Deprogramming Progressives Indoctrinated into Supporting Austerity
William K. Black
New Economic Perspectives, December 28, 2012

 

 

 

A little bit of economics can be a truly terrible thing, for the introductory classes in micro and macro-economics are the most dogmatic and myth-filled part of the neo-liberal curriculum.  Dogmas that have been falsified for 75 years (such as austerity) are taught as revealed truth.  The poor indoctrinated student is then launched into the world “knowing” that austerity is the answer and that mass unemployment and prolonged recessions are small prices to be paid (by others) to achieve the holy grail of a balanced budget.  Students are taught that national budgets are really just like household budgets.  These dogmas are not simply false, they are self-destructive and cruel.  Neo-liberal economics is so bad and has gone downhill at such a rapid rate that it now worships the economic analog to bleeding patients – austerity – as a response to a Great Recession.  Millions of people are indoctrinated annually into believing this long-falsified nonsense, and that includes people who consider themselves progressives.

The remarkable aspect of neo-liberal economics is that the power of its myth has survived for many progressives even after its failed dogmas caused massive economic destruction, massive elite fraud with impunity, and crony capitalism so corrupt that it cripples democracy.  Indeed, the brainwashing they received is so effective that even after the eurozone ran a massive experiment with austerity that proved (again) to be a catastrophic failure they remain neo-liberal acolytes.  This column discusses three examples that exemplify the problem.

The Guardian (U.K.)

The Guardian is the U.K.’s most famous paper of the left, but its finance editor’s embrace of the neo-liberal austerity myth is passionate and inane.  Consider this remarkably incoherent discussion of the “fiscal cliff” by the paper’s finance editor.

“The fiscal cliff explained: what to know about the biggest story in Washington. Is America really heading off a cliff? Why can’t Congress and the president strike a deal? Get the lowdown with our handy primer.”

I chose the Guardian’s coverage as the first example because it begins with the most basic and common neo-liberal myth supporting austerity – a nation with a sovereign currency is really just like a household.

“So let’s start at the beginning: what is the fiscal cliff?

It’s not one cliff, but two things: a group of spending cuts and tax hikes that will come into effect on January 2.

Why now?

The US has about $2.3tn of money coming in, and it spends about $3.6tn. So imagine you were making $23,000 a year and spending $36,000. What would happen? You’d be in debt, and you’d have to cut your spending. The US is in the same pickle. Except, instead of a few thousand, it has to cut $1.3tn.”

The U.K. did not adopt the euro, so it retains a sovereign currency.  The U.K. allows the value of the Pound to float freely and it borrows overwhelmingly in its own currency.  The Guardian, therefore, has no excuse for failing to understand a national economy like the U.S. that also has a sovereign currency.  A nation that borrows in its own freely-floating sovereign currency is not a target for bond vigilantes.  It can and should spend considerably more than it brings in through tax revenues in response to a recession.  That is what “automatic stabilizers” do.  Automatic stabilizers greatly reduce the severity and length of recessions.  Austerity does the opposite.  Nations with sovereign currencies can create money directly through key strokes on the central bank’s computer or by borrowing at exceptionally low interest rates during a recession.  The U.S., the U.K., and Japan all borrow long-term (10 years) at interest rates below two percent because they have sovereign currencies.  Nations with sovereign currencies typically run budget deficits in most years.  The U.S. has run a budget deficit over the great bulk of its history.

If a household reduces its spending because its income falls during a recession there is a negligible effect on the Nation’s economy.  If a national government cuts spending because a recession reduces its income it directly reduces public sector demand and indirectly reduces private sector demand.  A recession occurs when demand is seriously inadequate.  Governmental austerity inflicts a far more severe recession on the nation by further reducing demand.  A household and a Nation should follow the opposite strategy when their incomes fall sharply.  The Guardian’s claim that they should follow the same strategy shows their indoctrination into one of neo-liberalism’s most destructive myths.  The fact that the Guardian is making this claim in December 2012, after seeing the recession that austerity inflicted on the eurozone, proves that the problem is dogma, for only dogma is impervious to facts that repeatedly falsify its predictions.

