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“The Politics Of The Deficit Are Utterly Backward”: Ignore The Rending Of Garments From Deficit Paranoiacs

One of the most frustrating things about being a lefty during the depths of the Great Recession was watching giant policy errors build on the horizon like some sewage tsunami, and being powerless to stop them. And in 2010 the biggest and sewage-iest of the errors was the turn to austerity — the combination of budget hikes and spending increases that has slowed economic recovery across the developed world.

Five years later, as the deficit has fallen dramatically and so has interest in its supposed danger, it provides an interesting window into the politics of deficit paranoia — and how it is 180 degrees from reality.

Let me quickly review the story up to the present. A recession means the economy is suffering a shortage of aggregate demand. People are losing their jobs, meaning companies have fewer sales, so they fire employees or go out of business — rinse and repeat. The standard response to this is economic stimulus, both monetary and fiscal. For the former, the Federal Reserve cuts interest rates, making loans easier to get and thus stoking the economy; for the latter, the government borrows and spends directly, mechanically jacking up total spending.

Like the Great Depression, fiscal stimulus was particularly important during the Great Recession, because by late 2008, the Fed had cut interest rates all the way to zero — pushing its economic accelerator all the way to the floor — and it didn’t halt or even much slow down the recession.

Initially, with big Democratic Party majorities in both the House and Senate, the government did the right thing. Right after President Obama took office, it passed the Recovery Act, a fairly sizable piece of fiscal stimulus. But as trusted center-left commentators like Paul Krugman pointed out, it wasn’t nearly big enough to fill the economic hole visible at the time — and later measurements would show the hole to be vastly larger than the initial estimates.

So after that first round of stimulus, the deficit was very large due to all the borrowing. However, its inadequacy was also obvious, as unemployment plateaued at nearly 10 percent — then stayed there for an entire year. During and immediately after the crisis, the centrist establishment was too shocked to respond, but they eventually regrouped and began demanding immediate cuts to balance the budget — effectively aligning themselves with resurgent conservatives, who as usual demanded all social insurance programs be torched.

After the 2010 election, the centrists and conservatives got much of what they supposedly wanted: tons of austerity, most of it in cuts to government spending (particularly when compared to previous presidencies). The effects were obvious: a recovery that was grindingly slow and weak. It still shows no sign of returning to the previous trend.

In other words, austerians were successful in cutting the short-term deficit at the worst imaginable time. But what about now, as the economy is returning to at least a modicum of health? According to the standard economic script, government deficits aren’t always good. When recovery has been reached, then it’s time to cut back. “The boom, not the slump, is the right time for austerity at the Treasury,” as John Maynard Keynes said (though adherents of Modern Monetary Theory would quibble with this).

What are the centrist austerians doing? Why, they’ve gone almost totally silent, of course. Ron Fournier, the avatar of D.C. centrism and a fanatical austerian, has barely mentioned the subject over the last year. More broadly, as Andrew Flowers documents for FiveThirtyEight, mentions of “deficit” and “debt” by Republican presidential candidates have fallen by about two-thirds since 2012. Mentions in Congress have fallen even further.

This demonstrates that the conventional politics around deficits and debt are fundamentally disconnected from any sort of rational understanding as to why they might be a problem. And due to those same actual mechanics, the political salience of austerity moves in inverse proportion to its real importance — insane overreaction when the deficit should be very high, bland disinterest when it ought to be coming down again.

It’s maddening, but at least predictable. The next time a liberal administration is in charge during a recession, it may safely ignore the rending of garments from deficit paranoiacs. As soon as the immediate crisis is over, they’ll quickly forget all about it.

 

By: Ryan Cooper, The Week, January 15, 2016

January 16, 2016 Posted by | Austerity, Deficits, Great Recession | , , , , , , , | 2 Comments

“There Was One Clear Loser”: Reality Takes A Beating In Latest Republican Debate

Early on in last night’s debate, Republican presidential hopeful Ben Carson was asked whether he’d support an increase in the minimum wage. The retired right-wing neurosurgeon began his answer by saying, “People need to be educated on the minimum wage,” which quickly became one of the more ironic comments of the evening.

