So, this week is filled with speechification on job creation. Romney and Huntsman have two of the most incoherent plans I’ve ever read. As usual, it’s a hodgepodge of stuff that’s not about creating jobs. And the other republicans in the race–like President Obama–have more checklists on Trade Agreements, lower taxes, patent reform, and tickling the fancy of some imagined confidence fairy. Again, all I can say is the High Priest of Voodoo and the Confidence Fairy have more power in this country than you and I. I’m getting tired of basing public policy on people’s imaginary friends.
I’m not trying to scare you off with Nifty Graphs, but I want to use one from FRED via Paul Krugman showing the Personal Savings rate. That’s the blue line. The Red line shows residential construction as a percentage of GDP which I’m less concerned about for this discussion but you can read about why it concerns Paul Krugman on his blog post “On the Inadequacy of the Stimulus”. I’m just going to use it as proxy for US investment since it’s a portion of that.
This is really simple macroeconomics math. People get income. They do four things with that income. A portion of that is sent to the government via taxes. A portion is spent on purchasing things and services in the US called domestic consumption. A portion is also spent on imported goods and services. This subtracts from our GDP as well as our income. The lowest percentage of what we do with our income has been that portion dedicated to savings until–as the graph shows–the Great Recession. Our savings rate has really gone up which means we’re spending a lot less. Savings and money spent on imports take money directly out of the expenditures portion of our economy as do taxes. Taxes come back to our county’s expenditures via Government spending. This happens relatively quickly and is powerful because when the government spends, it spends. It doesn’t save, it doesn’t buy imports as a rule, and of course it doesn’t pay taxes. Savings works its way back to the economy through investment which is the smallest part of our domestic expenditures. Right now–as proxied by the red line–you can see that investment isn’t really happening. Because we are a net importer, that income just drains out of our economy and stimulates economies elsewhere. Now, I’m not a protectionist and this is not meant to be a post arguing we shouldn’t do Trade Agreements. What I’m saying is that because of our expenditures patterns, that’s not really a net gain for us in terms of jobs. We get access to cheap goods,yes, but it doesn’t really bring about jobs. Right now, people are spending less and you can see that by the increase in savings, but it’s not getting invested back into the economy because of this vicious circle. People save and don’t spend. Businesses don’t have customers so they don’t hire and expand. We’ve been trying tax incentives for businesses for three years and it’s really not working because increased savings means no customers. Tax rates are not the primary motivator for either consumer or business spending. So, why does every one keep suggesting more of the same? Why even bring trade agreements into the discussion? We need direct job creation. We need a strong middle class with healthy incomes. We know how to do it. Our politicians, however, are in opposites world.
It’s certainly not paying off for the economy and it’s certainly not paying off in terms of support for Obama or Congress. People know this approach is not working. As usual, the same poll shows that Congressional approval is worse than the increasingly horrible numbers for Obama.
Public pessimism about the direction of the country has jumped to its highest level in nearly three years, erasing the sense of hope that followed President Obama’s inauguration and pushing his approval ratings to a record low, according to a new Washington Post-ABC News poll.
More than 60 percent of those surveyed say they disapprove of the way the president is handling the economy and, what has become issue No. 1, the stagnant jobs situation. Just 43 percent now approve of the job he is doing overall, a new career low; 53 percent disapprove, a new high.
As part of a reinvigorated effort to regain momentum as he heads toward the 2012 election year, Obama traveled to Detroit on Monday for a Labor Day appearance that served as a prelude to his speech Thursday to a joint session of Congress in which he will unveil new proposals to create jobs.
The urgency for Obama to act is driven not just by the most recent unemployment report, which on Friday showed no job growth in August and the unemployment rate stuck at 9.1 percent, but also by the depth of the political hole in which the president finds himself. Even more than two-thirds of those who voted for Obama say things are badly off course.
By this time in their presidencies, approval ratings for both Ronald Reagan and Bill Clinton — who also suffered serious midterm setbacks during their first term — had settled safely above the 50 percent mark. Both then stayed in positive territory throughout their reelection campaigns.
When ratings for George W. Bush slipped into the low 40s during his second term in office, they remained there or lower for the remainder of his presidency.
Obama does, however, rate better than do congressional Republicans, his adversaries in recent, fierce confrontations on federal spending. Just 28 percent approve of the way Republicans in Congress are doing their job, and 68 percent disapprove, the worst spread for the GOP since summer 2008.
