be few, if any, adverse effects on growth and jobs; but they were wrong.

It’s too bad, then, that these days you’re not considered serious in Washington unless you profess allegiance to the same doctrine that’s failing so dismally in Europe. {...} cutting spending in a deeply depressed economy is largely self-defeating even in purely fiscal terms: any savings achieved at the front end are partly offset by lower revenue, as the economy shrinks.

So jobs now, deficits later was and is the right strategy. Unfortunately, it’s a strategy that has been abandoned in the face of phantom risks and delusional hopes. On one side, we’re constantly told that if we don’t slash spending immediately we’ll end up just like Greece, unable to borrow except at exorbitant interest rates. On the other, we’re told not to worry about the impact of spending cuts on jobs because fiscal austerity will actually create jobs by raising confidence.

How’s that story working out so far?

Self-styled deficit hawks have been crying wolf over U.S. interest rates more or less continuously since the financial crisis began to ease, taking every uptick in rates as a sign that markets were turning on America. But the truth is that rates have fluctuated, not with debt fears, but with rising and falling hope for economic recovery. And with full recovery still seeming very distant, rates are lower now than they were two years ago.

{...} Just ask the Irish, whose government — having taken on an unsustainable debt burden by trying to bail out runaway banks — tried to reassure markets by imposing savage austerity measures on ordinary citizens. The same people urging spending cuts on America cheered. “Ireland offers an admirable lesson in fiscal responsibility,” declared Alan Reynolds of the Cato Institute, who said that the spending cuts had removed fears over Irish solvency and predicted rapid economic recovery.

That was in June 2009. Since then, the interest rate on Irish debt has doubled; Ireland’s unemployment rate now stands at 13.5 percent.

And then there’s the British experience. Like America, Britain is still perceived as solvent by financial markets, giving it room to pursue a strategy of jobs first, deficits later. But the government of Prime Minister David Cameron chose instead to move to immediate, unforced austerity, in the belief that private spending would more than make up for the government’s pullback. As I like to put it, the Cameron plan was based on belief that the confidence fairy would make everything all right.

But she hasn’t: British growth has stalled, and the government has marked up its deficit projections as a result.

Which brings me back to what passes for budget debate in Washington these days.

A serious fiscal plan for America would address the long-run drivers of spending, above all health care costs, and it would almost certainly include some kind of tax increase. But we’re not serious: any talk of using Medicare funds effectively is met with shrieks of “death panels,” and the official G.O.P. position — barely challenged by Democrats — appears to be that nobody should ever pay higher taxes. Instead, all the talk is about short-run spending cuts.

Read full op-ed here:  http://www.nytimes.com/2011/03/25/opinion/25krugman.html?_r=1
 

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Excerpt from unrelated (but not entirely) article from NYT:

 General Electric, the nation’s largest corporation, had a very good year in 2010.

The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.

Its American tax bill? None.

Comments

[mollivanders.livejournal.com]

This article makes the classic mistake of looking at the seen, but not the unseen:

cutting spending in a deeply depressed economy is largely self-defeating even in purely fiscal terms: any savings achieved at the front end are partly offset by lower revenue, as the economy shrinks.

increasing spending through increased taxes also makes the economy shrink as productive capital is reallocated through taxes to projects deemed important by the Washington elite. before jumping to the conclusion that what's happening in Span and Portugal can be extended over here, we should first take a look at how those increased spending/increased taxes policies played out here already.

we have the perfect example in the so-called stimulus, the American Recovery and Reinvestment Act. private dollars were diverted toward construction projects (short-term in the form of government contracts instead of being used as part of a growing sector of the economy), health care, public benefits, health care benefits, etc. while that may be laudable, it did not create real jobs - it let people eke by until somehow, one day, the economy hopefully recovers.

meanwhile the president who told us if we didn't pass the stimulus we would have 9 percent unemployment now takes credit for "saved" jobs which, when you actually call up the companies, it turns out many of those jobs were never actually going to be eliminated in the first place. it was just a bunch of cash they gladly accepted because it was free. no serious analysis of executive pay at companies who received stimulus dollars has been done, which it should be. there was no oversight - hell, they barely knew where the money was going - so the spending just turned into debt we now have to pay off with still less economic productivity to pull it out of.

check out this not-so-excellent use of stimulus dollars: http://www.post-gazette.com/pg/11083/1134184-57.stm Is the point of government spending to stimulate Apple's sales? I should hope not.