“Every time we raise the minimum wage, the number of jobless people increases. It’s particularly a problem in the black community. Only 19.8 percent of black teenagers have a job, who are looking for one. You know, and that’s because of those high wages. If you lower those wages, that comes down.

“You know, I can remember, as a youngster – you know, my first job working in a laboratory as a lab assistant, and multiple other jobs. But I would not have gotten those jobs if someone had to pay me a large amount of money.”

The assertion that minimum wage increases are always followed by an increase in unemployment is wrong. Carson’s claim about unemployment among black teens is even further from the truth. And as for the minimum wage when Carson was younger, in 1975, when he was 24 years old, the minimum wage was $2.10 an hour – which is $9.29 when adjusted for inflation, more than two dollars above today’s wage floor.

It was, alas, that kind of event. There’s always considerable chatter about who “wins” or “loses” these debates – most pundits seem to think Marco Rubio excelled, though I’m starting to think some of them are just using a computer macro to save time – but there was one clear loser last night: reality.

At another point last night, Gerard Baker, the editor in chief of the Wall Street Journal, reminded Carly Fiorina, “In seven years under President Obama, the U.S. has added an average of 107,000 jobs a month. Under President Clinton, the economy added about 240,000 jobs a month. Under George W. Bush, it was only 13,000 a month. If you win the nomination, you’ll probably be facing a Democrat named Clinton. How are you going to respond to the claim that Democratic presidents are better at creating jobs than Republicans?”

If anything, Baker’s numbers were tilted in the GOP’s favor, since Obama’s totals are dragged down by including the early months of his presidency, when the economy was in free fall. Nevertheless, the point is accurate – since World War II, more jobs are created under Democratic presidents than Republicans – prompting Fiorina to reply, “Yes, problems have gotten much worse under Democrats.”

She’d just been reminded of the opposite, which made the exchange a little unnerving. I kept waiting for one of the candidates to drop the pretense and declare, “I reject this version of reality and replace it with one I like better.”

Around the same time last night, Marco Rubio insisted the United States is in the midst of “an economic downturn,” which is bonkers. The economy added over 270,000 jobs last month, the unemployment rate is down to 5%, and we have the strongest economy of any democracy on the planet.

Some dissembling is expected in events like these, and I hardly expect GOP presidential hopefuls to celebrate Obama-era progress, but for two hours last night, viewers were treated to a rare sight: a view of current events distorted by a funhouse mirror.

Towards the end of the evening, there was also this amazing exchange between Maria Bartiromo and Rand Paul:

BARTIROMO: Senator Paul, you were one of 15 Republicans to vote for an amendment which states that human activity contributed to climate change. President Obama has announced an aggressive plan to cut carbon emissions. At the same time, energy production in America has boomed. Is it possible to continue this boom, and move toward energy self-sufficiency, while at the same time pursuing a meaningful climate change program?

PAUL: The first thing I would do as president is repeal the regulations that are hampering our energy that the president has put in place.

She had just noted that energy production has boomed in the Obama era, which led Rand Paul to denounce the regulations that have prevented a boom in energy production.

I can appreciate why “Presidential Candidates Lie To Win Votes” is a dog-bites-man headline, but last night wasn’t so much about dishonesty as it was about feeling stuck in a “Twilight Zone” episode. Jon Chait concluded, “In a debate where chastened moderators avoided interruptions or follow-ups, the candidates were free to inhabit any alternate reality of their choosing, unperturbed by inconvenient facts.”

It was hard to know whether to be annoyed or terrified.

 

By: Steve Benen, The Maddow Blog, November 11, 2015

November 12, 2015 Posted by | Ben Carson, Carly Fiorina, GOP Primary Debates | , , , , , , | 1 Comment

“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

“Greece’s Economy Is A Lesson For Republicans In The U.S.”: The Toxic Combination Of Austerity With Hard Money

Greece is a faraway country with an economy roughly the size of greater Miami, so America has very little direct stake in its ongoing disaster. To the extent that Greece matters to us, it’s mainly about geopolitics: By poisoning relations among Europe’s democracies, the Greek crisis risks depriving the United States of crucial allies.

