“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
“Congress Lacks Courage And Vision”: FDR Put Humanity First, The Sequester Puts It Last
FDR placed the needs of the American people above petty budgetary concerns, but today’s leaders lack his courage and vision.
In 1933 we reversed the policy of the previous Administration. For the first time since the depression you had a Congress and an Administration in Washington which had the courage to provide the necessary resources which private interests no longer had or no longer dared to risk.
This cost money. We knew, and you knew, in March, 1933, that it would cost money. We knew, and you knew, that it would cost money for several years to come. The people understood that in 1933. They understood it in 1934, when they gave the Administration a full endorsement of its policy. They knew in 1935, and they know in 1936, that the plan is working.—FDR, 1936
Eighty years ago this month, at the height of the worst economic crisis in our nation’s history, Franklin D. Roosevelt delivered on his promise to launch a New Deal for the American people. Not wedded to any one program, idea, or ideology, the New Deal was founded on the very simple premise that when the free market failed to provide basic economic security for the average American, government had a responsibility to provide that security. In Roosevelt’s day, this meant imposing the first-ever meaningful regulation of the stock market, shoring up the nation’s financial system by guaranteeing private deposits and separating commercial from investment banking, and providing jobs to the millions of unemployed through government expenditures on infrastructure. The Roosevelt administration also launched the country’s first nationwide program of unemployment insurance to help the unemployed bridge the gap between jobs as well as Social Security to ensure that the elderly, after years of work and toil, would not suddenly find themselves utterly destitute.
Conservative critics of FDR’s polices say that these programs did not work—that unemployment remained high throughout the 1930s and that it was only World War II that brought us out of the Great Depression. As such, these same critics continually argue that the deficit spending that fueled the New Deal was the root cause of its inability to bring the unemployment rate down to acceptable levels. In short, they argue that government spending and government programs do not work, and that only the free market can provide the economic stimulus necessary to get the economy back on its feet again.
But as is the case today with the naysayers on climate change, the empirical evidence suggests that nothing could be further from the truth. During FDR’s first term, for example, the average annual growth rate for the U.S. economy was 11 percent. Compare that to the paltry 0.8 percent we witnessed in the first term of the Obama administration. The nationwide unemployment rate also fell, from its all-time high of 25 percent in 1933 to 14 percent by 1935, which at the time represented the largest and fastest drop in unemployment in our nation’s history.
But far more damning to the conservative critique is the argument that tries to invalidate the New Deal by positing that it was World War II and not the relief programs of the 1930s that brought us out of the Great Depression. Conservatives love to trumpet this fact and often use it as part of their argument against deficit spending, never stopping for a moment to consider that government expenditures—and deficits—in World War II made the New Deal look like small potatoes. In fact, deficit spending in the New Deal never topped 6 percent of GNP, while in World War II it ran as high as 28 percent. In other words, World War II was the New Deal on steroids. Viewed from this perspective, it is FDR’s critics on the left—not the right—who possess the stronger argument. The problem with the New Deal was that it did not go far enough. In other words, the government should have spent more money, not less, if it was going to be successful in bringing the economic crisis to an end.
All this is not to say that free enterprise is incapable of producing economic growth—it most certainly is. But there are times when capitalism, left to its own devices, can fail. Franklin Roosevelt was willing to acknowledge this, and he spent the better part of his tenure in office trying to put in place programs that would make capitalism work for the average American, not just those at the top. Hence, his agenda was not to subvert or destroy the free market system, but rather to save it.
It took vision and courage to launch the New Deal—the vision to understand that when the free market systems falls short or fails, government has a responsibility to take direct measures to get the economy moving again, and the courage to engage in deficit spending at a time when orthodox economic theory argued that the only proper response to an economic recession or depression was to slash government spending and balance the budget.
Unfortunately, the leadership we possess in Washington today lacks the vision and the courage to follow FDR’s example and put in place the sort of common-sense programs that would stimulate the economy and put people back to work. Instead of providing jobs for millions by spending money on our failing infrastructure—now ranked 24th in the world—or investing in programs that would reverse the falling education rates of our children, or providing greater federal support for the basic scientific research that may unlock untold benefits for future generations, we instead speak of nothing but the deficit and the sequester, as if cutting spending in the midst of recession is the magic bullet that will lead us out of our economic malaise.
