The Guardian Unlimited: The Deficit Hawks: When Did They Stop Being Wrong About the Economy?

http://www.guardian.co.uk/commentisfree/2013/jan/28/folly-dc-deficit-fear-mongers

"The news that the UK, with negative growth in the fourth quarter of 2012, faces the prospect of a triple-dip recession, should be the final blow to the intellectual credibility of deficit hawks. You just can't get more wrong than this flat-earth bunch of economic policy-makers.

They're pretty much batting zero. They failed to foresee the collapse of housing bubbles in the US and Europe and its consequent downturn. They grossly underestimated its severity after it hit. And their policy prescription of austerity has been shown to be wrong everywhere that applied it: in the US, the eurozone and, especially, the UK.

By all rights, these folks should be laughed out of town. They should be retrained for a job more suited to their skill set – preferably, something that doesn't involve numbers, or people."

I thought this next part was interesting. Anybody think if the stock market had gone down the tubes and stayed there, that the talk out of DC would be the debt?

"Of course, the cynical among us might note that the highest earners have done just fine. High unemployment rates undermine workers' bargaining power, which ensures that almost all gains from economic growth go to those at the top. In the US, the profit share of national income is near its post-second world war high.

Even if this upward redistribution was not a deliberate goal, it certainly affects the urgency with which policy-makers attend to depressed economies and high unemployment. If the stock markets were tumbling, as they were in 2008-09, there would likely be a lot more attention devoted to fixing the economy. (And if you think a plunging stock market has to mean that the economy is going down, you need to study more economics.)

Instead of focusing on glaring issues, like how the economy is down 9m jobs from its trend growth path, or how the typical worker's real wage has risen by just 2% over the last decade, the policy people in Washington are debating how to reduce the deficit. This makes about as much sense as debating the right color to paint the White House kitchen."

And the ending:

"The unfortunate reality is that on both sides of the ocean we have policy-makers who are sputtering nonsense about how to remedy the economy. And for the foreseeable future, they will have the political power to keep their jobs – no matter how disastrous their policy might be."

I've said it here before. I'm not sure the debt (public and private) isn't the REAL problem, and every economists I know of will admit that at some level our debt is hurting the economy.

But this was such a point blank salvo at the current leadership of governments around the world by somebody that has a better idea of what he's talking about than me, that it was hard to not pay attention.

They're pretty much batting zero. They failed to foresee the collapse of housing bubbles in the US and Europe and its consequent downturn. They grossly underestimated its severity after it hit. And their policy prescription of austerity has been shown to be wrong everywhere that applied it: in the US, the eurozone and, especially, the UK.

He lost me at "austerity...in the US."

Does this guy not know that we haven't had a budget in 4 years, meaning spending keeps going up, and that the sequester hasn't hit yet?

Blaming our economy on austerity is like blaming the Lakers' terrible season on Phil Jackson.

This is absurd, of course. It's ridiculous to imagine that the government's financial situation is in peril if we have a debt-to-GDP ratio of 90%, and that everything would be fine if we just sell off our energy assets to reduce our debt to 50% of GDP. But that is what Serious People in Washington believe (or, at least, what they'll claim to believe), until they finally get too embarrassed to spew such nonsense.

Ireland's debt to GDP was a whopping 30% when their economy collapsed. Modern economies rely, simply, on people's faith in the system—whether or not people in the US and around the world believe the dollar is the safest place to park surplus cash. In order of size of economy China (pegged to the dollar), Japan (in the doldrums), Euro Zone (sovereign debt crisis).

Sadly, here in the US, noble programs like Medicare and Social Security are just a drain. But it's a simple question (without a simple answer) of do we put the burden on individuals to plan for their elder care or do we spread the risk over the whole of society? This is really the fundamental question the US and gov'ts across the globe are wrestling with.

I'd argue that the question is about limiting the rate of growth now so the curve doesn't bend as projected in about 10 years versus waiting the 10 years, letting people count on those benefits and then being forced to make huge cuts to their real income.

Austerity sucks and government spending does create jobs, opportunities, economic development, etc... until the government runs out of money.

Tax more and spend more could work.

Tax less and spend less could work.

Tax less and spend more is unsustainable.

I've been saying this for a while, always with the caveat that I'm not an economist. Its not good to have a balanced budget, or a government budget in the black. People are sorta putting all the blame on the government's budget, when it just wasn't the catalyst for our economy.

I'm not saying we can't reign in spending and move CLOSER to a balanced budget, but pretty much every right minded economist will tell you its not good to have the government profitting from its constitutents.

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I'm not saying we can't reign in spending and move CLOSER to a balanced budget, but pretty much every right minded economist will tell you its not good to have the government profitting from its constitutents.

Don't worry - the government can find a way to spend the money That's why I say put the extra money into demand-side stimulus or research and call it a day.

In discussions about government spending vs austerity, as much as I appreciate the possibilities opened by government spending, I get concerned about all the waste/fraud/abuse that happens in the government when the bueraucracy gets too many resources.

He lost me at "austerity...in the US."

