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“Austerity’s Grim Legacy”: Deficit Fetishism Was Both Wrongheaded And Destructive

When economic crisis struck in 2008, policy makers by and large did the right thing. The Federal Reserve and other central banks realized that supporting the financial system took priority over conventional notions of monetary prudence. The Obama administration and its counterparts realized that in a slumping economy budget deficits were helpful, not harmful. And the money-printing and borrowing worked: A repeat of the Great Depression, which seemed all too possible at the time, was avoided.

Then it all went wrong. And the consequences of the wrong turn we took look worse now than the harshest critics of conventional wisdom ever imagined.

For those who don’t remember (it’s hard to believe how long this has gone on): In 2010, more or less suddenly, the policy elite on both sides of the Atlantic decided to stop worrying about unemployment and start worrying about budget deficits instead.

Some of us tried in vain to point out that deficit fetishism was both wrongheaded and destructive, that there was no good evidence that government debt was a problem for major economies, while there was plenty of evidence that cutting spending in a depressed economy would deepen the depression.

And we were vindicated by events. More than four and a half years have passed since Alan Simpson and Erskine Bowles warned of a fiscal crisis within two years; U.S. borrowing costs remain at historic lows. Meanwhile, the austerity policies that were put into place in 2010 and after had exactly the depressing effects textbook economics predicted; the confidence fairy never did put in an appearance.

Yet there’s growing evidence that we critics actually underestimated just how destructive the turn to austerity would be. Specifically, it now looks as if austerity policies didn’t just impose short-term losses of jobs and output, but they also crippled long-run growth.

The idea that policies that depress the economy in the short run also inflict lasting damage is generally referred to as “hysteresis.” It’s an idea with an impressive pedigree: The case for hysteresis was made in a well-known 1986 paper by Olivier Blanchard, who later became the chief economist at the International Monetary Fund, and Lawrence Summers, who served as a top official in both the Clinton and the Obama administrations. But I think everyone was hesitant to apply the idea to the Great Recession, for fear of seeming excessively alarmist.

At this point, however, the evidence practically screams hysteresis. Even countries that seem to have largely recovered from the crisis, like the United States, are far poorer than precrisis projections suggested they would be at this point. And a new paper by Mr. Summers and Antonio Fatás, in addition to supporting other economists’ conclusion that the crisis seems to have done enormous long-run damage, shows that the downgrading of nations’ long-run prospects is strongly correlated with the amount of austerity they imposed.

What this suggests is that the turn to austerity had truly catastrophic effects, going far beyond the jobs and income lost in the first few years. In fact, the long-run damage suggested by the Fatás-Summers estimates is easily big enough to make austerity a self-defeating policy even in purely fiscal terms: Governments that slashed spending in the face of depression hurt their economies, and hence their future tax receipts, so much that even their debt will end up higher than it would have been without the cuts.

And the bitter irony of the story is that this catastrophic policy was undertaken in the name of long-run responsibility, that those who protested against the wrong turn were dismissed as feckless.

There are a few obvious lessons from this debacle. “All the important people say so” is not, it turns out, a good way to decide on policy; groupthink is no substitute for clear analysis. Also, calling for sacrifice (by other people, of course) doesn’t mean you’re tough-minded.

But will these lessons sink in? Past economic troubles, like the stagflation of the 1970s, led to widespread reconsideration of economic orthodoxy. But one striking aspect of the past few years has been how few people are willing to admit having been wrong about anything. It seems all too possible that the Very Serious People who cheered on disastrous policies will learn nothing from the experience. And that is, in its own way, as scary as the economic outlook.

 

By: Paul Krugman, Op-Ed Columist, The New York Times, November 6, 2015

November 9, 2015 Posted by | Austerity, Economic Recovery, Financial Crisis | , , , , , , , , , | 3 Comments

“The Festival Of Populist Passion”: Republicans Displayed Their Passion For The Little Guy At Wednesday’s Debate. It Was A Total Scam

If you knew absolutely nothing about American politics and tuned into the Republican presidential debate Wednesday night, you would have come away convinced that the GOP is the party of the little guy, the party that wants to advocate for low-wage workers, middle-class families, and those who are struggling. And the wealthy? Screw those guys — Republicans can’t stand them. If somebody told you that this party’s last presidential nominee got in a heap of trouble for contemptuously saying that 47 percent of Americans are lazy leeches who just want to live off government handouts while the morally upstanding wealthy do all the work, you’d respond, “Surely you must be mistaken.”