Franklin Roosevelt faced similar critics, who, much like today’s deficit hawks, insisted that he must cut spending and balance the budget no matter what the consequences for the average American. But FDR would have none of this. “To balance our budget in 1933 or 1934 or 1935,” he said,
would have been a crime against the American people. To do so we should either have had to make a capital levy that would have been confiscatory, or we should have had to set our face against human suffering with callous indifference. When Americans suffered, we refused to pass by on the other side. Humanity came first.
As it turns out, FDR’s decision to put “humanity first” was not only the right moral decision, it was also the right economic decision. For the deficit spending that he finally unleashed in World War II, coupled with the social and economic reforms put in place during the New Deal, led to one of the longest periods of economic prosperity in America’s history and the birth of the modern American middle class.
Sadly, all of the evidence to date suggests that our leaders in Washington are quite happy “to pass by on the other side” and let the sequester proceed without so much as a fight. With roughly 16 million people across the country still unemployed, this is surely “a crime against the American people.”
By: David Woolner, The National Memo, March 3, 2013
“Sequester Of Fools”: We Should Be Spending More, Not Less, Until We’re Close To Full Employment
They’re baaack! Just about two years ago, Erskine Bowles and Alan Simpson, the co-chairmen of the late unlamented debt commission, warned us to expect a terrible fiscal crisis within, um, two years unless we adopted their plan. The crisis hasn’t materialized, but they’re nonetheless back with a new version. And, in case you’re interested, after last year’s election — in which American voters made it clear that they want to preserve the social safety net while raising taxes on the rich — the famous fomenters of fiscal fear have moved to the right, calling for even less revenue and even more spending cuts.
But you aren’t interested, are you? Almost nobody is. Messrs. Bowles and Simpson had their moment — the annus horribilis of 2011, when Washington was in thrall to deficit scolds insisting that, in the face of record-high long-term unemployment and record-low borrowing costs, we forget about jobs and concentrate exclusively on a “grand bargain” that would supposedly (not actually) settle budget disputes for ever after.
That moment has now passed; even Mr. Bowles concedes that the search for a grand bargain is on “life support.” Let’s convene a death panel! But the legacy of that year of living foolishly lives on, in the form of the “sequester,” one of the worst policy ideas in our nation’s history.
Here’s how it happened: Republicans engaged in unprecedented hostage-taking, threatening to push America into default by refusing to raise the debt ceiling unless President Obama agreed to a grand bargain on their terms. Mr. Obama, alas, didn’t stand firm; instead, he tried to buy time. And, somehow, both sides decided that the way to buy time was to create a fiscal doomsday machine that would inflict gratuitous damage on the nation through spending cuts unless a grand bargain was reached. Sure enough, there is no bargain, and the doomsday machine will go off at the end of next week.
There’s a silly debate under way about who bears responsibility for the sequester, which almost everyone now agrees was a really bad idea. The truth is that Republicans and Democrats alike signed on to this idea. But that’s water under the bridge. The question we should be asking is who has a better plan for dealing with the aftermath of that shared mistake.
The right policy would be to forget about the whole thing. America doesn’t face a deficit crisis, nor will it face such a crisis anytime soon. Meanwhile, we have a weak economy that is recovering far too slowly from the recession that began in 2007. And, as Janet Yellen, the vice chairwoman of the Federal Reserve, recently emphasized, one main reason for the sluggish recovery is that government spending has been far weaker in this business cycle than in the past. We should be spending more, not less, until we’re close to full employment; the sequester is exactly what the doctor didn’t order.
Unfortunately, neither party is proposing that we just call the whole thing off. But the proposal from Senate Democrats at least moves in the right direction, replacing the most destructive spending cuts — those that fall on the most vulnerable members of our society — with tax increases on the wealthy, and delaying austerity in a way that would protect the economy.
House Republicans, on the other hand, want to take everything that’s bad about the sequester and make it worse: canceling cuts in the defense budget, which actually does contain a lot of waste and fraud, and replacing them with severe cuts in aid to America’s neediest. This would hit the nation with a double whammy, reducing growth while increasing injustice.
As always, many pundits want to portray the deadlock over the sequester as a situation in which both sides are at fault, and in which both should give ground. But there’s really no symmetry here. A middle-of-the-road solution would presumably involve a mix of spending cuts and tax increases; well, that’s what Democrats are proposing, while Republicans are adamant that it should be cuts only. And given that the proposed Republican cuts would be even worse than those set to happen under the sequester, it’s hard to see why Democrats should negotiate at all, as opposed to just letting the sequester happen.