Does this guy not know that we haven't had a budget in 4 years, meaning spending keeps going up, and that the sequester hasn't even hit yet

I agree. How exactly is borrowing 40% of every $ we spend austere? And what budget hawks have popped up anywhere here? Simpson Bowles wasn't even allowed out of committee for a vote. Dems have nearly all signed pledges not to touch entitlements whilst GOPers have signed pledges not to raise revenues - not just no rate increases, but not even eliminating loopholes/subsidies without offseting rate cuts. Taxes as a % of GDP are I believe the lowest in decades, and spending/GDP is somewhere around 25%...and will only get worse.

I agree. How exactly is borrowing 40% of every $ we spend austere? And what budget hawks have popped up anywhere here? Simpson Bowles wasn't even allowed out of committee for a vote. Dems have nearly all signed pledges not to touch entitlements whilst GOPers have signed pledges not to raise revenues - not just no rate increases, but not even eliminating loopholes/subsidies without offseting rate cuts. Taxes as a % of GDP are I believe the lowest in decades, and spending/GDP is somewhere around 25%...and will only get worse.

Balancing the budget pretty much fits the definition of austerity.

Balancing the budget pretty much fits the definition of austerity.

Ok, but who in reality is pushing for anything remotely approaching a balanced budget???

Even the supposedly draconian sequester only would cut the deficit from 1.3 trillion to around 1.2 trillion.

Japan has run huge deficits for years since its banking collapse, and now has a debt/gdp ratio of around 250%, and they have been stuck in the economic doldrums since the 90s.

Ok, but who in reality is pushing for anything remotely approaching a balanced budget???

Even the supposedly draconian sequester only would cut the deficit from 1.3 trillion to around 1.2 trillion.

Japan has run huge deficits for years since its banking collapse, and now has a debt/gdp ratio of around 250%, and they have been stuck in the economic doldrums since the 90s.

Paul Ryan's plan balances the budget in ten years supposedly.

Lots of people are calling for a balanced budget.

The reason that most "austerity" measures fail miserably is that they fail to replace govt spending with private spending. The economy is like an ecosystem that reacts to shocks, and needs to be kept in a balanced state. If you want to cut government spending, it needs to be done in a gradual manner and ideally during times of economic gowth and in such a way that it can be replaced by private spending. Govt spending is key for big federal level projects such as Nasa, telecom, or infrastructure, but once well established, govt should continually strive to privatize where possible so that the spending is transitioned from govt to the private sector where revenue to pay for such things can be obtained and efficiencies realized.

Paul Ryan's plan balances the budget in ten years supposedly.

Lots of people are calling for a balanced budget.

How dare they! Accountability? Who in government ever heard of such a thing?

The reason that most "austerity" measures fail miserably is that they fail to replace govt spending with private spending. The economy is like an ecosystem that reacts to shocks, and needs to be kept in a balanced state. If you want to cut government spending, it needs to be done in a gradual manner and ideally during times of economic gowth and in such a way that it can be replaced by private spending. Govt spending is key for big federal level projects such as Nasa, telecom, or infrastructure, but once well established, govt should continually strive to privatize where possible so that the spending is transitioned from govt to the private sector where revenue to pay for such things can be obtained and efficiencies realized.

So Keynesian of you.

So Keynesian of you.

And so accurate as well.

How dare they! Accountability? Who in government ever heard of such a thing?

Well, apparently some people are admitting they are after a balanced budget (like you), and others are trying to deny it. All I'm saying is a balanced budget is an austere budget, by definition really.

I don't think its the best thing for an economy, personally, but I'm not an expert. Its just based upon loose information gathering.

Click on the link to read the rest.

http://videocafe.crooksandliars.com/david/krugman-schools-morning-joe-austerity-how-ma

Nobel prize-winning economist Paul Krugman on Monday attempted to give the panelists on MSNBC's Morning Joe a lesson about why austerity and drastic spending cuts were the wrong solution in tough economic times.

"Our track record is actually not bad, we've tended to reduce our debt at least relative to GDP when the economy was strong," Krugman told host Joe Scarborough. "We tend to increase when the economy is week, but that's what you should do. So this is not a hard call. I mean, as long as we have four million people who have been unemployed for more than a year, this is not a time to be worrying about reducing the budget deficit. Give me something that looks more like a normal employment situation and I'll become a deficit hawk, but not now."

"I think we can begin to address our entitlement problems without putting on the brakes, without austerity," Council on Foreign Relations President Richard Haass asserted. "If we don't, what worries me about what people like Paul Krugman and others are recommending is we leave ourselves incredibly vulnerable to higher interest rates, to future Hurricane Sandys, to future wars, to bond markets, that we put ourselves in an incredibly vulnerable position."

"Washington doesn't work that way," Krugman pointed out. "If you spend a lot of your time talking about the debt and the entitlements are the big problem, the message that actually what we need to is promote jobs gets lost. And in fact, we spent the last two and a half years focused entirely on arguing about the long-term deficit and entitlements and doing nothing for employment right now. That balance has got to shift."