In case you didn’t tune in to this festival of populist passion, here are a few of the highlights:

Like many of the candidates, Ted Cruz has a flat tax plan, which because it eliminates tax progressivity would entail huge tax cuts for the wealthy. He described it by saying, “The billionaire and the working man, no hedge fund manager pays less than his secretary.”

In the course of arguing (from what I could tell) that all taxation is theft, Mike Huckabee said, “This is for the guy, you know, who owns a landscaping business out there. If somebody’s already stolen money from you, are you going to give them more?”

Carly Fiorina, a former corporate CEO whose biggest accomplishment was the disastrous merger between HP and Compaq, and who is worth tens of millions of dollars, railed against corporate mergers and the wealthy. “Big and powerful use big and powerful government to their advantage,” she said. “It’s why you see Walgreens buying Rite Aid. It’s why you see the pharmaceuticals getting together. It’s you see the health insurance companies getting together. It’s why you see the banks consolidating. And meanwhile, small businesses are getting crushed….Big government favors the big, the powerful, the wealthy, and the well-connected, and crushes the small and the powerless.”

Marco Rubio related, for the eight zillionth time, the fact that his father was a bartender and his mother was a maid. John Kasich showed why he isn’t in the top tier of candidates by failing to bring up the fact that his dad was a mailman.

Ted Cruz said, “The truth of the matter is, big government benefits the wealthy, it benefits the lobbyists, it benefits the giant corporations. And the people who are getting hammered are small businesses, it’s single moms, it’s Hispanics. That is who I’m fighting for.”

“Wall Street is doing great,” Cruz said later, and “today the top 1 percent earn a higher share of our income than any year since 1928,” while the Federal Reserve has apparently caused the price of hamburgers to skyrocket.

Rand Paul agreed that the Fed “causes income inequality.”

Ben Carson said that when it comes to regulations, “The reason that I hate them so much is because every single regulation costs in terms of goods and services. That cost gets passed on to the people. Now, who are the people who are hurt by that? It’s poor people and middle class. Doesn’t hurt rich people if their bar of soap goes up ten cents, but it hurts the poor and the middle class.”

“The simple fact is that my plan actually gives the middle class the greatest break,” said Jeb Bush.

As it happens, the truth is that Bush’s tax plan showers its biggest benefits on the wealthy, not the middle class, both in percentage terms and in absolute terms. And this is true of all the tax plans that have been released by the Republican candidates so far. They all either use a flat tax, which by definition cuts the taxes of the wealthy, or they reduce income taxes for the wealthy and eliminate other taxes the wealthy pay; for instance, Marco Rubio would completely eliminate both capital gains taxes and inheritance taxes. As Doyle McManus of the Los Angeles Times wrote, “among the proposals with real detail, there’s a rough consensus, and it comes down to this: lower taxes for everybody, but especially for the wealthy.”

Republicans would have a couple of responses to this objection. The first is that if you’re going to cut everyone’s taxes, of course the wealthy will benefit more, because they pay at higher rates and their incomes are higher. As Rubio himself said during the debate, “5 percent of a million is a lot more than 5 percent of a thousand. So yeah, someone who makes more money, numerically, it’s going to be higher.” But there’s no requirement that if you’re going to cut taxes you have to give everyone the same percentage reduction.

The second response Republicans have is that their tax plans, combined with eliminating regulations, will super-charge the economy to such a degree that people in the poor and middle class will benefit tremendously. There’s a name for that idea: trickle-down economics.