But Greece has nonetheless played an outsized role in U.S. political debate, as a symbol of the terrible things that will supposedly happen — any day now — unless we stop helping the less fortunate and printing money to fight unemployment. And Greece does indeed offer important lessons to the rest of us. But they’re not the lessons you think, and the people most likely to deliver a Greek-style economic disaster here in America are the very people who love to use Greece as a boogeyman.

To understand the real lessons of Greece, you need to be aware of two crucial points.

The first is that the “We’re Greece!” crowd has a truly remarkable track record when it comes to economic forecasting: They’ve been wrong about everything, year after year, but refuse to learn from their mistakes. The people now saying that Greece offers an object lesson in the dangers of government debt, and that America is headed down the same road, are the same people who predicted soaring interest rates and runaway inflation in 2010; then, when it didn’t happen, they predicted soaring rates and runaway inflation in 2011; then, well, you get the picture.

The second is that the story you’ve heard about Greece — that it borrowed too much, and its excessive debt led to the current crisis — is seriously incomplete. Greece did indeed run up too much debt (with a lot of help from irresponsible lenders). But its debt, while high, wasn’t that high by historical standards. What turned Greek debt troubles into catastrophe was Greece’s inability, thanks to the euro, to do what countries with large debts usually do: impose fiscal austerity, yes, but offset it with easy money.

Consider Greece’s situation at the end of 2009, when its debt crisis burst into the open. At that point Greek government debt was near 130 percent of gross domestic product, which is definitely a big number. But it’s by no means unprecedented. As it happens, Greece’s debt ratio in 2009 was about the same as America’s in 1946, just after the war. And Britain’s debt ratio in 1946 was twice as high.

Today, however, Greek debt is over 170 percent of G.D.P. and still rising. Is that because Greece just kept on borrowing? Actually, no — Greek debt is up only 6 percent since 2009, although that’s partly because it received some debt relief in 2012. The main point, however, is that the ratio of debt to G.D.P. is up because G.D.P. is down by more than 20 percent. And why is GDP down? Largely because of the austerity measures Greece’s creditors forced it to impose.

Does this mean that austerity is always self-defeating? No, there are cases — for example, Canada in the 1990s — of countries that slashed their debt while maintaining growth and reducing unemployment. But if you look at how they managed this, it involved combining fiscal austerity with easy money: Canada in the ’90s drastically reduced interest rates, encouraging private spending, while allowing its currency to depreciate, encouraging exports.

Greece, unfortunately, no longer had its own currency when it was forced into drastic fiscal retrenchment. The result was an economic implosion that ended up making the debt problem even worse. Greece’s formula for disaster, in other words, didn’t just involve austerity; it involved the toxic combination of austerity with hard money.

So who wants to impose that kind of toxic policy mix on America? The answer is, most of the Republican Party.

On one side, just about everyone in the G.O.P. demands that we reduce government spending, especially aid to lower-income families. (They also, of course, want to reduce taxes on the rich — but that wouldn’t do much to boost demand for U.S. products.)

On the other side, leading Republicans like Representative Paul Ryan incessantly attack the Federal Reserve for its efforts to boost the economy, delivering solemn lectures on the evils of “debasing” the dollar — when the main difference between the effects of austerity in Canada and in Greece was precisely that Canada could “debase” its currency, while Greece couldn’t. Oh, and many Republicans hanker for a return to the gold standard, which would effectively put us into a euro-like straitjacket.

The point is that if you really worry that the U.S. might turn into Greece, you should focus your concern on America’s right. Because if the right gets its way on economic policy — slashing spending while blocking any offsetting monetary easing — it will, in effect, bring the policies behind the Greek disaster to America.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, July 10, 2015

July 11, 2015 Posted by | Austerity, Greece, Republicans | , , , , , , , , , | Leave a comment

“Vote Republican Or Else”: GOP Campaign Slogan; Be Afraid. Be Very Afraid

Republican presidential candidates want to win your votes by scaring you.

Thanks to the national security lapses of the Obama administration, “we will pay a terrible price one day,” says Sen. Marco Rubio, R-Fla.

