“Morning Joe’s Accuracy Deficit”: If It’s Way Too Early, It’s Just Flat Out Wrong
We’ve all played the game “telephone,” where a message gets distorted in the retelling, often so much so that the original sender has a hard time recognizing it when it comes back. Nowadays, “telephone” is played in the blogosphere, and that’s how I felt when I first learned that my views on reducing the federal budget deficit were portrayed as in sharp contrast to those of my famous Princeton colleague, Paul Krugman.
The story began when Krugman appeared as a guest on “Morning Joe” on January 28th. He locked horns with host Joe Scarborough and others over how urgent it is to reduce the deficit, with Krugman arguing that we have lots of time and Scarborough (and others) arguing that we need to act post haste. Krugman did not dispute the notion that we must eventually get ourselves off the explosive debt path on which we now find ourselves. But he insisted that, with the economy so weak and the markets so welcoming of U.S. Treasury debt, we can and should go slowly.
Scarborough, though cordial to his guest, was incredulous and even amused. He subsequently argued in POLITICO that Krugman’s view is extreme, dangerous, and — most germane to this note — shared by almost no one else. It certainly wasn’t the consensus view on “Morning Joe” that day.
When Scarborough speaks, people listen. So controversy quickly erupted in the blogosphere. In POLITICO on February 15th, Scarborough invoked me as being on his side of the debate — which was news to me. While there are nuances of difference between my views on the budget issue and Krugman’s, and notable differences in rhetorical style, our positions are broadly similar. I’m probably a tad more hawkish than my colleague, but there’s not much distance showing between us.
So why had Scarborough declared me a deficit hawk?, I wondered when someone informed me of the alleged schism within the Princeton economics department. Here’s the answer.
In my new book, “After the Music Stopped” (Penguin Press, 2013), which was published a few days before the Scarborough-Krugman debate, I argued that there is not just one, but actually three distinct deficit problems, each with its own solution.
PROBLEM 1: In the very short run, meaning right now, we probably have too much deficit reduction. The U.S. economy could actually use some fiscal stimulus (to wit, larger deficits) today, rather than more fiscal contraction, because unemployment is still so high. Doesn’t that sound like Krugman?
PROBLEM 2: Over the coming decade, however — which is the focus of Simpson-Bowles, the so-called grand bargain, and most other plans — we do need to bring the deficit down, I argued. And, indeed, Problems 1 and 2 should be linked: by joining together some modest stimulus now with perhaps ten times as much deficit reduction over the ten-year budget window. In Washington-speak, we would thus “pay for” the stimulus ten times over. Furthermore, I argued, we could accomplish that without undue pain and suffering.
PROBLEM 3: The real budget crunch comes well down the line — a decade or two or three from now. The problem is simple to diagnose — healthcare costs are projected to soar — and it looks massive. By the way, that doesn’t mean we shouldn’t start addressing the healthcare cost problem now.
An excerpt from my book, making these points, was published in The Atlantic on January 25th — three days before the “Morning Joe” show. Interestingly, The Atlantic entitled the excerpt: “How to Worry About the Deficit: (1) Don’t; (2) Wait a Few Years; (3) Then Worry About Healthcare Costs.” A bit long as headlines go, and maybe a bit misleading, but it did capture the three separate deficit issues.
Apparently the article caught Scarborough’s eye. In that POLITICO article, he cited me as among the anti-Krugmans, claiming I was “particularly supportive of the “Morning Joe” panel’s view.” Why? Because I had warned of “truly horrific problems” ahead and “even shared [the] conclusion that the coming Medicare crisis will be so great that Democrats won’t be able to tax their way out of it.”
Well, I did say those things, but they referred to Problem 3, the long-run explosion of healthcare costs, not to Problem 2, the ten-year budget. Here’s the actual quotation about taxing our way out of the exploding healthcare costs (from “After the Music Stopped,” p. 404):
“The government can cover no more than a small fraction of the projected deficits by raising taxes. Sorry, Democrats, but the Republicans are right on this one. Americans are used to federal taxes running about 18.5 percent of GDP; they will not allow them to rise to 32 percent of GDP. Never mind that a number of European countries do so; we won’t.”
Krugman subsequently noted in his blog (on February 16) that his position is “not so different” from mine.
I don’t blog, so the purpose of this missive is simple: Can we please end the mini-debate right here? While there may be some small differences between Krugman’s position on reducing the deficit and my own, they are pretty small. Had I been on “Morning Joe” that day, the debate surely would have been two against four, not one against four. Furthermore, Krugman and I are not occupying some obscure corner of the policy debate, where only weirdos live. A large number of economists are on our side. Others, of course, are closer to the Scarborough camp.