The Guardian, of course, knows that the eurozone has been forced back into recession by the “troika’s” policies, but it reverses the causality.  Here is a related piece by the same finance editor about the world’s reaction to the failure to reach a deal on the “fiscal cliff.”

“Q: What does the rest of the world think of this?

They think we’re ridiculous, and that we’re playing fast and loose with not just our own economy, but that of the world. IMF chief Christine Lagarde said the US is becoming its own worst enemy by delaying a decision. Still, this is a case of pots and kettles. It’s not like Europe can really look down on us: they’ve been delaying the same hard decisions on spending cuts for over three years and have been on the brink of a meltdown many times since. Should we be smart enough to look at their example and avoid the same troubles? Yes, technically. But this is the nature of negotiations: they go down to the wire.”

The Guardian’s remarkable explanation of why the Eurozone has been forced back into recession is:  insufficient and delayed austerity!  If only the Eurozone had made promptly made deeper “spending cuts” things would have been much better.  That “logic” comes from assuming that nations are just like households.  The Guardian’s answer to the fact that bleeding the patient makes the patient weaker is to bleed them more, and faster.

Note that the Guardian’s finance editor also seems to believe that sovereign monetary systems like the U.S. and the U.K. suffer the same risk of “meltdown” that nations that abandoned their sovereign currencies because they adopted the euro experienced “many times.”  The “meltdowns” that the eurozone nations have suffered “many times” because of the deadly vulnerability of nations that lack a sovereign currency to the toxic mix of recession, austerity, and the debt vigilantes.  The Guardian’s finance expert’s failure to understand such fundamental and critically important features of the financial system is a testament to the danger of dogma.

The U.S. has “avoid[ed] the same troubles” as the eurozone following the Great Recession.  It has not suffered financial “meltdowns” “many times.”  It has not been thrown back into recession and it does not suffer Great Depression levels of unemployment.  The U.S. budgetary deficit has been reduced at a record rate over the last three years.  The U.S. has been able to “avoid the same troubles” as the eurozone because it has not embraced the austerity dogma and it has not given up its sovereign currency.  The U.S. did not provide remotely adequate stimulus of the kind recommended by competent economists, but the modest stimulus has been sufficient to produce a modest, sustained recovery.  The Guardian, however, implies that we have failed to avoid the eurozone’s troubles after the onset of the Great Recession.

Governor Howard Dean

Governor Dean served as Chairman of the Democratic National Committee from 2005-2009.  He was an early opponent of the invasion of Iraq.  His self-description is “progressive Democrat.”  He is a physician.  Dean is a frequent guest on MSNBC’s evening programs.  Dean takes the position that the U.S. should go off the “fiscal cliff” because austerity is desirable.  He claims that a “balanced budget” is essential and that “everybody” should pay higher taxes to balance the budget.  He thinks, contrary to the history of the U.S., that no nation can continue to run deficits.    

On CNBC, Dean cheered for the austerity that the “fiscal cliff” would inflict on the nation.  He did so even though he believed it would cause a recession for at least six months.  He predicted that the recession would be short and mild and a small cost to reduce the deficit.  He assumed that austerity would reduce the deficit even though he conceded it would cause a recession.

Dean, a self-described progressive, and one of the nation’s most prominent Democrats, is more dogmatic than Speaker Boehner on austerity.

Andrew Stern (former head of SEIU)

Andrew Stern headed one of the largest unions in America.  He made it a growing union and a political force devoted to progressive causes.  He was a member of the Bowles-Simpson (BS) deficit reduction commission appointed by President Obama.  Obama appointed co-chairs he knew were zealous supporters of austerity and unraveling and privatizing the safety net.  Erskine Bowles is a leader of the Wall Street wing of the Democratic Party and Alan Simpson is a very conservative Republican.  Stern declined to vote in favor of the BS austerity recommendations, but his vote was not based on any rejection of austerity.