Former Pennsylvania Gov. Ed Rendell (D), who co-chairs the corporate-sponsored Fix the Debt campaign, insisted that Krugman's argument "makes no sense" because the Simpson-Bowles deficit-reduction plan "said we can do both," cut the debt and spur the economy.

"So two guys can write a report that calls for all kinds of good stuff and they can't even get their own commission to agree on the report," Krugman laughed. "And you're saying this should be our policy? We need to focus on what is urgent right now, which is creating jobs and getting this economy back to full employment.

Has the United States actually cut spending at all since before Reagan?

The rate of growth of spending has been cut, and that is essentially what sequestration is.

The DoD budget, SSI and Medicare aren't going to go from 2 trillion of the budget to 1.5 trillion

They are going to go from 2 trillion to 2.5 trillion SLOWER then currently budgeted to do so.

That is "austerity" in America

Has the United States actually cut spending at all since before Reagan?

The rate of growth of spending has been cut, and that is essentially what sequestration is.

The DoD budget, SSI and Medicare aren't going to go from 2 trillion of the budget to 1.5 trillion

They are going to go from 2 trillion to 2.5 trillion SLOWER then currently budgeted to do so.

That is "austerity" in America

You're asking if we've cut spending at all since Reagan.... yet you are ignoring the deal that was just passed a month ago?

A lot of spending has been cut lately.

Has the United States actually cut spending at all since before Reagan?

The rate of growth of spending has been cut, and that is essentially what sequestration is.

I think a couple years in this administration that spending was lower than the previous year. The problem is with the economy in the tank and tax receipts plummeting the deficit continued to soar.

I guess the real question is: why do so many people think instituting austerity now is a good idea? What good is that going to promulgate for our economy?

Honest responses please.

Has the United States actually cut spending at all since before Reagan?

http://www.forbes.com/sites/rickungar/2012/05/24/who-is-the-smallest-government-spender-since-eisenhower-would-you-believe-its-barack-obama/

Even the Heritage Foundation's numbers back this up: http://www.heritage.org/research/reports/2012/10/federal-spending-by-the-numbers-2012

Paul Ryan's plan balances the budget in ten years supposedly.

Lots of people are calling for a balanced budget.

"Supposedly"...."calling for a balanced budget"....

Under Ryan's plan, government spending would still be at a higher % of GDP than under Clinton. Ryan also cast the deciding committee vote to prevent Simpson Bowles from reaching the house floor. Nothing of Ryan's plan has taken effect, nor have any of the people claiming they support a balanced budget done anything beyond rhetoric to further said cause. Even the meager sequestration has been put off another 3 months. The only steps taken have been letting the payroll tax cut and the top income rate tax cut expire. Peanuts. Nothing even remotely approaching austerity or even moderate discipline.

"Supposedly"...."calling for a balanced budget"....

Under Ryan's plan, government spending would still be at a higher % of GDP than under Clinton. Ryan also cast the deciding committee vote to prevent Simpson Bowles from reaching the house floor. Nothing of Ryan's plan has taken effect, nor have any of the people claiming they support a balanced budget done anything beyond rhetoric to further said cause. Even the meager sequestration has been put off another 3 months. The only steps taken have been letting the payroll tax cut and the top income rate tax cut expire. Peanuts. Nothing even remotely approaching austerity or even moderate discipline.

I don't know why we're arguing about this. Ryan hasn't come out with his budget yet, but he says its going to balance the budget in 10 years. Those are the reports from his office.

Tons and tons of people are calling for a balanced budget, and most of them on the right are calling for it through spending cuts alone. Is that not true?

You're asking if we've cut spending at all since Reagan.... yet you are ignoring the deal that was just passed a month ago?

A lot of spending has been cut lately.

That deal cut the rate of growth of spending, not spending itself.

Total federal spending in 2010 ($3.46 Trillion) was lower than in 2009 ($3.52 Trillion)

http://www.forbes.com/sites/rickungar/2012/05/24/who-is-the-smallest-government-spender-since-eisenhower-would-you-believe-its-barack-obama/

Even the Heritage Foundation's numbers back this up: http://www.heritage.org/research/reports/2012/10/federal-spending-by-the-numbers-2012

So in theory we are spending 600 billion less per year in 2010 then we did in 2009.

According to Heritage it appears that much of it was temporary spending (excluding stimulus money) which makes sense.

Overall the point still stands, the trend is pointed upwards and we'll be at 4 T dollar budgets by the end of the President's term

---------- Post added January-29th-2013 at 02:38 PM ----------

I don't know why we're arguing about this. Ryan hasn't come out with his budget yet, but he says its going to balance the budget in 10 years. Those are the reports from his office.

Tons and tons of people are calling for a balanced budget, and most of them on the right are calling for it through spending cuts alone. Is that not true?

The point being "calling" for a balanced budget in 10 years and actually making spending cuts are 2 different things.

Austerity measures to our entitlement programs, SSI, Medicare, Medicaid, and I'll add DOD have NOT occurred in the United States budget since President Obama came into office