The more important question is the substantive issue of the day: Should we be going for more fiscal austerity right now, or not? Those of us who say “not” urge you to consider some pertinent facts: the unemployment rate remains sky high; fiscal austerity has failed in Europe, where it is harming growth; the U.S. Treasury can still borrow at super-low interest rates; and we have already made serious progress on the ten-year budget problem. Now make up your own minds.
By: Alan S. Blinder, Opinion Contributor; Professor of Economics and Public Affairs, Princeton; Former Vice Chairman of the Federal Reserve, Politico, March 4, 2013
“Sequestration Stupidity”: By All Measures, Austerity Policies Are An Unmitigated Disaster
A Mediterranean diet, the New England Journal of Medicine reported Monday, can lengthen one’s lifespan. So inhabitants of southern Europe can look forward to long lives — of anxiety and privation.
Already mired in a depression comparable to that of the 1930s, Spain, Greece and Portugal are going to see things grow worse this year, according to an annual economic forecast released by the European Commission on Friday. Unemployment rates in both Spain and Greece — where a quarter of the populations are unemployed and the share of jobless young people exceeds 50 percent — will rise to 27 percent.
At least the leaders in power in 1930 had an excuse when the economy began to collapse. Then, there was genuine bewilderment among economists and governmental chieftains across the political spectrum about how to induce a recovery. From British Laborite Ramsay MacDonald to the German centrist Heinrich Bruning to American conservative Herbert Hoover, leaders cut spending to bring their budgets into balance.
These austerity policies proved an unmitigated disaster. By reducing government spending while business and consumer spending were tanking, these heads of government constricted all economic activity. In turn, unemployment continued to soar. Frustrated with the inability of mainstream political parties to stop the collapse, voters in some nations turned to extremes — most notably, of course, in Germany.
Unlike their predecessors, today’s leaders have models on how to revive depressed economies. The example of Franklin Roosevelt, whose public investments in jobs and defense turned the U.S. economy around, and the writings of John Maynard Keynes, who demonstrated that the solution to depression is boosting demand, are plain for all to see. Seeing isn’t believing, however, when ideology dims the eye.
Today, in the spirit of the Bourbon kings who reclaimed power in post-Napoleonic France, having learned nothing during their years in exile, many European leaders are repeating the mistakes that their predecessors made in the ’30s: demanding that governments reduce spending even as their private-sector economies limp along. Only this time around, the miracle of the euro has greatly the reduced the autonomy of many continental nations while giving their creditor, Germany, control over their destinies. German Chancellor Angela Merkel is imposing austerity budgets on other nations, even Spain, which had a string of balanced budgets before the 2008 collapse.
The economies of Mediterranean nations, the Merkelites complain, lag behind the productivity rates of their northern European neighbors. But boosting productivity — a goal that everyone embraces — requires more, not less, public investment in worker training, education, new industries and unemployment support. The relationship between austerity and heightened productivity, whose existence Merkel continually proclaims, is real enough — but in Europe’s current economy, the association is inverse.
As in the 1930s, despair about the economic options before them has driven many voters to bizarre extremes. A quarter of Italian voters cast ballots this week for the anti-austerity xenophobic party of a professional comedian. In Spain, a movement for Catalonian separatism is growing. More ominously, in Greece, an avowedly racist, fascist party involved in numerous instances of violence has won a bloc of seats in parliament. You might think Merkel would be cognizant of the links between economic hopelessness and the rise of fascism — but if she is, it hasn’t affected her austerity economics by so much as a pfennig.
The euro zone isn’t the only part of Europe where austerity is turning out to be a disaster. Britain is the one European nation that, since Prime Minister David Cameron’s conservatives came to power in 2010, has deliberately opted for punishing austerity to bring its budget into balance. As a result, the British economy has slowed to a crawl, and its budget remains in the red. Last week, Moody’s stripped Britain of its AAA credit rating. In anti-Keynesian theory, austerity economics are supposed to protect one’s triple-A rating, not endanger it. So much for anti-Keynesian theory.
The United States isn’t immune to Europe’s madness. The sequester slated to begin taking effect Friday is a particularly mindless form of an already stupid policy, poised to inflict a kind of blindfolded austerity at a time when unemployment remains high. Republican opponents of government spending, not to mention tea party activists, like to think of themselves as true-blue Americans while disparaging the Democrats as Euro-socialists. But it’s the Republicans who are embracing Europe’s failed economics while Democrats attempt to adhere to the American success story of the New Deal. Republicans might want to bone up on American history; it contains all kinds of valuable lessons.