And it isn’t like we’ve never tried this before. You may remember a guy named George W. Bush, who was president not that long ago. He instituted a program pretty much exactly like what today’s Republican candidates propose: large tax cuts targeted mostly at the wealthy combined with slashing regulations. And what happened? Anemic growth, culminating in the worst economic disaster since the Great Depression. If Republicans are right, how could such a thing have happened?

If you ask them, they’ll reply that Bush wasn’t true to conservative economic orthodoxy because he didn’t cut the size of government. But if that’s your explanation for why his economic record was so poor, then you’re saying that neither cutting taxes nor cutting regulations would make much of a difference; all that matters is the size of government.

But then how could they explain the Clinton years, when the economy added 22 million jobs despite the fact that taxes went up, regulations increased, and government grew? It’s a real head-scratcher.

Let me suggest something shocking: The Republican presidential candidates do not actually want to cut regulations, slash safety net programs (which didn’t come up in the debate), and eliminate regulations on corporations because of their deep and abiding concern for the poor and middle class.

Some things don’t change in American politics, one of which is that conservatives believe that making life easier for the wealthy and corporations is not just a good idea in practical terms but also a moral imperative. It’s the latter that makes the former less important. Even when those policies fail to deliver us all to the economic Shangri-La conservatives promise, they do not lose faith in the policies’ righteousness.

But other things do change. Right now we’re in a time of economic anxiety, when inequality and stagnant wages have made trickle-down economics particularly unappealing. So if you aren’t going to offer something different than what you have before, the next best thing is to clothe it in populist rhetoric. It remains to be seen whether anyone will buy it.

 

By: Paul Waldman, Senior Writer, The American Prospect; Cintributor, The Week, October 29, 2015

November 1, 2015 Posted by | GOP Presidential Candidates, Populism, Trickle Down Economics | , , , , , , , , | 2 Comments

“Biden Urges Us To Regain Our Sense Of National Purpose”: The Vice President Struck A Chord Too Long Missing From Our Public Debates

After Joe Biden’s Rose Garden announcement, news reports naturally focused on his decision not to seek the presidency. But the overarching theme of his short address was something more powerful and less political: This is a great country that ought to be more optimistic about its potential, more ambitious in its goals, more confident about its future.

That theme underlay Biden’s clarion call for a “moonshot” to cure cancer. As he noted — “It’s personal,” he said — his grief over the untimely death of his son, Beau Biden, fueled his sense of urgency. The younger Biden, Delaware’s attorney general, died in May at the age of 46, after a long battle with brain cancer.

Still, the vice president struck a chord too long missing from our public debates, too little heard in our partisan warfare: We have the ability to accomplish great things when we summon the will to do so.

“I know we can do this. The president and I have already been working hard on increasing funding for research and development, because there are so many breakthroughs just on the horizon in science and medicine. The things that are just about to happen, we can make them real with an absolute national commitment to end cancer as we know it today. … If I could be anything, I would want to be the president that ended cancer, because it’s possible.”

Whatever happened to that feisty spirit in our civic life? Whatever became of our sense of never-ending achievement, of unbridled national ambition, of great national purpose? Why don’t we reach for the stars anymore?

Instead, we’ve become brittle, limited in our expectations, dour in our outlook, afraid that the nation’s best days have already passed. While the lingering effects of the Great Recession, as well as the global threat of terrorism, have undoubtedly worked to dampen our optimism, history teaches that we’ve faced down more daunting odds before.

Indeed, the long-running Cold War, when the Soviet Union represented an existential threat to the United States, inspired the great space race that led to Neil Armstrong’s walk on the moon. The United States poured money into the sciences, down to the high school level. That period of bountiful scientific research benefited not only NASA, but also countless other streams of inquiry — including the pioneering communications work that led to the Internet.

Since the 1970s, though, Congress has slowly drained away money from the sciences, a process that has sped up over the last few years. In their current obsession with reducing federal government spending, GOP budget cutters have hacked away at everything from medical research to space exploration.

Nowadays, Congress can’t even agree to fund things that we know work. While all reasonable people agree that the country needs to repair and rebuild its aging infrastructure — bridges, highways, dams — Congress cannot manage to set aside the funds that are necessary.