When it comes to head-to-head match-ups on big economic issues, the public is deeply — and evenly — divided between Obama and congressional Republicans. Four in 10 side with both Obama and the GOP on jobs. There are similarly even splits on the economy generally and on the deficit. In all three areas, the percentages of Americans trusting “neither” are at new highs.
Nonetheless, current trends are highly unfavorable for the president. By 2 to 1, more Americans now say the administration’s economic policies are making the economy worse rather than better
So, in the midst of these terrible numbers comes a call by Boehner and Cantor to Obama to meet prior to the President’s latest speechification which is alway basically a lot of words that eventually mean nothing. They are dangling that partisanship football–like Lucy to Charlie Brown–just one more time Will Charlie Brown Obama go for it one more time?
House GOP leaders on Tuesday asked President Obama to meet with congressional leaders from both parties to discuss his jobs plan ahead of his Thursday night address to Congress.
In a letter to Obama, House Speaker John Boehner (R-Ohio) and Majority Leader Eric Cantor (R-Va.) cited the need for a bipartisan deal on jobs in requesting the meeting. Their letter also outlined potential areas of cooperation.
“We would suggest that prior to your address to Congress you convene a bipartisan, bicameral meeting of the congressional leadership so that we may have the opportunity to constructively discuss your proposals,” the letter said.
Keeping to my Peanuts metaphor: ARGHHHHHHHHHHHHHHHHHHHHH! The only jobs plan the Republicans have at the moment is to put Obama into the unemployment lines. Congressional Democrats appear just as unwilling to take principled stands based on sound economics. Nancy Pelosi has now dropped the word “stimulus“. The unbelievable yielding Democratic Party folds every time. It’s no wonder we’re in the mess that we’re in right now and people are frustrated.
Democrats are now being careful to frame their job-creation agenda in language excluding references to any stimulus, even though their favored policies for ending the deepest recession since the Great Depression are largely the same.
Indeed, with President Obama scheduled Thursday to lay out his job-creation plans before a joint session of Congress, liberal Democrats and left-leaning policy groups are pressuring him to ignore short-term deficit spending concerns in favor of sweeping spending initiatives designed to boost hiring.
The Democrats’ signature “Make it in America” platform aims to create jobs by increasing infrastructure spending, providing financial help to struggling states and expanding tax credits for businesses, all of which were key elements of their 2009 economic stimulus bill.
Recognizing the unpopularity of the 2009 package, however, Democratic leaders have revised their message with less loaded language – “job creation” instead of “stimulus” and “Make it in America” in lieu of “Recovery Act” – in hopes of tackling the jobs crisis.
Repackaging meaningless rhetoric on important issues that you refuse to fight for is a frigging’ losing strategy. The Republicans know it. One of the most interesting things I’ve read all week is this call in Bloomberg by a writer from the National Review for Republicans to get behind some one electable because Republican Party Central smells the blood in the water. Both parties have these terrible pathological behaviors. The Republicans are overrun at the moment by the craziest of the crazies with ideas that would bring down the republic. Democrats can’t seem to do anything but dither and try to find new buzz words to repackage already failed ideas that hand over everything to the donor class. Lost in all of this are hard working American people who do not understand why normal governance stuff is not getting done. It just seems like more and more of what used to make American strong is going, going and gone. A pox on both their houses. I want an alternative.
You know if you’ve spent any time reading my thoughts that I am highly concerned by the level of income inequality in this country. Probably the thing that most concerns me is the number of people in Washington DC that continue to call for more of the very same policies that have wrecked the economy since the beginning of the century. Dubya/Cheney brought us deregulation that crippled the financial markets and taxes so low that we know have an unsustainable debt position. No one administration in US history has waged so many wars–literally and figuratively–on so many fronts and basically left most of the population with a huge bill. I am amazed that people like James Pethokoukis can even find outlets to publish their requests for more of the same. It’s pretty appalling but it’s typical of our media that seems more out of touch these days and ignorant of basic economics than our politicians.
Goldman Sachs doesn’t have to tell you things are bad. I don’t have to tell you things are bad. Everybody knows things are bad. Unemployment is at 9.2 percent (11.4 percent if the official labor force hadn’t collapsed since 2008 and 16.2 percent if you include discouraged and underemployed workers.) Moreover, the economy grew at just 1.9 percent in the first quarter of this year and may have grown less than 2 percent in the second. Wages and income are going nowhere fast.