what's not looked at in this article is the "quantitative easing" done by the Federal Reserve, a fancy word for staggered bursts of intentional inflation. this all goes back to Keynes, who thought government could pull an economy out of recession by spending, spending, spending, except it has that same fatal conceit - that money, even printed money, does not exist in a vaccum. it translates into costs incurred by small businesses, large businesses, governments and individuals. the price level may be going up so you see bigger prices, but that doesn't mean you have more money in your wallet. since the Fed has all those nice regional banks, you can actually see the inflation hit locally first, meaning there was more cash circulating in those areas before prices caught up.

and you really don't have more money in your wallet when "employers" are using "stimulus" money to buy iPads instead of investing in productive capital that could produce more jobs.

[shipperx.livejournal.com]

When the current tax rate on the top 2% is the lowest it has ever been and when the drop in taxes on the top 2% during the last administration (extended this last session because, because we aren't allowed to discuss about going back to the livable rates in 90s... when the economy was good) in conjunction with the stock market crash is the cause of the recession, it's difficult to buy a 'cure' of cutting hundreds of thousands of jobs as a short term quick-fix rather than righting the mistakes/causes that actually led to the recession in the first place (which were dropping the tax rate on the top 2%(millionaires and more-- the only group to not suffer much during the recession) and the rampant de-regulation of banks, the stock market, derivates shadow-trading, and the commodities markets).

Somehow forcing teachers, firemen, de-funding education, causing people my age to work 5-10 extra years to pay for these millionaire's tax breaks is conflated as the more politically correct solution as opposed to putting things back to the way they were before the tax cuts and deregulation caused this mess.

Gutting jobs, furthering the recession, isn't helping. It'll make it worse. If there is any doubt about that, look at the double-dip recession currently taking place in the UK. They've tried it. It's not working.

And stimulus money saved my job (as in me, personally, and I work in the private sector. And I don't have to debate this. I know it for fact) paying us to do such 'superfluous' things as repairing leaky roofs, fixing school cafeterias, and fixing leaky classrooms or inefficient windows... or adding a couple of classrooms to relieve overcrowding in rural schools until the economy picked up very, very recently. Those funds and those projects kept a lot of drywallers, contractors, pavers, painters, brick companies, roofing companies, engineers, architects, secretaries, assistants, electricians, plumbers, carpet manufacturers, mom-and-pop subcontractors, surveyors, window manufacturer's etc , the rent that all of us pay, the lunches at nearby restaurants we buy, the computers we use, etc. in business when otherwise they (and we) -- on top of all the others that have -- would've gone under.

It kept us alive for a while until things picked up, so I'm not going to poo-poo the stimulus. It did good things as far as I'm concerned, both at large, for myself personally, for the kids attending rural schools and the people who work there, the engineers, in addition keeping the building industry alive while there was no private development going on. The fact is, the stimulus worked, no matter how hard they try to advertise otherwise. It's touched a lot of people. It's the reason that the economy has grown (and it has grown... albeit not as much as it fell prior to its passage), but it can't be blamed for not being a big-enough bandaid to fix for an even bigger gaping wound.

It's really difficult to sell me that cutting jobs and funding for things in almost exact proportions to the corporate (tax break) welfare being passed out makes any sense at all, and it certainly isn't going to solve the recession. It's robbing from the middle class to give to the wealthy.
(http://smg.photobucket.com/albums/v80/shipperx/?action=view&current=class_warfare.jpg)

[mollivanders.livejournal.com]

I agree the tax cuts for the rich are certainly unfair compared to what's happening with the middle class and the poor, but they always find ways around the taxes anyway. If you support taxes that's not a reason to stop trying but you have to face the reality that the rich have the lawyers to find the loopholes and the money to lobby/buy the legislators. If you're going to have a government, you're going to have rich parasites feeding off of it.

My concern here is you're only looking at the taxes/spending side of things. The Federal Reserve's rampant inflationary policies are what created the Dot Com bubble in the 90s and then the housing bubble. Bubbles burst, they always do. You cannot keep funneling malinvestments toward a saturated industry forever.

My point is not that some jobs weren't saved because cash was reallocated - it's that that wasn't the dominant trend. As for "despite what they say" about the stimulus, I don't think it worked, but this is something we can agree to disagree on. The bailouts were even worse and they make me sick to my stomach but the stimulus is not a sustainable path for economic recovery. It does let you get by but until when? Until the next stimulus? Money doesn't come from nowhere and the more you tax individuals and businesses, the less they'll have to invest in the long run.