During his first presidential campaign, President Obama called for a massive revamping of the nation’s electric grid, a plan to put in place the energy infrastructure for the 21st century. But that’s rarely even discussed anymore.

Instead, a small minority of vociferous partisans holds up routine legislation, such as raising the debt ceiling to pay the bills we’ve already incurred. That’s how a great nation behaves?

It’s not clear that even a massive infusion of research dollars — Biden’s “moonshot” — would lead to a “cure” for cancer. Scientists would likely even debate the use of the phrase, since cancer is not a single disease but rather a group of diseases that share the phenomenon of abnormal cell growth.

Still, Biden’s call for pouring national resources into the search for better treatment options makes sense. When President Kennedy said, “We choose to go to the moon!” our scientists weren’t certain we could do that either. But they dared to dream big dreams. Why don’t we do that anymore?

 

By: Cynthia Tucker Haynes, Pulitzer Winner for commentary, 2007; The National Memo, October 24, 2015

October 25, 2015 Posted by | American Exceptionalism, Joe Biden, Scientific Research | , , , , , , , , | 1 Comment

“Ornery People R Us”: Anxiety Is Pervasive On Both Sides Of Political Spectrum

In achieving their improbable surges in presidential polling, Bernie Sanders and Donald Trump have profited from the same wellspring of anxiety, a deep-seated fear about the future that is rising across the land. Their answers to that anxiety are very different — as their followers are very different — but they have both tapped into an undercurrent of unease that affects a broad swath of American voters.

And that unease is well-founded. In mid-September, the U.S. Census Bureau issued its annual report on wages, poverty, and health insurance. Its findings come as no surprise: Though the official unemployment rate is down to its lowest level in seven years, the percentage of people living in poverty — around 14 percent — hasn’t budged in four years.

Equally worrisome is the stagnation in wages, which haven’t risen significantly for more than a decade. “Anyone wondering why people in this country are feeling so ornery need look no further than this report. Wages have been broadly stagnant for a dozen years, and median household income peaked in 1999,” Lawrence Mishel, president of the Economic Policy Institute, a research group, told The Associated Press.

And ornery people are. That’s the only thing that explains Trump, who for weeks has enjoyed the top spot in GOP presidential primary polls. Full of bombast, narcissism, and blame, the real estate titan has pinned Mexican immigrants as the purveyors of all that is destructive to the American way of life. It’s astonishing how much support he’s received for his proposal to deport the estimated 11 million who are here illegally.

There’s no doubt a good portion of racism and xenophobia among the Trump crowd; they are largely voters uncomfortable with the country’s increasing diversity. But they are also anxious about a future in which the American dream is out of reach for their children and grandchildren.

On the other side of the political spectrum, Sanders, Vermont’s self-described socialist in the U.S. Senate, is giving Hillary Clinton a run for her money, attracting large crowds, and leading in New Hampshire, which holds the first presidential primary vote. His answers, at least, are not xenophobic: Among other things, he would increase taxes on the wealthy and end some longstanding trade agreements.

Sanders has long warned about income inequality, which has been growing for decades but was exacerbated by the Great Recession. Suddenly, ordinary workers saw their jobs disappear, their savings evaporate, their homes taken by the bank. Many of them have not recovered the ground they lost, and their traumas have invited fear bordering on panic.

Meanwhile, the rich have only gotten richer. The top 1 percent own 40 percent of the nation’s wealth, and they hold a larger share of income than at any time since the 1920s and the Great Depression.

These trends are evident throughout the industrialized world; they’re not the fault of any single politician or ideological philosophy. According to economists, they’ve grown from a convergence of factors, including the technological revolution and the globalization of labor.

Still, the wealth gap is quite worrisome. It’s a recipe for revolution, the sort of gulf between the haves and have-nots that is characteristic of developing countries, where the ties of the civic and social fabric do not bind. It’s hard to overstate the potential for upheaval in a country such as this, where a diverse population is not held together by a single language or race or religion, but rather by the belief that opportunity is available to all. What happens when a majority of the people no longer believes that?