When will the White House signal a change of economic direction? Will cutting tax rates and regulation ever make it on the agenda? That may be the only way Obama can win another term. And time is running short.
This man seriously thinks that change in economic direction would come through more ridiculous cuts in taxes and regulation? A change in economic direction would be towards policies that have worked in the past. How could any one call for more of the same knowing the results that those kinds of policies yielded? Do we really need another recession and financial market melt down? We don’t have rich people using tax cuts to serve as jobs creators. We have rich people and corporations using tax cuts to plop their wealth around the world to preserve that wealth. We have the American middle and working class falling into poverty.
Here’s an example of what ignoring the jobs disaster and enabling wealth hoarders has wrought from The Economist. This article is called ‘The struggle to eat; As Congress wrangles over spending cuts, surging numbers of Americans are relying on the government just to put food on the table’.
Take food stamps, a programme designed to ensure that poor Americans have enough to eat, which is seen by many Republicans as unsustainable and by many Democrats as untouchable. Participation has soared since the recession began (see chart). By April it had reached almost 45m, or one in seven Americans. The cost, naturally, has soared too, from $35 billion in 2008 to $65 billion last year. And the Department of Agriculture, which administers the scheme, reckons only two-thirds of those who are eligible have signed up.
Republican leaders in the House of Representatives want to rein in the programme’s runaway growth. In their budget outline for next year they proposed cutting the amount of money to be spent on food stamps by roughly a fifth from 2015. Moreover, instead of being a federal entitlement, available to all Americans who meet the eligibility criteria irrespective of the cost, the programme would become a “block grant” to the states, which would receive a fixed amount to spend each year, irrespective of demand. The House has also voted to cut a separate health-and-nutrition scheme for poor pregnant women, infants and children, known as WIC, by 11%. (The Senate, controlled by the Democrats, is unlikely to approve either measure.)
Advocates for the poor consider such cuts unconscionable. Food stamps, they argue, are far from lavish. Only those with incomes of 130% of the poverty level or less are eligible for them. The amount each person receives depends on their income, assets and family size, but the average benefit is $133 a month and the maximum, for an individual with no income at all, is $200. Those sums are due to fall soon, when a temporary boost expires. Even the current package is meagre. Melissa Nieves, a recipient in New York, says she compares costs at five different supermarkets, assiduously collects coupons, eats mainly cheap, starchy foods, and still runs out of money a week or ten days before the end of the month.
It is also hard to argue that food-stamp recipients are undeserving. About half of them are children, and another 8% are elderly. Only 14% of food-stamp households have incomes above the poverty line; 41% have incomes of half that level or less, and 18% have no income at all. The average participating family has only $101 in savings or valuables. Less than a tenth of recipients also receive cash payments from the Temporary Assistance for Needy Families programme (TANF), the reformed version of welfare; roughly a third get at least some income from wages.
Spending on food stamps has risen so quickly because, unusually, almost all the needy are automatically and indefinitely eligible for them. Unemployment benefits last for a maximum of 99 weeks at the moment, and that is due to fall to six months from next year. No one knows exactly how many people have exhausted their allotment, as the government does not attempt to count them. But almost half of the 14m unemployed have been out of a job for six months or more, and so would no longer qualify for benefits under the rules that will apply from January 1st.
Krugman states the obvious or “what ordinary economists” would find the policy measures under these situations in his blog today. It is exactly the opposite of what the group think in Washington DC is producing.
So, terrible growth prospects; low inflation; oh, and low interest rates, with no sign of the bond vigilantes. Ordinary macroeconomic analysis tells you very clearly what we should be doing: fiscal expansion and monetary expansion by any means we can manage; in fact, the case for a higher inflation target pops right out of just about any model capable of producing the kind of mess we’re in.
And what are we talking about in policy terms? Spending cuts and an end to monetary expansion.
I know the arguments — fear of invisible bond vigilantes, fear that 70s-style stagflation is just around the corner despite the absence of any evidence to that effect. But why do such arguments have so much traction, while everything economists have spent the last three generations learning is brushed aside?
One answer is that macroeconomics is hard; the idea that if families are tightening their belts, the government should do the same, is as deeply intuitive as it is deeply wrong.