So here we go. The good news is that compared with our last two self-inflicted crises, the sequester is relatively small potatoes. A failure to raise the debt ceiling would have threatened chaos in world financial markets; failure to reach a deal on the so-called fiscal cliff would have led to so much sudden austerity that we might well have plunged back into recession. The sequester, by contrast, will probably cost “only” around 700,000 jobs.
But the looming mess remains a monument to the power of truly bad ideas — ideas that the entire Washington establishment was somehow convinced represented deep wisdom.
By: Paul Krugman, Op-Ed Columnist, The New York Times, February 21, 2013
“Dire Consequences And Denial”: With Their Jobs Secure, Republicans Could Less About The Rest Of America
The sequester’s automatic, across-the-board spending cuts are set to go into effect on Friday, and there is no plan as yet to stop it.
America, this is your feeble government at its most ineffective and self-destructive.
The White House favors a balanced plan that would include spending cuts and some tax increases for the wealthy. Republicans reject any solution that includes tax increases.
These are two fundamentally different perspectives, only one of which is supported by a majority of Americans.
A Pew Research Center/USA Today survey released Thursday found that only 19 percent of Americans believe that the focus of deficit reduction should be only on spending cuts. Seventy-six percent want a combination of spending cuts and tax increases, with more emphasis on the former than the latter.
But the impasse could have dire consequences. A study last year by Stephen S. Fuller, a professor at George Mason University, estimates that the sequester could cost 2.14 million jobs and add 1.5 percentage points to the unemployment rate. Fuller’s analysis was cited in a Congressional Research Service report prepared for members of Congress.
What’s more, the sequester would reduce military spending by $42.7 billion; nonmilitary discretionary spending would drop $28.7 billion, in addition to a mandatory $9.9 billion reduction in Medicare, according to the Congressional Budget Office.
In anticipation of the very real possibility that the sequester could come to pass, some Republicans are leaning on the shoulder of an old friend: denial.
This week on CNN, Senator Rand Paul pronounced the $85 billion in mandated cuts a “pittance” and a “yawn” that is “just really nibbling at the edges.” He also called President Obama’s warnings about the sequester’s impact “histrionics,” “ridiculousness” and “emotionalism.”
What a perfect segue to Rush Limbaugh, who took to the air this week to denounce predictions about the sequester’s effects as a “manufactured” crisis, saying that “for the first time in my life, I am ashamed of my country.”
Limbaugh continued:
“In truth, we’re gonna spend more this year than we spent last year. We’re just not gonna spend as much as was projected. It’s all baseline budgeting. There is no real cut below a baseline of zero. There just isn’t. Yet here they come, sucking us in, roping us in. Panic here, fear there: Crisis, destruction, no meat inspection, no cops, no teachers, no firefighters, no air traffic control. I’m sorry, my days of getting roped into all this are over.”
Those not denying the crisis are hoping to exploit it.
Karl Rove, writing in The Wall Street Journal on Thursday, called the president “a once-in-a-generation demagogue with a compliant press corps” who will subject the American people in the short term to a “slew of presidential photo-ops with those whom he claims will lose jobs.” Mr. Rove advised House Republicans to “pass a continuing resolution next week to fund the government for the balance of the fiscal year at the lower level dictated by the sequester — with language granting the executive branch the flexibility to move funds from less vital activities to more important ones.”
Rove supports the steep cuts but wants to allow the president “flexibility” in applying them. That Rove is as slick as an eel. In other words, he wants to force the president to rob Peter to pay Paul and take the flak for making all the tough choices.
Another Pew Research Poll released this week found that although many Americans favor cutting government spending in the abstract, most don’t agree with cuts to specific programs. “For 18 of 19 programs tested, majorities want either to increase spending or maintain it at current levels,” Pew found. “The only exception is assistance for needy people around the world.”
Ah, foreign aid, the tired old whipping horse that would do virtually nothing to reduce the deficit, as it accounts for a paltry 1 percent of the federal budget.
Rove’s plan to shift to the president the burden of choosing where to bring down the ax is Rove’s way of getting Republicans “to win public opinion to their side.” That is a roundabout way of acknowledging that right now they’re losing. A Bloomberg poll released this week found the president’s job-approval rating at its highest level and the Republican Party’s favorable rating at its lowest since September 2009.