Why I Voted No On Simpson-Bowles

On December 3, 2010, I voted “no” on the Simpson-Bowles report presented to the National Commission on Fiscal Responsibility and Reform. Here is what I had to say about it at the time:

This Commission report also challenges our President to offer his plan for economic growth, and fiscal responsibility no later than his State of the Union, and challenges Congress to adopt a plan no later than Election Day 2012.

I voted no, despite my admiration for the effort, because any plan, I feel strongly, must tackle both our fiscal and investment deficit needed to create jobs and a dynamic economy. No family would willfully balance its budget by not sending their child to college. No business can successfully compete with outdated equipment. And no nation can simply cut its way into prosperity. I felt the plan should better balance revenues and spending cuts, could balance Social Security while preserving more benefits, made too many short term cuts in health care before full reform was implemented in 2018, and did not have shared corporate responsibility.”

Stern now says that he regrets voting against the BS recommendations.

He pushed for the “Super Committee” to “go big” and adopt massive austerity before it statutory deadline in November 2011.

Stern’s co-panelists at the conference, organized by one of Pete Peterson’s groups, whose participants unanimously urged the “go big” super-austerity plan included the former CEO of the AARP, Bill Novelli.  Novelli’s support for austerity is particularly noteworthy given the BS plan’s proposals to cut and begin to privatize Social Security – Wall Street’s unholy Grail.

Conclusion

Neo-liberal economics has devastated the global economy and produced all of the predictive failures and evil consequences that progressives have long attributed to its micro-economic myths.  Far too many progressives, however, continue to believe the similarly mythical and self-destructive macro-economic myths about deficits, debt, and austerity.  It is hard enough countering Pete Peterson’s billion dollar campaign to inflict austerity and unravel and privatize the safety net.  Peterson funds myriad front groups.  We also have to counter the Wall Street wing of the Democratic Party, which dominates Treasury, OMB, the Justice Department, and the office of the Chief of Staff and favors austerity and unraveling the safety net.  We should not have to deprogram progressives indoctrinated into repeating neo-liberal economic dogmas.

Progressives should be able to observe that the neo-liberal macro-economic predictions have been consistently falsified by reality.  They should have seen documentaries like Inside Job and Capitalism: A Love Story about the catastrophic failure of neo-liberal economics and economists.  They should read sites like New Economic Perspectives and Paul Krugman’s columns that explain why austerity is self-destructive and why the safety net need not, and should not, be attacked.  Progressives need to say “no” to anyone who wants to “bleed” the economy through austerity or cutting the safety net. 

Category: Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

20 Responses to “Deprogramming Austerity Supporters”

  1. DeDude says:

    It is extremely difficult to get the average person to understand that the national economy is not “just like my personal budget – but bigger”. Rather than trying to get them to abstract away from their personal economy, it sometimes help to get them to modify their view of personal economy to make it look like a national economy.

    When I get these “I have to live within my means and so must government” remarks, I suggest to people that they imagine having a nice little printer in their bedroom. Every time they push the [Print] button, it spits out a brand spanking new legal tender $100 bill. If they had such a machine and their income had been chopped down to 2/3 because of a bad economy, would they: stop feeding the children more than 1 meal a day, fail to repair the roof, and drop out of this advanced training class they had been taking at night to qualify for a future promotion – or would they simply print enough money to make up for that 1/3 of their income that had been lost due to the downturn. With such a nice printer would they worry that their mortgage debt was huge compared to their now reduced income and shot the cat and dog so they could save money to pay down that mortgage, or just print a few more $100 bills to cover food and vet bills for the animals?

  2. YouthInAsia says:

    In that case, why stop at…anything. Just print enough so that you can have everything in the world. And at that rate, why not give the same printer to every person in the world and we can all be fat. Automatic stabilizer is a nice idea and all but it’s just stupid to kick and scream like a little baby about Austerity and the idea that we should be deficit spending now when we didn’t raise taxes and surpluses during the good years. What do the morons think will happen? We deficit spend now and get the economy righted (ignoring the fact that it doesn’t seem to be working one damn bit, but I digress) and then politicians will do the right thing and build the surplus in preparation for the next business cycle recession?