By: Harold Meyerson, Opinion Writer, The Washington Post, February 26, 2013
“By Their Own Hands”: While Republicans Warn Against “Greece”, That Is Exactly Where Austerity Budgeting Will Lead The U.S.
Indebted America is in danger of turning into destitute Greece, or so congressional Republicans and conservative commentators have been warning us for years now. For many reasons, this is an absurd comparison – but it may not always be quite so ridiculous if Washington’s advocates of austerity get their way.
The Republicans actually want to impose Greek-style budget-slashing on the United States. And the federal budget sequestration scheduled to take effect next week could represent the first serious step here toward the kind of fiscal policies that have proved so ruinous not only in Greece — raising unemployment, destroying hope, and encouraging extremism — but across Europe.
Nearly every day, House Speaker John Boehner or Senate Minority Leader Mitch McConnell – or Senator Rand Paul or Rep. Paul Ryan, or almost any other prominent Republican – insists that the only way to improve the economic prospects of the American people is to impose drastic budget cuts on them. While these Republican leaders don’t love the sequester budget only because it cuts too deeply into defense programs, they are eager to impose similar cuts or worse on every domestic function, from health care and education to food safety and infrastructure.
Unwilling as they usually are to name specific cuts, the Republican plans that have emerged lately are indeed similar in scope and impact to those imposed by European central bankers on Greece, Spain, Portugal, Ireland, and other beleaguered states across the continent (and imposed by the British government on the United Kingdom itself).
Enacting the same fiscal policies in this country would, presumably, induce the same effects. Yet despite their enthusiasm for extreme austerity the Republican, Tea Party, and assorted media soothsayers almost never want to discuss what has happened in Europe as a result of those same policies. It is not always possible to ignore the unhappy reality of renewed recession, from England to Italy.
Just last weekend, the British were jolted by news that Moody’s had downgraded investments in their country’s sovereign debt from its traditional AAA status.
Why would the bond rating agency do something like that? Principally because the miserable budgeting of Tory Prime Minister David Cameron’s government has mired the United Kingdom in negative growth, with no prospect of reducing its debt, which keeps growing. So the scheme that was supposed to improve the fiscal outlook for the British has merely lowered their credit rating. That wasn’t supposed to happen — in fact, the austerity plan was designed to preserve Britain’s AAA rating — but it was inevitable as soon as Downing Street chose budget-balancing over growth.
The same downward trajectory can be marked wherever the leaders of dominant Germany have forced austerity plans onto indebted governments.
So damaging has this process become for all of Europe that the Germans finally began suffering the ironic consequences in the last quarter of 2012. Their export-led growth strategies cannot work when their neighbors, reduced to poverty, can no longer purchase German goods. If German exports pick up again this year, it will only happen because customers in the U.S. and China remain exempt from the effects of austerity.
Until now, the United States has escaped the fate of Europe, remaining the “sole bright spot” of steady growth in the global economy, because President Obama resisted the fiscal extremism of his Republican adversaries, and contrived to ward off recession with necessary spending. Now sequestration, with all of its dire social and economic effects, will provide a taste of what is to come under Republican austerity: a shrunken nation with a dim future.
By: Joe Conason, The National Memo, February 26, 2013
“Still More BS”: The Bowles-Simpson Commission Is The Fiscal Zombie That Just Won’t Die
We all do things that we regret. President Obama must surely regret that he ever listened to the extreme deficit hawks back in early 2010, when he appointed the Bowles-Simpson Commission, the fiscal zombie that just won’t die.
The commission is long defunct. The recommendations of its majority report never became law (because that required a super-majority). But the dreams and schemes of B-S have become the gold standard of deflationists everywhere. The test of budgetary soundness is: does it meet the recommendations of Bowles and Simpson?
On Tuesday, the depressive duo were at it again, calling for additional deficit reductions of $2.4 trillion over a decade. This is almost a trillion dollars beyond what President Obama and Congress are considering.
This clarion call was issued under the aegis of the corporate group, “Fix the Debt,” a bunch of millionaires and billionaires urging regular people to tighten their belts for the greater good.