“The next 20 months will be a dangerous time,” warns Sen. Ted Cruz, R-Texas, but he offers this hint of hope: “January 2017 is coming.”

And so on. Republicans think fears of terrorist attacks are a major issue, and a major political motivator.

“Republicans are looking for some issue where they have a clear advantage,” said Ann Selzer, a Des Moines-based pollster who conducts Iowa and national surveys.

Selzer’s April 6-8 national poll found the percentage of people who name terrorism or the Islamic State as the 2016 campaign’s most important issue had nearly doubled since December.

Among Republicans, one-fourth said terrorism was their top concern. Democrats still listed unemployment as their first worry, with climate change next. Terrorism tied for fourth among Democrats.

Republicans see another big reason to keep pounding away on terrorism. If Democratic front-runner Hillary Clinton wins her party’s nomination, they can conveniently brand her as a key architect of President Barack Obama’s national security policy. Clinton was secretary of state in Obama’s first term.

Republicans can also keep talking about the 2012 terrorist attack that killed four Americans in Benghazi, Libya. The House of Representatives has a special committee investigating the incident, and Chairman Trey Gowdy, R-S.C., said he’ll call Clinton to testify. He also wants her to testify separately on conducting government business using email from a private computer server.

This campaign is all part of a narrative that’s become highly popular among the Republican candidates in stump speeches and media appearances.

They tend to start with zingers aimed what they label the Obama administration’s ineptness. “Barack Obama has never run a lemonade stand,” says Sen. Lindsey Graham, R-S.C.

Former Florida Gov. Jeb Bush maintains that Obama is the first post-World War II president who “does not believe that America’s presence in the world as a leader and America’s power in the world is a force for good.”

That’s why, says Wisconsin Gov. Scott Walker, “We need a commander in chief in this country who, once and for all, will identify that radical Islamic terrorism is a threat to us all.”

Their narrative usually continues with dire warnings.

“There are thousands of people around the world who are plotting to kill Americans here and abroad,” Rubio said recently in New Hampshire. “This risk is real. This is not hyperbole. It needs to be confronted.”

He didn’t mention how the White House has tried to do just that. In February, the president hosted a summit on violent extremism, and cited U.S. involvement in a 60-nation fight against terrorism.

Republicans won’t relent.

Sometimes, tough guy talk backfires, as when Walker said in February that he was equipped to fight terrorists because he fought labor union protesters in his state.

Finally, in the Republican pitch comes the message of hope. “There is a pessimism in the world, but it does not have to be that way,” says former Texas Gov. Rick Perry
.
Sometimes Republicans are at war with one another. Sen. Rand Paul, R-Ky., labeled U.S. involvement in Libya a mistake and criticized U.S. policy toward Syria and the rebels. He called Graham and Sen. John McCain, R-Ariz., “lapdogs for President Obama.”

McCain fired back, saying, “The record is very clear that he simply does not have an understanding about the needs and the threats of United States national security.”

Democrats’ response is that of course they want to combat terrorism. If Republicans are so intent on doing so, they ask, why did they stall Loretta Lynch’s nomination as attorney general for months?

“With all that this country is facing from terrorism,” asked Sen. Bernard Sanders, a Vermont independent, “How at this vital time can anyone elected to the Senate play partisan politics with something as sensitive as the head of the Justice Department?” On Thursday, Sanders announced his candidacy for the Democratic presidential nomination.

Whether the Republican assault on national security policy becomes a winning strategy depends largely on events. President George W. Bush was able to use the war in Iraq — and the votes of dozens of congressional Democrats for the war — to help himself win re-election in 2004, but war weariness hurt Republicans in 2008 and 2012.

This time, Republicans see the public as weary of Democratic policies, and that’s a big potential plus. “Republicans have always been trusted more on national security,” said Republican pollster Whit Ayres, “and Obama has been a weaker leader than people expected.”

 

By: David Lightman, McClatchy Washington Bureau (TNS); The National Memo, May 2, 2015

May 4, 2015 Posted by | Election 2016, GOP Presidential Candidates, National Security | , , , , , , , | 1 Comment

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