But the susceptibility of politicians — including, alas, the president — and pundits to these wrong ideas demands a deeper explanation.
a wide refocusing of the mechanisms of our society towards the crucial obsession of oligarchs: wealth and income defense.
That has to be right. It doesn’t necessarily take the form of pure cynicism; it’s more a matter of the wealthy gravitating toward views of economic policy that make immediate sense in terms of their own interests, and politicians believing that only these views count as Serious because they’re the views of wealthy people.
But the upshot is terrible: more and more, this really does look like the Lesser Depression, a prolonged era of disastrous economic performance. And it’s entirely gratuitous.
It’s just hard for me to even find words about how misguided fiscal policy is these days. We have financial markets clamoring for less regulation not because they want to operate efficiently or because they want healthy competition, these folks are asking for removing basic oversight that prevents price gaming, moral hazard, information asymmetry, and oligopoly style games. We have two protracted wars that have never been fully financed. We have bailouts of failed institutions that have never been financed. We also have tax cuts that were not offset by spending cuts but made worse by giveaways by a Republican administration and a Republican congress and exacerbated by a Democratic administration. Obama’s stimulus was top heavy with useless tax cuts. What sort of craziness does it take to try to put those same policies on steroids then expect them to create different results?
What we currently are experiencing is a complete Aggregate Demand vacuum. We have the rich hoarding wealth or putting it in other economies and the rest of the country struggling to just exist if they have jobs. Then, we have a huge number of people that have neither wealth or jobs. This is WHEN we need the government to boost spending. We didn’t need all that during the last part of the Bush years but what we got was a period of throwing the US Treasury to the wind. We’re in deep trouble here folks and I have no faith that any of our policy makers will ever wake up and do the right thing.
The top stories on every one’s mind these days are the lousy jobs report last week and the tumbling stock markets. Democrats in the House are calling for new infrastructure spending as a way to create more jobs in the hopes that a few federal projects could provide some stimulus to the stalling recovery.
“The American people, while concerned about the deficit, place much more emphasis on job creation, and they see a role for the government,” Rep. Raul Grijalva (D-Ariz.) told The Hill. “A fast injection of job stimulus on the public side would help tremendously. … It [the job report] helps our argument about investment.”
Other Democrats delivered a similar message on Friday. Rep. Eliot Engel (D-N.Y.) said “the answer” to the lingering jobs crisis is “investment” in the “communities and businesses who need confidence and resources to hire [people].”
Rep. Emanuel Cleaver (D-Mo.) said “investing in our communities goes hand in hand with full economic recovery.”
Rep. Earl Blumenauer (D-Ore.) said that only in Washington is targeted new spending being demonized.
“Once you get outside the Beltway, almost everyone agrees that we should be rebuilding our crumbling infrastructure and investing in clean American energy that reduces our dependence on oil,” Blumenauer said.
Meanwhile, the major reason for home foreclosures these days isn’t the subprime loan scandal. It’s unemployment.
The Obama administration’s main program to keep distressed homeowners from falling into foreclosure has been aimed at those who took out subprime loans or other risky mortgages during the heady days of the housing boom. But these days, the primary cause of foreclosures is unemployment.
As a result, there is a mismatch between the homeowner program’s design and the country’s economic realities — and a new round of finger-pointing about how best to fix it.
The administration’s housing effort does include programs to help unemployed homeowners, but they have been plagued by delays, dubious benefits and abysmal participation. For example, a Treasury Department effort started in early 2010 allows the jobless to postpone mortgage payments for three months, but the average length of unemployment is now nine months. As of March 31, there were only 7,397 participants.
“So far, I think the public record will show that programs to help unemployed homeowners have not been very successful,” said Jeffrey C. Fuhrer, an executive vice president of the Federal Reserve Bank of Boston.
One additional question is popping up now that it appears more than certain that some entitlements will be subject to cuts, That is why aren’t Democrats defending Medicaid? Democrats have spoken out against cuts to Social Security and have defended Medicare. What about Medicaid?
…for all the Democrats’ posturing and campaigning against Republican plans for Medicare, the GOP budget actually makes more immediate and deeper cuts to Medicaid. But Democrats haven’t been blasting the GOP Medicaid plan with nearly the same fervor, even though Republicans would cut about $750 billion from the program during the next decade and end the guaranteed federal match for states.
