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New tomtom summarizes the current economic environment in the US
http://yglesias.thin...p#comment-1866111

tomtom says:
May 30th, 2010 at 11:37 am

What is new is old again.

The Great Depression was a lack of demand with (initially) leaders who would not unplug their currencies from gold and stimulate demand. In the ’30s they had an excuse. There was no well-developed theory to guide them.

We have no such excuse. We have neo-Keynesian economics and thousands of economists who understand what to do and how to do it. It is part of their training.

What we have is a lot of people who weren’t bothered by deficits and gigantic financial sinkhole wars of choice when the economy was OK, who now think the time to tighten our belts is before we have recovered from a panic, before we are back at full employment.

It isn’t so hard to understand. Run surpluses in good times, to pay down debt. That gives you room, politically and economically, to run big deficits when you need them. We need stimulus now!

Under normal circumstances demand is driven by the private sector, but that demand can collapse when, for example, the value of tens of millions of homes drop. Those owners might be making as much money as they did before, but they feel poorer, and they spend less. Demand drops. People lose jobs because of dropping demand, and economic insecurity rises. Demand drops further, repeat. Ironically, the short-term fix to over-leveraging n the private sector is more borrowing by the government. Building infrastructure makes sense when the economy is under capacity, because people stay employed. It breaks the cycle.

The current obsession with the deficit smells of bad faith. All of these people who are sooo concerned now did not care when it was Bush refusing to save for a rainy day. It is all me me me for these people. They don’t like paying taxes but are not willing to take a Medicare cut or give up some weapons programs. They don’t like Obama, so they want to starve out the government when we need it.

Right now is the time for more stimulus, and it isn’t happening. Millions of people are out of work, which is bad fro the economy and terribly bad for them. If we don’t do something we could be looking at years of high (8%) unemployment. A lot of the temporarily unemployed will become the structurally unemployable. A marginal 50 year old who lost her job may never work again. The social damage will be deep.


This.

It's startling how little our leaders are willing to learn from the past. :-(

Cheers,
Scott.
New Some are doing it intentionally
There is a small but influential cadre of conservative economists and politicians who are doing this intentionally. They are perfectly happy sending the US into an extended recession if it gives them a chance to break the social support services. The underlying motivation varies, some believe that government social services are morally bad, other have some variation of libertarian type views that put social services outside the domain of the federal government. Either way, their sudden exaggerated concern for the deficit is a cover for a social and politically unacceptable position.

There are even more who are doing it unintentionally though. I know several fairly conservative and fairly reasonable people who fall into this group. They are willing to support any military expense to "support the troops". But when it isn't the military their basic frugality comes through and they want to balance the budget.

I think the deficits are a concern, but not yet the primary one. First we have to get the economy growing at a decent clip and get people employed. And then we can think about cutting the military budget and raising taxes for a while to get the deficit under control.

Jay
New debt is at 90% of gdp so your suggestion is to spend more
how do you propose to pay it back, how can the economy grow when every dime made goes to service existing debt? Lets watch greece and spain so we can learn what is going to happen here. We could start a war with china, that would be big enough to get the economy growing, it worked in 1941 didnt it?
New This isn't complicated.
Yes, debt to GDP is high now. Debt to GDP has taken off because tax receipts have collapsed due to the collapse in the economy.

But what does the debt/GDP mean for the real economy? Not much. Long-term interest rates are low - around 4% - http://www.ustreas.g...positeindex.shtml People aren't afraid to lend the US money. Inflation is low and falling. Disinflation is here and deflation is a looming threat - http://krugman.blogs...-deflation-japan/

Just pointing at the raw stimulus plans or the raw debt without looking at the collapse in the private economy doesn't show the full picture. Even with the TARP and all of the money that the Fed and the Treasury dumped into the banking system, that didn't come close to filling the hole caused by the financial crisis and the Great Recession. The US didn't do enough to come close to causing future inflation. It barely did enough to do more than stop the free-fall.