Keynes famously said "In the long run, we're all dead." Except...not really. Because that was the mentality of our grandparents and there are always grandkids you can stick with the bill.

[shipperx.livejournal.com]

The main thing causing inflation at the moment isn't debt or the Fed, it's commodities speculation, which has ramped up in the wake of deregulation. If we want to talk the Fed, the other problem is that it's full of Goldman Sachs people who are doing things to benefit Wall Street... to the detriment of virtually everyone else. But the only way to do anything about Wall Street is regulation and enforcement of those laws... which we're de-funding as part of the 'austerity' measures. It becomes a self-defeating cycle. The mega-rich exploit and push cases such as "Citizens United" giving ideologues like of the Koch Brother billionaires ( http://www.sourcewatch.org/index.php?title=Koch_Brothers ) and their ilk to limitlessly funding "Think Tanks" of pre-determined outcome 'think tanks' and astroturf like "American's for Prosperity" , "Citizens for a Sound Economy" ( http://www.sourcewatch.org/index.php?title=Citizens_for_a_Sound_Economy ), etc. to push for their candidates or to buy Supreme Court Justices (with free Palm Spring Vacations) so as to enact things that they want (See: Citizen's United verdict) so as to have preferred status for legislators to enact de-regulation of their preferred pre-written legislation (See "Mackinac Center for Public Policy" and "American Legislative Exchange Council"), that further de-regulates everything from job safety, to the SEC, to the EPA) giving them greater freedom to do the whole cycle again with even greater impugnity.

These austerity cuts are cutting IRS investigators... which is self defeating budget-wise because statistics show that the amount brought in by IRS investigation of tax fraud by corporations brings in exponentially more money than is spent actually paying the investifators. So the reason for defunding them is not fiscal in nature, it's ideological (as are many of the current "austerity cuts". Notice the same folks de-funding the IRS are the same ones who voted down ceasing to subsidize big oil giants to the tune of multi-billions. So again "austerity" as ideology rather than real, sound fiscal policy.) And the cost of funding the SEC is infinitely less than another crash would be, but... it's verbotten to imply that maybe, just maybe Wall Street shouldn't be allowed to function without complete impugnity [That wouldn't be 'business friendly'] ( http://www.thedailyshow.com/watch/tue-january-26-2010/elizabeth-warren ). Goodness knows, it can't be restricted from exploiting consumers (see the way they are trying to destroy and villify Elizabeth Warren and completely deconstruct the Consumer Protection Agency... because in 21st Century finance, the consumer is to have no assurances or protections if it pinches.)

[txvoodoo.livejournal.com]

Also, the dot com bubble wasn't caused by Fed policy, but basically, greed.

The housing bubble was caused, as you said, by lack of regulation on hinky financial instruments.

But you know that :D

[shipperx.livejournal.com]

Both were part of the boom and bust cycle that was created when we began removing reglations enacted during the depression. But big business protests when they have to follow rules like the rest of us ordinary mortals (Notice neither GE or Bank of America have paid any taxes this year. And I also remember business pundits having hissy fits over the concept that these folks wouldn't get bonuses despite being bailed out by the consumer because there were 'contracts'... yet these are the same folks working overtime breaking contracts with middle class workers in Wisconsin, Michigan, and Ohio. But it doesn't count if they work for the government. Then breaking their contracts is good... and these people don't care about the contradiction. It's like that clip they aired the other night of one of these govs talking about how overpaid the government workers are with too many benefits... then his explaining away why all of his staff had very high salaries because if he was going to lure 'good people' away from the private sector he had to offer higher benefits... than the benefits he said were already too high that he's in the process of cutting. Funny how that works, huh.) There is not invisible hand guiding the market to anywhere but pure self-interest, and not self-interest of the country or the economy (the current crash has shown quite clearly that the real economy and the Wall Street stocks have parted ways a while ago.

But then, you know that. :)

[txvoodoo.livejournal.com]

What, breaking contracts is bad? Shock, horror! ;)

You and I are in accord.

