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

[PeterMP]

http://www.guardian.co.uk/commentisf...t-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.

[Wrong Direction]

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.

[Elessar78]

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.

[Wrong Direction]

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.

[alexey]

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.

[Tulane Skins Fan]

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.

[alexey]

...
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.

[Riggo-toni]

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.

[Tulane Skins Fan]

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.

[Riggo-toni]

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.

[Tulane Skins Fan]

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.

[Kindred]

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.

[Zguy28]

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?

[Tulane Skins Fan]

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.

[Predicto]

So Keynesian of you.

And so accurate as well.