Unless the economy starts growing quickly enough to bring unemployment down reasonably quickly, millions of skilled workers are going to be permanently unemployed. This will be a permanent drag on the economy, and permanently reduce GDP and tax revenue.

Running large deficits is the only way to get the economy growing after the financial crisis. Demand fell off a cliff and people lost too much wealth and income to drive the recovery. The government is the only thing that can get the economy growing.

I know you disagree. But your side has been "concerned" about inflation for ages. When a Democrat takes the presidency, suddenly the "concern" is about the deficits and the debt. Your side needs to explain how the US can run huge deficits for 8+ years and yet inflation and interest rates can keep falling. Uncle Milton would have said that's impossible.

Inflation and interest rates will rise when the economy is growing fast enough that there's competition for funds. As long as the world economy is limping along with weak banks and high unemployment, that isn't going to happen.

But what about when the economy does grow again? Won't that mean 10+% inflation and 10+% interest rates due to all the debt? History says otherwise. Debt to GDP was over 120% after WWII - http://zfacts.com/p/318.html . Inflation briefly hit 15% post-war, but rapidly dropped below 5% (except for a blip in ~1951) - http://www.gocurrenc...ies-inflation.htm Debt/GDP continued to slowly drop until the mid-1970s. Growth will solve the debt/GDP "problem".

Bottom line: The most important issue in the economy now is high unemployment - not debt/GDP, not deficits, not government spending. Arguments about "offsets" for emergency spending for unemployment benefits are stupid and counterproductive because the whole point of unemployment benefits is to keep money flowing to people so that the economy doesn't collapse further. Offsets would defeat the purpose.

Cutting spending in a weak recovery is what lengthened and deepened the Great Depression.

If starting a war was the solution, the 2000s would have been a boom-time. Instead, about $1T went down the drain. :-(

Long term, the deficit is a problem. That's why one should run a surplus during boom times - to manage the public debt and to be able to run temporary deficits in recessions. But your friends who are "concerned" now don't believe that bit of elementary macroeconomics either - it gets in the way of their "tax cuts solve everything" mantra.

(The biggest long-term driver for the US deficit is rising health care costs. Not Social Security, not the bailouts, not interest on the debt.)

My $0.02.

Cheers,
Scott.
New Just stop it.
Yes, debt to GDP is high now. Debt to GDP has taken off because tax receipts have collapsed due to the collapse in the economy.


You really are blinded by his light here. The deficit under Bush was bad. Its 3 times higher now and the laws being passed aren't even factored in. (and don't talk about savings...as the amount of "savings" in that bill is a rounding error in the budget).

It isn't tax receipts that got us here...and what they've spent is doing nothing for unemployment. And if you don't think debt load is important, you aren't paying attention. The model we've been told is "better" is imploding...and we're about 2 administrations away from being more in debt that we can possibly pay without currency devaluation.
I will choose a path that's clear. I will choose freewill.
New Evidence, please.
New unemployment rate isnt evidence?
New For what?
New Hmm.
Isn't hard to read the paper

http://www.cbsnews.c...86644-503544.html

The latest high-point is not unexpected, considering the federal deficit for the just-ended 2009 fiscal year hit an all-time high at $1.42-trillion – more than triple the previous year's record high.


Oh...and...

http://thehill.com/b...-is-unsustainable

The CBO projects that Obama's policies would produce deficits averaging nearly $1 trillion for the next decade.


So much for that "temporary blip" of spending due to downturn...the policies in place have made trillion dollar deficits EXPECTED for the next 10 years...so the above record times 3 is previous record times 2 in SYSTEMIC fashion.

Take the blinders off, man...it will do you some good.
I will choose a path that's clear. I will choose freewill.
New You're not contradicting my thesis.
Your first excerpt says the deficit is larger than under Bush. How does that contradict my stating that the Debt/GDP ratio has ballooned because the economy imploded and cut tax revenue substantially?