With intense budget negotiations on the debt limit under way, health care insiders think Democrats won’t budge much on Medicare now that they have a significant campaign chip in their pockets: Kathy Hochul’s upset win in New York’s 26th Congressional District is Exhibit A of the power of Medicare.
And that makes advocates worry that Medicaid cuts are more likely to come out of budget negotiations led by Vice President Biden.
Medicaid covers more than 50 million people, including low-income children and seniors in long-term care, but it doesn’t pack the same political punch as Medicare. Some observers say that’s due to the lingering perception that Medicaid is just a program for poor people that holds a much less broad-based appeal.
That perception is definitely part of the challenge in communicating Democratic opposition to the GOP’s Medicaid plans, Rep. Robert Andrews (D-N.J.) told POLITICO.
Medicaid “doesn’t quite have the same political dynamic” as Medicare, Andrews said.
Protestors in Wisconsin have opened a ‘Walkerville’ Tent city in Madison as a reminder of the Great Depression and to protest the governor’s budget. Wisconsin is leading the way in protesting the way state budgets are being balanced on the backs of the poor and the working and middle classes.
In a move meant to evoke the infamous “Hooverville” tent cities of the Great Depression, protesters in Madison, Wisconsin opened “Walkerville” on Saturday evening, a tent city in the heart of Madison intended as a protest of Governor Scott Walker’s budget plan.
The Wisconsin Sentinel Journal calls the protest “the latest act in the 2011 political drama featuring the governor’s push to eliminate most collective bargaining rights for most public employees”.
By 9:00pm, an estimated 250 campers in up to 100 tents were arrayed throughout the designated protest area, with many campers pitching their tents on concrete sidewalks. City police, state troopers, and other law enforcement personnel were on hand, but on the whole a carnival air prevailed as families set up for the night, some intending to stay just for a night or two and others through June 20.
Yemeni president Ali Abdullah Saleh is in Saudia Arabia recovering from injuries suffered in an attack on his palace last week. Many people are encouraging him to stay there.
The United States and Britain are pressing Saudi Arabia to persuade the Yemeni president, Ali Abdullah Saleh, to formally stand down after flying to Riyadh for treatment for injuries that were sustained in shelling in Sana’a on Friday.
Diplomats said that Washington and London were insisting that Saleh now be urged to implement a deal under which he would relinquish power in exchange for immunity from prosecution and financial guarantees about his future.
Pro-democracy protestors in Yemen were celebrating his departure after 33 years in power, but the Arab world’s poorest country still faces turmoil as well as immediate concerns over whether a truce will hold if Saleh tries to return and his relatives and supporters fight back.
The risks ahead were underlined by clashes in the southern city of Taiz, which left at least two dead and four injured. Shelling was also reported in Sana’a.
Saleh was described as recovering following emergency medical treatment in a Riyadh military; he was injured by shrapnel when his palace compound was attacked by tribal rivals.
Yemen’s ruling party, the General People’s Congress, insisted he would be back, but diplomats and analysts expressed doubt, suggesting that Saudi patience with an always fractious and often manipulative neighbour was exhausted.
It would be impossible for Saleh to return, argued Abdul Ghani Iryani, a respected Yemeni political commentator. “He is out. That is the only rational course. The exit of the president has defused some of the tensions and war is less likely today than it was yesterday.”
Evidently John Edwards is going to trial because the Feds offered him a plea deal that included prison time.
Just before John Edwards was indicted Friday, prosecutors made a final offer: They would accept his guilty plea to three misdemeanor campaign finance law violations in the $925,000 cover-up of his affair.
With the deal, the former Democratic vice-presidential nominee would avoid a felony conviction – and almost certainly keep the law license that had made him wealthy.
But there was a catch.
The government wanted to dictate a sentence that would result in up to six months of prison for Edwards, even with the plea to lesser charges.
Edwards and his lawyers were concerned. They wanted the ability to at least argue to a judge for alternatives, such as a halfway house, weekend releases, home arrest or some arrangement that would allow Edwards to be with his school-age children. He is a single parent after the death of his wife, Elizabeth, in December.
Yeah, right. My guess is he doesn’t want to be some one’s mistress.
So, that’s what I’ve dug up today. What’s on your reading and blogging list?
I never thought I’d ever hear an economic adviser to a Democratic administration justify taking a natural path to recovery when the US economy is reeling from a basic lack of aggregate demand. The comments were just about as Chicago school as you could get. It was just another reheated bowl of smoking green shoots.