    There has been a lot of stupid that got us to this point, but acting like we can keep apply only the Keynesians policies we like and get the expected results is just ignorance.

  3. AusterityHog says:

    In normal situations, the author is correct. But, America is not in a normal situation. The best case scenario is that the government supports the economy during recessions and then rakes in excess tax revenues when times are good to pay for the overspending during the recession. For most of Americas existence that has been the case. For the past 30 years however, Americas politicians have figured out that government overspending has gotten them reelected with relative ease. So they’ve run up deficits during times of plenty and recessionary times resulting in the problem we now have. 16.4 Trillion in debt. 1+ trillion deficits as far as the eye can see. 100 trillion (give or take a few trillion) in unfunded liabilities facing us in the next few decades. Infrastructure degradation, education funding, and environmental cost that aren’t factored in anywhere. We’ve got a Fed that is artificially keeping interest rates low punishing savers and rewarding the very activity that got us in the pickle in the first place. Instead of a big recession that last for 5 years and clears the system, our current path will lead to decades of low growth with recessions sprinkled in, structurally high unemployment, and eventually facing the debt demon knocking at the door anyway.

  4. baldski says:

    Where was the clamor about the deficit during the Bush years? Not a peep out of the Rethugs! Now their hair is on fire screaming about deficits. This Republican drama was dreamed up by Jude Wisinski a long time ago. He started the “two Santa’s Strategy” that this latest drama is part of. Since the Democrats spent money on the populace, the Republicans could play Santa too by cutting taxes and starving revenue. Then when the Democrats are in power, You scream about the deficits. You notice, they did not say a word about deficits, when Bush was in. Wisinski sounds like a nut. He promoted the Laffer curve to Cheney and Rumsfeld. Maybe that’s where Cheney learned that deficits don’t matter. I wonder why the CCCP (this is not Cyrillic for the former Soviet Union, but stands for Corporate Controlled Conservative Press) never says a word about “Two Santas” or Jude Wisinski?

  5. jbegan says:

    Hm! Go figure. I never considered Austerity as a neo-liberal program. I always considered it as a right wing desire. The biggest flaw with Austerity is that it takes money from those that can least afford a pay cut..The people that spend every penny they earn/get. Watching Europe (particularly Britain where I grew up) impose Austerity is like watching Theodoric Barber of York apply more leaches and extracting a pint of blood to relieve the humors. (If you’ve never watched this SNL skit, do so. It’s brilliant : http://www.medicallessons.net/2010/10/classic-saturday-night-live-on-bloodletting-therapeutic-phlebotomy-and-barbarism/ ) But, if we really want a balanced budget, then we can cut $1 Trillion pretty easily….if Congress had the balls to do so. Our proposed 2013 Defense budget, totals $1,090.8 Billion. That’s 29.6% and totally unfunded, which is absurd. Cut it by 50%. Our other major (partly unfunded) budget expense is Health and Human Services, which includes Medicare/Medicaid at $960 Billion. Our medical costs are greater than 2 times higher than any other developed nation. Having received treatment in Europe I can say that US healthcare is no better and may be worse than there. All we need to do is pick any country’s model and apply it here. That would save us 50%. In essence between the 2 cuts, we would save $1 Trillion each year (about 30% of our budget) and our lives would be no worse for it. I’ll hold my breath till 2013. ;=)

  6. bonderman says:

    I have great respect for Professor Black’s views and past service to America.

    Would it help to make some cuts on things like defense spending (that exceeds the next eight or ten countries defense expenditures combined)? Could individuals and companies have spent the same amount of money better by making individual decisions as to its use?

