As Congress rushed to adjourn, Democrats dithered over a jobs bill and ultimately reduced benefits to the unemployed because of the concerns of "deficit hawks." It's another indication of the prevalence of a form of political dementia, mad deficit disease. It's insanity to worry about the US deficit when we're struggling to pull out of a recession.
It's not that deficit hawks are operating in a bubble. A recent Gallup Poll found that 45 percent of poll respondents rated the budget deficit a "very important issue," ahead of terrorism and just behind the economy, healthcare, and unemployment.
Americans are split on US economic policy. An April CBS/New York Times poll found that 50 percent believed, "The federal government should spend money to create jobs, even if it means increasing the budget deficit," but 42 percent felt reducing the deficit was more important than creating jobs.
For those of us who took at least one college course in economics, or studied the lessons of the Great Depression, 2010 economic policy seems obvious: we should spend money to create jobs, even if it means increasing the budget deficit. Nonetheless, millions of Americans disagree. While their stance may be due to the fact that they've never taken an economics course or studied the great depression, there are several other explanations.
There are few business people among members of Congress, most are lawyers or career public servants. The composition of the 110th Congress shows five accountants and no economists. (Arguably, there are more former members of law enforcement than there are congresspeople who started their own business.) When the economy gets in trouble, members of Congress are thrown into a complicated arena outside their personnel experience.
Liberals and centrists, who aren't sure what to do about the economy, are confronted by conservatives obsessed with shrinking the size of government. Dogmatic Republicans want to give the market free rein, arguing that a robust open market will ultimately solve all social problems. For years their primary tactic has been to cut taxes, believing that would reduce the size of government. But the Bush Administration cut taxes and the Federal government continued to grow, so conservatives adopted a new mantra: reducing the size of the deficit.
The success of the new conservative tactic can be explained by several factors. Americans, in general, are concerned about debt. A recent Associated Press/GFK poll found that 46 percent of respondents reported "suffering from debt-related stress." In order to survive, they've taken on mountains of debt.
US public debt is $13 trillion and growing every day. That's roughly $42,000 per citizen.
Conservatives scream that the government is out of control and argue that no reasonable family or business would run up a trillion dollar debt and keep piling it on. But their argument fails on two accounts. First, the US government isn't a family or a business. (Arguing that it is a logical fallacy of composition.) The government can print money and change interest rates, while a family or business doesn't have that power.
Second, conservatives ignore the reality that, under certain circumstances, families and business may operate in the red. A family may go into debt to buy a new home or to pay for someone's education. A business may go into debt because it needs to build a new factory or expand its sales force. The average personal debt per US citizen is $53,455. If we asked American debtors if their debt load was justified, most would argue that it was because it enabled them to remodel their house or enhance their job prospects or pay for an operation.
Two things lie behind the conservative reduce the deficit mantra. One is their blind drive to shrink the size of government no matter whom it hurts. The other is their belief that the federal government shouldn't have an economic strategy; US fiscal policy should arise organically from the marketplace.
Conservatives are wrong. In times of economic chaos, the federal government needs a comprehensive strategy. The 2008 financial crisis clearly demonstrated that we couldn't trust Wall Street or the mythical marketplace to manage the economy. The Federal government needs to do that.
The Obama Administration has a plan to revive the economy. It includes increasing the deficit, temporarily, to provide benefits for the unemployed and to stimulate employment. That's a worthy objective, comparable to a family going into debt, temporarily, to put a son or daughter through medical school.
Philosopher George Santayana famously said, "Those who cannot remember the past are condemned to repeat it." Apparently, deficit hawks cannot remember the lessons learned from the Great Depression, which was made infinitely worse by the failure of the Hoover Administration to embrace deficit spending in order to save banks and spur employment.
Blind opposition to increasing the deficit runs the risk of killing the recovery. We can't let that happen. Liberals need to fight back. We need to eradicate mad deficit disease.
Guess it depends on when and where you went to college, who your professors were, and whether your reading list included more than just one text book. Sounds like you skipped a few classes and passed on the reading list.
Right recipe is to do just the opposite - we are about to hit a double dip recession bc that's what's been happening - spending like crazy and no jobs to show for it.
The only place hiring is the Federal govt - and, taking the oil spill as an example, can't see that they've comeup with much of a plan - it's private enterprise and individuals who are proposing clean up solutions not overpaid porn - gazing bureaucrats.
The government should shrink itself and its taxes - then you'd get real economic growth.
People who took more than one course in economics, and perhaps even read a few books on their own, understand why that's a terrible idea. What's more, people who understand more about the Great Depression than what was taught in their American History survey course freshman year understand that it didn't work in the first place.