Furthermore, the Pew/USA Today survey found that if a deal isn’t reached in time, about half the public will blame Congressional Republicans while fewer than a third will blame the president.
And if the sequester happens, we’ll all lose. It will be a disaster for the job market and the economy. But no one can accuse these politicians and pundits of caring about such things as long as their own jobs are secure.
By: Charles M. Blow, Op-Ed Columnist, The New York Times, February 22, 2013
“Looking For Mister Goodpain”: The Doctrine That Has Dominated Economic Discourse Is Wrong On All Fronts
Three years ago, a terrible thing happened to economic policy, both here and in Europe. Although the worst of the financial crisis was over, economies on both sides of the Atlantic remained deeply depressed, with very high unemployment. Yet the Western world’s policy elite somehow decided en masse that unemployment was no longer a crucial concern, and that reducing budget deficits should be the overriding priority.
In recent columns, I’ve argued that worries about the deficit are, in fact, greatly exaggerated — and have documented the increasingly desperate efforts of the deficit scolds to keep fear alive. Today, however, I’d like to talk about a different but related kind of desperation: the frantic effort to find some example, somewhere, of austerity policies that succeeded. For the advocates of fiscal austerity — the austerians — made promises as well as threats: austerity, they claimed, would both avert crisis and lead to prosperity.
And let nobody accuse the austerians of lacking a sense of romance; in fact, they’ve spent years looking for Mr. Goodpain.
The search began with a passionate fling between the austerians and the Republic of Ireland, which turned to harsh spending cuts soon after its real estate bubble burst, and which for a while was held up as the ultimate exemplar of economic virtue. Ireland, said Jean-Claude Trichet of the European Central Bank, was the role model for all of Europe’s debtor nations. American conservatives went even further. For example, Alan Reynolds, a senior fellow at the Cato Institute, declared that Ireland’s policies showed the way forward for the United States, too.
Mr. Trichet’s encomium was delivered in March 2010; at the time Ireland’s unemployment rate was 13.3 percent. Since then, every uptick in the Irish economy has been hailed as proof that the nation is recovering — but as of last month the unemployment rate was 14.6 percent, only slightly down from the peak it reached early last year.
After Ireland came Britain, where the Tory-led government — to the sound of hosannas from many pundits — turned to austerity in mid-2010, influenced in part by its belief that Irish policies were a smashing success. Unlike Ireland, Britain had no particular need to adopt austerity: like every other advanced country that issues debt in its own currency, it was and still is able to borrow at historically low interest rates. Nonetheless, the government of Prime Minister David Cameron insisted both that a harsh fiscal squeeze was necessary to appease creditors and that it would actually boost the economy by inspiring confidence.
What actually happened was an economic stall. Before the turn to austerity, Britain was recovering more or less in tandem with the United States. Since then, the U.S. economy has continued to grow, although more slowly than we’d like — but Britain’s economy has been dead in the water.
At this point, you might have expected austerity advocates to consider the possibility that there was something wrong with their analysis and policy prescriptions. But no. They went looking for new heroes and found them in the small Baltic nations, Latvia in particular, a nation that looms amazingly large in the austerian imagination.
At one level this is kind of funny: austerity policies have been applied all across Europe, yet the best example of success the austerians can come up with is a nation with fewer inhabitants than, say, Brooklyn. Still, the International Monetary Fund recently issued two new reports on the Latvian economy, and they really help put this story into perspective.
To be fair to the Latvians, they do have something to be proud of. After experiencing a Great-Depression-level slump, their economy has experienced two years of solid growth and falling unemployment. Despite that growth, however, they have only regained part of the lost ground in terms of either output or employment — and the unemployment rate is still 14 percent. If this is the austerians’ idea of an economic miracle, they truly are the children of a lesser god.
Oh, and if we’re going to invoke the experience of small nations as evidence about what economic policies work, let’s not forget the true economic miracle that is Iceland — a nation that was at ground zero of the financial crisis, but which, thanks to its embrace of unorthodox policies, has almost fully recovered.
So what do we learn from the rather pathetic search for austerity success stories? We learn that the doctrine that has dominated elite economic discourse for the past three years is wrong on all fronts. Not only have we been ruled by fear of nonexistent threats, we’ve been promised rewards that haven’t arrived and never will. It’s time to put the deficit obsession aside and get back to dealing with the real problem — namely, unacceptably high unemployment.
By: Paul Krugman, Op-Ed Columnist, The New York Times, January 31, 2013
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