Quite apart from the impact of particular cuts (Social Security, Medicare, domestic discretionary spending), this is economic lunacy—because it sandbags an already depressed economy. The Congressional Budget Office has calculated that growth would be 3 percent this year, but will only be half that rate because of the effects of the sequester (or cuts of a similar magnitude)—and Bowles and Simpson are calling for annual cuts of twice the scale of the sequester, and over a whole decade.
President Obama has focused on heading off the sequester—$85 billion of mandatory cuts in the next ten months. But he has bought into the deeper mischief wrought by Bowles and Simpson, by embracing further cuts of $1.5 trillion over a decade.
As the latest pronouncement by the B-S boys shows, the cuts are never enough. If Obama accepts $1.5 trillion, they counter with $2.4 trillion.
They are more gentlemanly than Grover Norquist, but the ideological goal is the same—a government small enough to drown in a bathtub. Even worse, deflationary cuts slow growth, making the debt load larger in real terms, no matter how much we cut.
We’ve now had a real-time experiment, in countries as diverse as Greece, Spain, and Britain. Austerity only breeds more austerity.
By: Robert Kuttner, The American Prospect, February 21, 2013
“Frontmen For American Austerity”: Sequestration Is Not Enough For Simpson And Bowles
Sequestration?
Cue the return of Alan Simpson and Erskine Bowles, frontmen for American austerity.
If sequestration is not averted by the end of the month, America will experience an arbitrary austerity agenda that shifts burdens from the wealthy onto working families. It makes across-the-board cuts to vital services. As President Obama noted Tuesday, sequestration would impose “automatic brutal spending cuts” to job creation, infrastructure and education initiatives. It would, as well, slash funding for air traffic control, federal prosecutions and Federal Emergency Management Agency grants that make it possible for states and local governments to hire needed firefighter and emergency personnel.
Even the parts of the sequester that are appealing—squeezing the bloated Department of Defense budget—will tend to harm low-wage federal employees rather than billionaire defense contractors.
Most troublingly, sequestration will slow, and perhaps stall, the economic recovery. “This is not an abstraction,” says President Obama. “People will lose their jobs.”
By any measure, the sequester is austerity.
But it’s not enough austerity for Simpson and Bowles.
The former Republican senator and defeated Democratic senate candidate who praises Paul Ryan’s budget don’t particularly like the death-by-slow-cuts of sequestration. They prefer a full frontal assault on the most vulnerable Americans and a redistribution of the wealth upward.
As President Obama has noted, Washington has already reduced the deficit by $2.5 trillion.
But the co-chairs of the failed National Commission on Fiscal Responsibility and Reform now want another $2.4 trillion.
To wit, in a “rehashed” plan to “Fix the Debt,” Simpson and Bowles are busy promoting schemes to “modernize…entitlement programs to account for” an aging population. That’s code for schemes to delay the point at which the hardest working Americans can get access to Social Security and Medicare.
Simpson and Bowles are arguing specifically for the adoption of “chained CPI.” That’s the assault on Social Security cost-of-living increases that Congressman Keith Ellison, D-Minnesota, correctly identifies as “a benefit cut.”
“It’s a bad idea and it’s a stealth way to give people less,” Ellison explained in a recent interview. “It is a benefit cut—and here’s the real problem with it being a benefit cut: It would be absolutely horrible if it were a benefit cut but the cut was designed to extend the life of Social Security and to make the program more solvent. But that’s not why they’re doing it. They’re doing it so that they can preserve somebody else to have a tax cut and to not raise taxes on the top 2 percent.”
Ellison is right. As is invariably the case with austerity schemes, Simpson and Bowles—and the billionaire-funded “Fix the Debt” group they head—are proposing cuts to the top marginal tax rate for wealthy individuals and corporations.
The United States can and should address debts and deficits. And there are sound plans to do so, including the “Balancing Act” advanced by Ellison and other members of the Congressional Progressive Caucus. That initiative rejects austerity and proposes a growth agenda based on tax fairness and investments in education and job creation.
That’s not Simpson-Bowles, which Nobel Prize–winning economist Paul Krugman dismisses as “terrible” economics. That’s responsible policy that avoids the “brutal cuts” of sequestration and the even more brutal cuts of full-fledged austerity.
“Almost $2 trillion has been cut over the past two years from teachers, firefighters, police officers, loans for college students, and infrastructure investments,” the congressman says of the warped federal budget priorities proposed by austerity advocates. “The American people shouldn’t continue to pay the price for massive tax breaks for millionaires and billions of dollars in subsidies to oil companies.”
By: John Nichols, The Nation, February 19, 2013
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