    Waste has costs. Much can be done to tighten up state and federal spending or deflect it to needed infrastructure and I believe we would all benefit from it. The first of those benefits might be the morale boost from seeing a government seriously interested in reducing waste and permitting individuals to make their own spending decisions.

    Austerity won’t work but a focus on prudent use of tax revenue will and THAT is long overdue.

    Wasn’t it Secretary of Defense Gates who said the DOD budget could be cut by 50%?

  7. DeDude says:

    This moronic “if we print to deal with an economy working below capacity, then we will just print all the time right into the sky” is about as valid as the “if we ban people from having their own personal nuclear weapons then the next thing you know we will ban them from owning bee-bee guns, or the “if we restrict how fast people can drive on the road then the next thing you know the will be banned from driving more than 5 mph on the interstate”.

  8. drtomaso says:

    I also happen to believe its possible to run the printing press when times get tough, like now, and not have to raise taxes when times are good. This is because the swelling of our economy raises tax revenues on its own. Thus, we can inflationary and deficit spend to boost demand during recessions (because the impetus from the economy is deflationary!) and just “coast” when times are good- meaning keep taxing and spending at the same rates, and just let the growing economy fill our coffers.

    The only limit to our ability to print our way out of this mess is inflation (not an issue given the massive deflation we just faced vis a vis the housing market and individuals’ purchasing power), our standing with regard to other currencies (almost all other currencies are in the same trouble as us, or worse) and lastly our status as the worlds reserve currency. I really don’t see a currency out there that can take our place, so print away. (And please don’t say gold- there’s simply not enough shiny yellow rocks out there to support the size of the global economy anymore- moving back to a gold standard is thus a form of severe austerity, one arguably not possible anymore.)

  9. drtomaso says:

    Vis a vis defense spending cuts: I am all for cutting waste, and this would seem to be a good candidate given the relative size of our military to all other nations. That said, we have to be sure that we are not cutting for the sake of cutting at a time when deep cuts actually might hurt our economy. Cut the fat from military spending and reallocate it to infrastructure projects, education and research- in other words, still spend the money and get it out there in the economy, but spend it in ways that are smarter and have a bigger investment impact for our future.

  10. DeDude says:

    @drtomaso;

    Very good points.

    One of the problems is that people discuss things like debt, spending and deficits in terms of absolute dollar numbers, with no adjustment for inflation or economic growth. It sounds scary to talk about $100 trillion of future liabilities when you are in a 15 trillion current economy, but in a 150 trillion future economy it’s not that big a deal. I think that any serious debate about these items should be conducted on a “%GDP” basis. When you do that it also becomes clear that our current deficit and debt has the following components: 1) Irresponsible tax cuts that brought our revenues as % GDP down much lower than they had been in the decades before; 2) absurdly high spending on military and security (on and off budget); 3) a demographic component because baby boomers now want their “saved up” social security and Medicare payments back in the form of benefits, 4) a diminishing cyclical component consisting of both reduced tax revenue and increased social spending related to the 2008-9 great recession.

    I also agree that the fear of inflation is completely misplaced. First of all you need to counter deflation in a severe downturn. So even if printing could induce inflation in a depressed economy that would actually be a good thing. Second even as the economy recovers it may be a good thing to have inflation helping with paying down the debt accumulated during the downturn. All those 30 year treasuries issued at below 3% will be easier to pay down if inflation is 4% than if it is 2%. The issue of debt should always be discussed in the context of relative, not absolute, interest rates. Our government currently issues 5 and 10 year debt with an effective rate of negative 1%. They are being paid for taking excess money from China. Yet morons in congress want to cut that revenue stream by not increasing the debt limit?

  11. Haigh says:

    When Oracle, Intel, or Apple spend there is a non-zero probability that they are contributing to sustainable improvements in global standards of living.
    When the US Departments of Defense, Commerce, Education, Health and Human Services spend the probabilities are lower and may be negative.
    The anti-austerity arguments fail to discriminate between GDP factors for sustainable productivity versus factors for one-shot consumption.
    Equating the impact on the standard of living of spending of corporations who meet their cost of capital requirements to the spending of Washington DC politicians seems to be a common miscalculation of those who work in the financial industry.
    Politicians spending 24% of GDP does not bode well for America’s future standard of living.