Your second excerpt doesn't talk about debt/GDP either.

The CBO also says:
http://cboblog.cbo.gov/?p=1034

The central challenge is straightforward and stark: The rising costs of health care will put tremendous pressure on the federal budget during the next few decades and beyond.


Which is what I said. Over the Long Term the budget needs to come closer to balance, which means increases in health care costs have to be reduced to something approaching GDP growth.

The deficit to GDP ratio is projected to drop substantially over the next few years - http://www.whitehous...sets/hist01z2.xls (31 kB):

Year - GDP ($B) - Receipts (% of GDP) - Outlays (% of GDP) - Deficit (% of GDP)

1980 2,724.2 19.0 21.7 -2.7
1981 3,057.0 19.6 22.2 -2.6
1982 3,223.7 19.2 23.1 -4.0
1983 3,440.7 17.5 23.5 -6.0
1984 3,844.4 17.3 22.2 -4.8
1985 4,146.3 17.7 22.8 -5.1
1986 4,403.9 17.5 22.5 -5.0
1987 4,651.4 18.4 21.6 -3.2
1988 5,008.5 18.2 21.3 -3.1
1989 5,399.5 18.4 21.2 -2.8
1990 5,734.5 18.0 21.9 -3.9
1991 5,930.5 17.8 22.3 -4.5
1992 6,242.0 17.5 22.1 -4.7
1993 6,587.3 17.5 21.4 -3.9
1994 6,976.6 18.0 21.0 -2.9
1995 7,341.1 18.4 20.6 -2.2
1996 7,718.3 18.8 20.2 -1.4
1997 8,211.7 19.2 19.5 -0.3
1998 8,663.0 19.9 19.1 0.8
1999 9,208.4 19.8 18.5 1.4
2000 9,821.0 20.6 18.2 2.4
2001 10,225.3 19.5 18.2 1.3
2002 10,543.9 17.6 19.1 -1.5
2003 10,979.8 16.2 19.7 -3.4
2004 11,685.6 16.1 19.6 -3.5
2005 12,445.7 17.3 19.9 -2.6
2006 13,224.9 18.2 20.1 -1.9
2007 13,896.0 18.5 19.6 -1.2
2008 14,439.0 17.5 20.7 -3.2
2009 14,237.2 14.8 24.7 -9.9
2010 estimate 14,623.9 14.8 25.4 -10.6
2011 estimate 15,299.0 16.8 25.1 -8.3
2012 estimate 16,203.3 18.1 23.2 -5.1
2013 estimate 17,182.2 18.6 22.8 -4.2
2014 estimate 18,192.6 19.0 22.9 -3.9
2015 estimate 19,190.4 18.9 22.9 -3.9


The deficit to GDP ratio will fall substantially over the next few years, even with large deficits in dollar terms. Yes, the total debt will go up over the next few years, but most of the jump was due to the implosion of the economy as a result of Bush's policies - http://www.whitehous...sets/hist07z1.xls .

Finally, once we're mostly out of Iraq and Afghanistan, and once we fully implement things as outlined here - http://www.whitehouse.gov/issues/fiscal - the deficit will fall still further.

Now show me how your apparent concern about Debt/GDP is more valid than that of people who are willing to get 4% from the US treasury on a 20 year bond - http://www.ustreas.g...positeindex.shtml ? The market says it's not a problem. People who are willing to put their money where their mouth is don't seem to be worried; otherwise they'd be demanding higher rates for long bonds.

Box mentioned unemployment. Yes, it's too high. But remember this graph: http://www.washingto...010_04/023170.php

Try again?

Thanks.

Cheers,
Scott.
New Whatever lets you sleep at night.
You're going to keep blaming the last guy right on through the new guy taking the last dollar out of your wallet.

You think we'll be out of mid-east soon? Keep dreaming.

Love that link to...promise to return to "honest budgeting"...funny as I don't think Congress is going to pass one this year.