You’d think, then, that income inequality would dominate the campaign trail. But the subject was hardly mentioned during Wednesday’s marathon GOP presidential primary debate, where such pressing priorities as possible Secret Service code names were discussed.

That’s not good. While it’s hard to see either Trump (his bubble may already be bursting) or Sanders as a presidential nominee, the voters they represent aren’t going away. Neither is their anxiety, which could prove a disruptive force in American political and civic life.

 

By: Cynthia Tucker Haynes, Pulitzer Prize for Commentary in 2007; The National Memo, September 19, 2015

September 21, 2015 Posted by | Bernie Sanders, Donald Trump, Economic Inequality | , , , , , , , , , | 4 Comments

“Scott Walker Picks A Fight He Can’t Win”: Walker’s Boast About His State’s “Dramatic” Economic Recovery Is Belied By, Well, Reality

Neither President Obama nor anyone on his team have spoken publicly about who they think might win the Republican presidential nomination. It’s not, however, unreasonable to think they have one candidate on their minds.

In March, for example, Obama raised eyebrows by taking a not-so-subtle shot at Wisconsin Gov. Scott Walker’s (R) far-right agenda, and a month later, the president did it again, calling out Walker – by name – as a candidate who needs to “bone up on foreign policy.”

Today, the president will be in Wisconsin, where Walker will greet him at the airport, before Obama fleshes out his new overtime policy at a University of Wisconsin campus. Politico reported that Walker has “become the White House’s bete noire” – the conservative governor is the one Republican “the president’s aides always hold up as an example of exactly what’s wrong with politics.”

And it’s equally clear the president is on Walker’s mind, too. Today, the Wisconsin Republican has a new piece, published by Real Clear Politics, suggesting Obama could learn a few things from GOP policymakers in the Badger State.

Bright spots in the Obama economy are few and far between, as opportunities for small businesses and entrepreneurs are often quashed by a federal government that has grown too large, powerful and pervasive. That’s why it’s telling that the president is scheduled to be in La Crosse, Wis., this week for an event focusing on the economy.

To be sure, Wisconsin’s economy has enjoyed a dramatic recovery over the last few years. But our fortunes have improved in spite of – not because of – the president’s big-government policies.

Walker’s piece added that he intends to tell the president how great far-right governance is, and “for the sake of hard-working taxpayers across the country, I hope he will listen.”

Whether he realizes it or not, the governor is picking a fight he’s unprepared to win.

Let’s put aside, at least for now, the fact that President Obama has a pretty amazing record on job creation and ending the Great Recession. Let’s instead focus on his critic because Walker’s boast about his state’s “dramatic” economic recovery is belied by, well, reality.

Just last week, the Chicago Tribune published a report with this headline: “Wisconsin economy lags after Walker’s spending and tax cuts.”

In 2011, new Republican Gov. Scott Walker set the creation of 250,000 jobs as the benchmark for success of his new administration. Walker missed that goal by a wide margin over his first term despite an embrace of sweeping tax cuts aimed at stimulating growth. Instead, the cuts helped dig a more than $2 billion hole in the state budget.

Wisconsin ranked 36th among the states and District of Columbia in the pace of private-sector job growth during Walker’s term, trailing all Rust Belt states and all but one other state in the Midwest.

More specifically, when it comes to job creation, Wisconsin ranked 35th in the nation in 2011, 36th in 2012, 38th in 2013, and 38th in 2014. Walker not only failed to keep his promise about creating 250,000 in his first term, he barely made it to 129,000.

In May, the Washington Post reported that the state’s rate of private-sector job growth “is one of the worst in the nation” and Wisconsin’s middle class “has shrunk at a faster rate than any other state in the country.”

It’s against this backdrop that the state is also struggling badly with a major budget shortfall, which Walker still doesn’t know how to close.

This is the guy who wants to brag about his economic record? The one who hopes to teach Obama a few things?

Seriously?

 

By: Steve Benen, The Maddow Blog, July 2, 2015

July 6, 2015 Posted by | Economy, Scott Walker, Wisconsin Budget | , , , , , , , | 1 Comment

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