  12. rlytomfriedman says:

    Ask Foxconn employees about sustainable improvements in global standards of living, Haigh. Also, for observable phenomena, there’s no such thing as negative probability. So just say “Oracle good, HHS bad” since that’s what you mean.

  13. DeDude says:

    @Haigh;

    Interesting perspective – so you consider the finding of more effective treatments for your cancer (yes you have one it just has not grown big enough to cause symptoms, yet) less part of your “standards of living” than the latest iPOD??

    The collective goods of safety, security, health, public parks, etc. are not part of “standards of living” but mindless electronic gadgets, games and Chinese made trinkets are??

  14. Haigh says:

    @rlytomfriedman
    Regarding the Chinese standard of living I find this article more relevant than your Foxconn example:
    http://money.cnn.com/2012/06/26/news/economy/china-middle-class/index.htm

    @DeDude
    My perspective is that for every $10 dollars the Feds spend $9 is being wasted. Cancer research is better funded by private interests. As far as safety, security, public parks, etc all of that should be well covered for way less than 24% of GDP.

    The question raised by the article is whether spending by the Feds based on debt and inflation based financing is a net positive for the economy long-term. If this sort of spending held any long term value for the economy Japan would be booming. But it is starting to look like its edging its way to a currency crisis. In short “austerity” in this context is a dysphemism.

    ~~~

    BR: There’s no doubt lots of wasteful spending, but 90% an enormous number.

  15. YouthInAsia says:

    “This moronic “if we print to deal with an economy working below capacity, then we will just print all the time right into the sky” is about as valid as the”

    Not at all. If prosperity can be attained by just making the medium of exchange more plentiful, then why the hell don’t we just do it? The neo-Keynesians have yet to explain why after years of printing we are still no better off. Well, they do explain it, they say that we just don’t print enough and that if we print more then everything will be better. Then someone says why not just print to infinity and they look at you like you’re the stupid one.

  16. sherparick says:

    @youthinAsia & Haigh

    Most of the current deficit is cyclical, due to the fact we have the worst recession since the 1930s. http://www.bloomberg.com/news/2012-12-26/the-deficit-not-as-bad-as-they-want-you-to-think.html The recovery that has been slowed the last four years by austerity policies in the U.S. (after the 2009 stimulus state and Federal Governments have been cutting since 2010) and severe austerity policies in Europe. Hyperinflations have been relatively rare in history, usually associated with a major war or its aftermath and a labor force at or near full employment (American Revolution, the Confederacy during the Civil War, Weimar Germany post WWI and the French occupatoin of the Ruhr, being famous, and even Zimbabwe’s hyperinflation occurred due to an internal war on its own citizens and resulting international sanctions). The U.S. private consumer needs to save more, especially with the fall in housing wealth. The resulting decrease in demand puts downward pressure on prices and wages, particularly with so much new producition of goods and services coming into the world from East Asia, South Asia, the former Eastern Block (East Europe and Russia), Latin America, and now even Africa). To pick up domestic demand, there has to increased Government spending and increased exports and import substitution (some of this is happening from falling real wages, but of course that puts more downward pressure on domestic demand). Absent a decline in real U.S. wages, a fall in the dollar would be necessary to lower U.S. wages and other production costs relative to the rest of the world (see Noah Smith for how popular this is with our trade partners like Japan or China). So the Immortal Leviathan, as Hobbes called the state, can print money to increase demand when there is slack (close to 15% real unemployment and underemployment using U6 as the measure) without causing inflation, something Ben Franklin understood in the 1730s when he advocated paper money for the Colony of Pennsylvania. Once the employment level reaches the a certain level, then Leviathan stops printing money, cuts spending, raises taxes, and runs a counter-cyclical surplus to keep growth at the sustainable level (population growth plus productivity increases). The trick of course is knowing what the natural rate of unemployment and natural growth rate of the economy are since they are not absolutes, but change due to circumstances and inputs over time.