“Our effort now as a government should be to get the private sector to help them stand up and lead the recovery,” Goolsbee told “This Week” anchor Christiane Amanpour, citing efforts on regulatory review, while maintaining policies such as reduced payroll taxes through the end of the year. “We’ve got to rely on policies that are trying to leverage the private sector and give incentives to private sector to be doing the growth.”
I didn’t catch Obama economist Austan Goolsbee with Christian Amanpour on ABC which is where I got that quote. I caught up with him on Candy Crowley’s Sunday show. From what I can tell, the story line was about the same. According to Goolsbee, whatever recovery we’re experiencing from the worst financial crisis we’ve had since The Great Depression is in the hands of the private sector who just needs to appreciate the gentle nudge they’ve already gotten. Goolsbee conveniently ignored every thing going on in the recent economy except a small window’s worth of job creation. He declared that there was no downward trend in the economy. I felt like I was watching a big ol’ flaming head tell me to ignore the man behind the curtain. But, I musn’t be the only one that was watching the little man behind the curtain given that the one month’s worth of data turned into “DOW plunges into longest weekly losing streak since 2004” last week. I don’t think that’s the end of that either.
Scarecrow at FDL calls it the best speech evah given by President Romney’s chief economic adviser.
Goolsbee correctly told us that a smart economist wouldn’t get overly excited about one month’s jobs and growth numbers but would instead look at the overall trend. Of course what he wouldn’t want to concede is that GDP grew at a meager annual rate of 1.8 percent over the first three months of 2011 and so far was predicted to grow at only 2.8 percent for the next three. And the overall trend for job growth was still not enough to make a serious dent in unemployment unless you believe taking 5-10 years to get back to full employment is okay.
So Goolsbee was in denial from the opening moment because he didn’t have a decent story to tell even in his own framework. When Amanpour asked him what the Administration could or should be doing to improve conditions, he ticked off items you’d expect to hear from a typical GOP Presidential adviser: we’ve got to get the debt under control; we have a White House effort to identify and get rid of governmental regulations that are preventing the private sector from growing the economy; we should pass “free trade” agreements backed by the Chamber of Commerce; and we should leverage limited public dollars to release billions in private funding for investments.
Goolsbee’s bottom line: “It’s now up to the private sector.” That’s exactly what you’d expect from President Romney’s economic adviser.
It took Paul Krugman and Chrystia Freeland, over the absurd denials by Martin Regalia of the Chamber of Commerce, to remind ABC’s audience that business confidence and concerns about taxes and regulations aren’t the problem: business polls repeatedly show businesses aren’t expanding/hiring much because the demand for their products is weak. Demand is weak because the recession and the housing market crash depleted consumers’ wealth and they’re worried about losing their homes and jobs. You don’t need a degree in economics to grasp the logic of that. When private spending is still depressed, only government spending is keeping the economy afloat, and the stimulus is phasing out.
Now, I hate to keep writing about the same things over and over again. I know I’m not the only one. Brad DeLong has finally discovered there is no Plan B. There is only full speed ahead with deficit reduction which is a great long term goal but a disastrous short term strategy. Mark Thoma is even more straightforward.
Policymakers have been telling us to have patience for some time now, but patience ran thin long ago. We need action, not excuses to do nothing based upon Republican talking points. We have millions of people out of work, we face the prospect of a five to ten year recovery for employment, yet the administration has no plans to even try to push Congress to do more.
The percent of owners planning capital outlays in the next three to six months fell 3 points to 21 percent, a recession level reading. Money is cheap, but most owners are not interested in a loan to finance equipment they don’t need. Prospects are still uncertain enough to discourage any but the most profitable and promising investments. Four percent characterized the current period as a good time to expand facilities (seasonally adjusted), down 1 point from March and 4 points lower than January. The net percent of owners expecting better business conditions in 6 months slipped another 3 points to negative 8 percent, 18 percentage points worse than in January. Uncertainty is the enemy, and there is plenty of it to convince owners to “keep their powder dry”. Apparently consumers feel much the same way, as more customers spending more money would overcome the reluctance of owners to hire and make capital outlays. One in four still cite “weak sales” as their top business problem.
There is nothing mysterious about the fiscal policy solution to your basic lack of aggregate demand. What’s mysterious is the complete lack of concern about the significantly high unemployment rates, the continued foreclosure crisis, and the downward trends in both consumer and business confidence.