I'm glad you like the guy.
I will choose a path that's clear. I will choose freewill.
New Since you like quotes about projections

The story of today’s deficits starts in January 2001, as President Bill Clinton was leaving office. The Congressional Budget Office estimated then that the government would run an average annual surplus of more than $800 billion a year from 2009 to 2012.



source: http://www.nytimes.c.../10leonhardt.html

So much for that wishful thinking that Shrub's policies would eliminate annual deficits.




"Chicago to my mind was the only place to be. ... I above all liked the city because it was filled with people all a-bustle, and the clatter of hooves and carriages, and with delivery wagons and drays and peddlers and the boom and clank of freight trains. And when those black clouds came sailing in from the west, pouring thunderstorms upon us so that you couldn't hear the cries or curses of humankind, I liked that best of all. Chicago could stand up to the worst God had to offer. I understood why it was built--a place for trade, of course, with railroads and ships and so on, but mostly to give all of us a magnitude of defiance that is not provided by one house on the plains. And the plains is where those storms come from."

-- E.L. Doctorow
New Nice find...
and pre-health care and talked about the proposal needed to make serious savings there...and what happened??? A proposal that increases costs.

Kind of fits right in with the theme of saying Bush was bad and Obama is not making any improvements.
I will choose a path that's clear. I will choose freewill.
New And the invasion and occupation of Iraq
was only going to cost us $200 billion ...




"Chicago to my mind was the only place to be. ... I above all liked the city because it was filled with people all a-bustle, and the clatter of hooves and carriages, and with delivery wagons and drays and peddlers and the boom and clank of freight trains. And when those black clouds came sailing in from the west, pouring thunderstorms upon us so that you couldn't hear the cries or curses of humankind, I liked that best of all. Chicago could stand up to the worst God had to offer. I understood why it was built--a place for trade, of course, with railroads and ships and so on, but mostly to give all of us a magnitude of defiance that is not provided by one house on the plains. And the plains is where those storms come from."

-- E.L. Doctorow
New Krugman on debt to GDP.
http://krugman.blogs...-william-galston/

So William Galston has an article in the New Republic questioning Keynes — and me. He lays great stress on the Reinhart-Rogoff claim that growth slows substantially when debt exceeds 90 percent of GDP.

First of all, that’s not in the Reinhart-Rogoff magnum opus. It’s in a later working paper, which is not nearly of the same standard.

[...]


See the story and the embedded links to read a rebuttal that debt/GDP ~ 90% is doomful.

HTH.

Cheers,
Scott.
New Re: Krugman on debt to GDP.
as you know I am no fan of Krugman, however debt to gdp at 90% doesnt necessarily stifle growth, excessive borrowing above that point to spend in areas that do not aid gdp growth is the wrong way to go. This admin like the last one always finds the wrong way to go on public spending.
     tomtom summarizes the current economic environment in the US - (Another Scott) - (15)
         Some are doing it intentionally - (jay)
         debt is at 90% of gdp so your suggestion is to spend more - (boxley) - (13)
             This isn't complicated. - (Another Scott) - (10)
                 Just stop it. - (beepster) - (9)
                     Evidence, please. -NT - (Another Scott) - (8)
                         unemployment rate isnt evidence? -NT - (boxley) - (1)
                             For what? -NT - (Another Scott)
                         Hmm. - (beepster) - (5)
                             You're not contradicting my thesis. - (Another Scott) - (1)
                                 Whatever lets you sleep at night. - (beepster)
                             Since you like quotes about projections - (lincoln) - (2)
                                 Nice find... - (beepster) - (1)
                                     And the invasion and occupation of Iraq - (lincoln)
             Krugman on debt to GDP. - (Another Scott) - (1)
                 Re: Krugman on debt to GDP. - (boxley)

Go now (but sparingly) and keepeth this monstrous creation from leaving ruts in My green fields and tundras; aimeth thine albatross within the scriptured dinosaur tracks provided by Mammon.
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