  17. sherparick says:

    @Haigh

    Frankly, I don’t think you should tell all the people on Social Security, Medicare, and Medicaid which is 65% of the budget, that they all need to hurry up and die since the money they recieve is waste. 25% of the Government is DoD and Nukes and Homeland Security. I guess the Muslims can move in impose Sharia Law on the East and North Korea can reenact Red Dawn in Idaho.

    Unfortunately, you are also telling all those white Republican voters in the Villages and the rest of the South and West that they are after all part of the 47% and it is not just the Blahs and the Wetbacks getting all the t-bones and Cadillacs from the Government. This might have an affect on the Republican vote total in the next election if the word gets out. Instead, like Marco Rubio and Lindsay Graham, you have to demand unspecified cuts in those programs, and then campaign against the Democrats and Obama if they counter-propose specific cut as part of the compromise.

    There is a fair amount of waste in Government, especially where rent seeking has powerful political friends (DOD, Homeland Security, Agriculture, and Health Care come to mind). But probably no more then in those paragons of virtues you call private corporations. Most CEO pay appears to be a waste to me. Your 90% comment is a joke.

  18. One wonders how the neo-Keynesians can stick to their warped thesis and then seem bewildered when they wake up one day to find their jurisdiction has 7% bond yields! This includes the USA. By 2024 it will have some of the same metrics as Greece. The Deficit will be $2.0 trillion. The Federal Debt will be $33 trillion. Dead man walking …

    Debt Wall chart: http://trendlines.ca/free/economics/DebtWallUSA/DebtWallUSA.htm

  19. DeDude says:

    @Haigh and YouthInAsia;

    I guess the idea of “context depending rules” are new to you. Let me start with a simple example. If an 8 oz glass is half full and I add 3oz of water then it will NOT flow over. If that same glass is ¾ full and I add 3oz of water it will flow over and make the surface it stands on wet. So the exact same act of adding 3oz of water to this glass will cause two different outcomes (overflow or not) depending on the context of the starting point. The same goes for printing of money and deficit spending. Depending on the starting situation (when you do this) the effects can be positive, none or negative. The current situation of an economy that operates way below capacity and 15% of the workforce un- or under-employed is the exact situation where there is a net positive effect. For every 10 million full time employed people, we produce about 1 trillion of GDP. So 10 million unemployed people cost our economy 1 trillion per year – simply because we refuse to fix it and instead leave it to the malfunctioning private sector which have no answers.

  20. Haigh says:

    @ sherparick
    If we describe a spectrum for ‘Faith in the long-term efficacy of big government deficit spending’ I think I’m safe in saying we are on opposite ends.
    What I never see in these arguments is some acknowledgement of the unintended consequences of these counter cyclical spending initiatives. When government injects spending into the economy an ecosystem of special interests is built. This happens regardless of whether the recipients are Raytheon, the elderly, or builders of infrastructure. This ecosystem gains political powers making the spending it enjoys irreversible when the economy returns to ‘normal.’ Keynesian mathematicians do not populate the halls of congress. The ethos of ‘I’ll vote for yours if you’ll vote for mine’ insures this process grows through the entire cycle until the growth rate of debt exceeds the growth rate of GDP. Irreversible and unsustainable insures a steady march toward crisis. Fortunately for America we may witness the full force of this big government managed economy experiment with Japan before we hit our own Keynesian endpoint.

    @ DeDude
    Our standard of living depends on having jobs that more than meet their cost of capital and labor. It’s a long hard process to build jobs that meet this criteria. More often than not government jobs are not going to meet this criteria, as a result they will be a net cost to the economy, simply a transfer of wealth from the productive sector to the government sector. There may be many good reasons to have this wealth transfer, but it should not be confused as a source of prosperity. There have been many examples of economies that are mostly government and these economies collapse.