I guess I know what happens with the phone rings at 3 a.m.
No one picks it up and then some one goes on TV the next day and says we’ve done all we can do. For this they expect re-election?
One of the things that grew out of the Reagan years was a set of myths. Primary among them were economic myths. The first one was that the country was overtaxed. The second was that there was no particular useful role for government. The third was a revival of our country’s Puritan ethos. None of these were particularly helpful and all of them were put to death–in short order–during the Clinton years by theory and empirics. Well, they were put to death by every one but those that rely on faith and ideology rather than theory and data. I see a revival of these myths in the signs of tea partiers. The tea party folks realize we’re losing our way of life. The problem is they are so angry they are looking to Reagan Fairy tales for answers. Republicans and Blue dawgs are playing those fears like magical harps. Fairy tales calm children’s fears, but they do not solve real problems.
A really good example of a stupid hypothesis in Reagan’s VooDoo economics that was soundly put to death by empirics was the Laffer curve.(That was the basis of the argument that we’re overtaxed.) However, I do know some one that has to rely on old articles to bring this ‘view point’ into his classroom. No matter how many ways I insist that it’s not our job to bring failed hypotheses to students he still keeps clapping for this very dead Tinkerbell. He wants to believe he’s over taxed no matter what the data says and I haven’t seen him for awhile but I have no doubt he’s participating in whatever passes for a tea party up in his rural part of Washington.
Paul Krugman’s hair is on fire about the Austerity Myth today. He’s not the only one. Here’s something from The Economist with the same urgency on the international scale called the Austerity Alarm. These articles seem even more prescient given the news about unemployment today. The U.S. economy is not creating jobs. It’s still losing them in large numbers. The economy lost 125,000 jobs last month. The previous dips in the unemployment rate seem to have come from part time Census worker jobs. This one comes from people giving up so they’re not counted. I warned 1 1/2 years ago that the Porkulus bill was not concentrating spending on the right things and too full of useless tax cuts. Surprise! Surprise! Job creation remains elusive. Mortgage rates are at record lows and without bribes to first time buyers, the housing market–perhaps the most central element of the American Dream Fairy tale–looks like a lost market. So, the best our leaders can do in response to all of this is reheat policies that failed during the Hoover Administration.
As Krugman points out, the U.S. and nearly all the world’s economies remain in a deep recession, so why are all the leaders talking about austerity programs and acting like the big issue is that some imaginary set of investors will treat them like Greece if they act responsibly? Why are they repeating the policies that made the Great Depression worse to begin with and then the policies that turned the recovery of the mid thirties into a double dip depression?
Krugman suggests that it’s the power of the village that keeps churning out the myth. It’s not the village economists that embrace this fairy tale. It is our village idiots and unfortunately, they seem to be in charge of economic policy these days. This is not to deny that the U.S. has long term budget problems. Demographics are presenting serious problems to both Social Security and Medicare. Both need to be revamped to meet future commitments. Revamping, however, does not mean tearing down all the buildings in the village to stop one fire from spreading.
So the next time you hear serious-sounding people explaining the need for fiscal austerity, try to parse their argument. Almost surely, you’ll discover that what sounds like hardheaded realism actually rests on a foundation of fantasy, on the belief that invisible vigilantes will punish us if we’re bad and the confidence fairy will reward us if we’re good. And real-world policy — policy that will blight the lives of millions of working families — is being built on that foundation.
So Krugman is a liberal and of course, the argument against him is that all we liberals believe is that the our big daddy government will get us out of trouble. So, why is the same argument coming from The Economist whose subtitle to their op-ed piece reads “Both sides in the row over stimulus v austerity exaggerate, but the austerity lobby is the more dangerous”. They are hardly a bastion of liberal thinkers and they call the austerity hawkers dangerous.
The austerity fad is also distorting politicians’ priorities. Many European governments, for instance, are fixated on cutting their deficits, when they should also be trying harder to shake up their labour and product markets. A new analysis by the IMF suggests that fiscal austerity coupled with structural reforms would yield far higher growth than austerity alone. In America the new deficit-focused climate is preventing politicians from passing a temporary (and sensible) fiscal stimulus package without inducing them to tackle the sources of the country’s huge medium-term deficit by, for instance, reforming social security. The result probably won’t be another Hooveresque Depression. But it could be a recovery that is weaker and slower than it should have been.