[shipperx.livejournal.com]

As far as "the rich will always weasel out"... maybe. That's no cause to make it easier by cutting the staffs or trying to destroy any watchdogs, maintaining tax breaks for outsourcing. And it's also no cause to make the disparity systemic. In addition to all of the above, part of the reason they pay less is that the very wealthy and the Wall Street make most of their money through Capital Gains (stock market profits... capital gains) which is taxed as a substantially lower percentage than you or I or anyone who actually lives off of their payrolled salary. So it's not just a matter of "thy dodge" it's a matter that the entire system of excessively low Capital Gains is set up in their favor. It's systemic. The way the rules are written means that the Wall Streeter's secretary pays more of her money in taxes than the Wall Street trader. And saying "well, they'll escape anyway" doesn't condone it. We don't say "Oh, we can't prosecute theft because they'll escape anyway". We try. And we hire cops. We don't make it the system that they get away with it.

And people have become absolutely self-defeating in these "austerity measure" (not only in the IRS component I mentioned above) but even on the small scale, such as the county were I live where the Tea Partiers went balls to the wall trying to defeat the mere continuation of the current property taxes. It didn't matter to them that the money was(is) to be specifically used on their own county school system, it didn't matter to them that these are the schools that their kids attend. It didn't matter to them that these teachers who would've lost their jobs were their neighbors. It didn't matter that part of the reason our property values haven't gone down substantially in this recession is because of our good school system and because people have been moving into the area because of the school system. It didn't matter to them that the mere continuation of this tax is to fund building classrooms and schools for the current overcrowding and that, much like the teachers whose salary is paid by this tax, that this boosts the economy of our area the people who live and work and build here. All they cared about was screaming on TV and protesting about "No Taxes!" ... All of this over approximately $30 a year (the amount being voted upon) in property tax given the average cost of a house in this area.

"No Taxes!" in this regard is more ideology than fiscal as it would damage the local economy to axe it, and I can see it because I see both ends. I pay that $30, and I see the payback not only in an private design firm like where I work, but in all the engineers (who also live in the area) who work on the projects, and all the local contractors and subcontractors who live in the area and work on the projects... who send their kids to these schools, who also pay these property taxes, whose home prices are bouyed in a bad economy by having a good, adequately funded school system. All of this good for all of these people for this area is funded by our simply not losing our heads, and cutting off our noses despite our faces... for $30 +/- a home. Yet blind ideology had folks protesting... because they only look at part of the cycle rather than the whole thing. Gutting the school system would've been to no ones benefit-- not the kids, not the local real estate values, not the local economy, and not the local unemployment rates. All would have been worse had the continuation of the tax not passed... but a group was being short-sighted because they had been indoctrinated into the concept that all tax and all government is bad. It's like saying that you'd be so much healthier if you only had half as much blood in you.

This cycle is true on the small local level and large. It is a cycle, only it becomes a self-defeating one when handing out corporate tax breaks in a recession while cutting jobs left and right in the public sector, making it like a someone ditching the life presever before rushing out to save a drowning victim ... and 'saving them' by allowing them to climb up on top of you, drowning you in the process. You accomplished nothing. There's still a dead body.

[norwie2010.livejournal.com]

Whenever i hear of economic "problems" in the United States i have to think of the great, great President Roosevelt, who not only convinced Americans to enter a terrible war on the other side of the ocean to help people nobody ever heard of before, but also pulled the land out of the deepest depression ever: By increasing income tax to as high as 89%.

And, ultimately, this history is why i have still faith in the people of the USA that they one day pull their heads out of their behinds and do the right thing. :-)

[shipperx.livejournal.com]

Let us hope. (Actually I do have hope. It's just that it can be a frustrating process. :)

[norwie2010.livejournal.com]

Well, if you'd live in my country: abandon all hope!

;-)

Thus i sayeth unto thou:

Embrace your frustration! Praise the dumbassery of your people! For you have Roosevelt! For you have a future! For you have yourself! :)

[bluemage55.livejournal.com]

"You can always count on Americans to do the right thing—after they've tried everything else." -Winston Churchill

[norwie2010.livejournal.com]

Yeah, i knew that. ;-)

But as fun as it is to cite Churchill (and it can be lotsa fun), we should not forget that Churchill was a first class asshole - and also delusional. He certainly didn't get what the end of WW2 meant (for the Empire, and for himself).

Still, he got some cool ones: "If Hitler invaded Hell, I would make at least a favourable reference to the devil in the House of Commons."

:D

And Your quote above is certainly sweet (in a somewhat disturbing way ;-)).

[bluemage55.livejournal.com]

YBut as fun as it is to cite Churchill (and it can be lotsa fun), we should not forget that Churchill was a first class asshole - and also delusional.

He certainly was! That's part of what makes him funny! =P

[norwie2010.livejournal.com]

Didn't know that! :D