Sir - I've done both. It sounds as if the course you took was Keynesian Econ 101. And it's failing now just as it did in the 1930's.
Government spending simply sucks capital out of the private market and allocates it based on political considerations. The private market is ruthless- capital flows to where it's treated best, not to who donated the most to a party's campaign coffers.
Both Hoover's and FDR's government programs turned a severe recession into the Great Depression by promoting anti-business programs, the Smoot-Hawley Tariff Act and artificially inflating wages above "market-clearing" levels during an economic contraction (i.e. deflation) via the NLRB and the minimum wage law.
Perhaps you should read a broader range of economics. "Say's Law" would be an excellent starting point.
Grow up.
It's when we removed FDR's regulation, that they economy crashed.
Deregulation killed the economy in both cases.
Learn history, don't just parrot the myths you learned in high school.
WWII debt spending, which you acknowledged ended the depression, and employed everyone, is the ultimate Keynesian spending: spending on products that are destroyed. Just was Keynes recommend, spending on anything that employs people will rescue the economy.
War or a Swedish "edu -fare" system. that's the choice.
Plutocracy or enlightened democratic republics, like the liberal founding fathers wanted.
Democratic Republic or Plutocracy.
Choose.
My sole reason for commenting was to openly admire the deft turn of phrase "Mad Deficit Disease". The image that comes to mind is beyond funny in how true of a depiction it really is for the antics of those running around here screaming about the deficit as if they just discovered the term. Moo indeed. They need to get off that udder, for they have darn near sucked it dry via the inherent hypocrisy of frenzied faux outrage coming a day late (nine years and a few months actually, if not forty years or more) and trillions of dollars short.
So we are going to pay people not to work and that will help the economy? There is the expense for the unemployment and administration, and then there is the expense for the person not working because that is what they are paid to do (or not do?).
And the Obama administration is going to "stimulate employment"? With a plan? That costs a whole lot? How does that work? Only thing they've done so far is provide temp jobs for busy work. Maybe you mean they are going to "simulate employment"? I think I've found the basis for a profound miscommunication!
""Those who cannot remember the past are condemned to repeat it." Apparently, deficit hawks cannot remember the lessons learned from the Great Depression, which was made infinitely worse by the failure of the Hoover Administration to embrace deficit spending in order to save banks and spur employment. "
That's a mighty big lie you got there.
"Blind opposition to increasing the deficit runs the risk of killing the recovery. We can't let that happen. Liberals need to fight back. We need to eradicate mad deficit disease."
Real liberals will tell you to cut the national credit card NOW!
Correct. My point was that we should no longer go into debt.
"In the Great Depression, Roosevelt tried deficit spending, but he was too timid. Then he stopped in 1937 and the economy nose-dived. It took the humongous deficits of WWII to pull us out of the Great Depression. Those deficits blasted the economy from depression into overdrive."
Its amazing that some people with view points like yours goes straight to unemployment as a way to say we are spending too much, i suspect that you are not on social sec, medicare or any other govt provided program correct? Unemployment is a small % of our deficit and yes, if people have money, the spend, which stimulates economy, mortgage payments continue to get paid, stores get products bought
Im very happy for you that you are completely debt free, since thats what it sounds like. Since if you ever bought a home and got a loan to do it, your replacing the fact that you cant just pay for it with borrowing, and this is what the govt needs to do. Since well...Bush decided to just stop getting his paychecks (tax cuts) and we lost tons of revenue.
Im a real liberal and I say tax some rich people and ill pay my share too.
How much more should they pay before you start?
Correct - exposure to even a small amount of Keynesian propaganda can lead people to believe in an insane fraud posing as serious economics.
"While their stance may be due to the fact that they've never taken an economics course or studied the great depression, there are several other explanations."
Such as the fact they've read Mises or Rothbard.
"The government can print money"
Counterfeiting is neither good governing nor wise economics.
"Second, conservatives ignore the reality that, under certain circumstances, families and business may operate in the red."
No individual, family, business, or government may always operate with an ever larger budget always in the red. You got to pay the piper.
"The 2008 financial crisis clearly demonstrated that we couldn't trust Wall Street or the mythical marketplace to manage the economy. The Federal government needs to do that."
You want the federal government to manage the economy? Wow. They just need to "do that"? Wow. Unchecked socialism/fascism and the complete ignorance of economics and history and reality.
for ex.
"Second, conservatives ignore the reality that, under certain circumstances, families and business may operate in the red."
No individual, family, business, or government may always operate with an ever larger budget always in the red. You got to pay the piper.
____well yes, you can actually operate in the red. ever finance a car? house? got credit cards?
There are hundreds of books available free of charge on the above site that explain economics and all about the Great Depression and about what caused the current crisis. There are many other additional resources there and elsewhere on the Internet for those who wish to have a thorough understanding of these important issues or for those who wish to have a through understanding of the unimportant issue of why this article is completely wrong.
From Marx to Friedman, the foundation of all economics is:
1. Scarcity of supply. Supply is neither infinite or free (not always in terms of money).
2. Insatiability of demand. There is always something that each person demands.
Oxygen isn't scarce. Outer space isn't scarce. Not much else isn't scarce.
"The country has the capacity, using not that many people, to produce all that is needed."
Pray tell, what is "all that is needed"? Can you even list "all that is needed" for me?
"However, if the bean counters destroy aggregate demand because there 's this fictitious scarcity that requires austerity, then there'll be real scarcity as the producers will not be able to sell their stuff and they'll produce less for the new depressed reality. "
So if people stop buying crap like fools, then people will stop making crap like fools, and this is a problem?
The government is in debt to investors. Investors will not lend to the government unless they have confidence that they will get more back from the government than they put in. This requires that the interest rate of the loan to be larger than the inflation rate. If it wasn't, the money the investor was paid back would be worth less than what they had lent.
This creates a viscous cycle when there is fear that the government will start printing too much money. Investors will demand higher interest rates because they believe that inflation will cause them to be paid back with money worth less. This increases the cost of debt. Which requires more money to be printed to pay it back.
Worse, this makes anyone that owns dollars less wealthy. Lets say there no more than $4,000 per person in currency (not assets) in the whole world. Printing $40,000 per person makes the dollar worth less than 10% of its original value.
So, the government COULD print our way out of our CURRENT debt. But, it would be VERY damaging and cannot be sustained because no one would lend money to the government.
No hyperinflation ever resulted from the printing of money.
Oh, and it was deflationary policy that put Hitler in power.
Despite having a lot of dept, Japan has not expanded its money supply (it just takes out loans to pay the debt). Because interest rates are so low in Japan, their debt is not very expensive. The Japanese people are saving very large amounts of money and putting that money in government bonds. They are doing this because of a large contraction in the value of assets (largely real estate) making government bonds a comparatively good investment. Japan is very likely to have hyperinflation when it cannot sustain the low interest rates.
Remember, also, that Japan has had very little growth compared to the rest of the world in the last 20 years. So, they should not be looked at as a model for a good economy.
Printing money never created hyperinflation:
All of the classic examples of hyperinflation were caused by printing to much money. To name a few:
Germany
Hungry
Zimbabwe
China (just after inventing printed money and again after WWII)
And what do you mean no hyperinflation ever resulted from the printing of too much money? The basis of hyperinflation according to Wikipedia is "The main cause of hyperinflation is a massive and rapid increase in the amount of money that is not supported by a corresponding growth in the output of goods and services". A simple example of this is Weimar Germany printing trillion-mark bank notes or Mugabe printing higher-denominated notes.
The only thing that kicked this country out of Depression mode was: World War II.
We tried to learn from this, and to keep the nation on a continuous "war footing" for the next thirty years. Unfortunately, we lost every single war we tried to fight that way -- and we are busy losing two more right now.
There is no amount of "magical government spending" that can change this situation; no amount of money that we can borrow. Because... "the money isn't there."
When faced with the reality of World War II, our country bootstrapped into existence a stupendous internal manufacturing juggernaut. We literally produced every single thing that we needed, and that's why we crushed not one but two industrial nations at the same time. Then, true to American fashion, we have been dismantling it ever since.
We're confident that we can "borrow into existence" trillions of "US Dollars," and give them to anyone anywhere to do our bidding, and they will do it because they are oh-so hungry for "US Dollars." Well, they're not anymore. And, they won't be again.
You can only trade with someone when you have some ==thing== to trade with them. Your money is only as good as your trading status.
To survive: we must re-bootstrap ourselves. Fast.
Government needs to promote the corporate and business environment in the US not denigrate it. It needs to entice companies from other countries to move here, encourage monies off shore to be invested in the US. Right now the complete opposite is happening. Why would any business want to relocate or expand into the US? One of the highest tax rates in the world, regulation out they ying yang and a government and media that likes to beat up on business when ever it gets the chance. Some businesses certainly deserve it but there are thousands that don't.
Piling on more debt and debt like features such as entitlements can push the problem down the road a while but will likely make the ultimate solution worse.
As far as inflation goes, that's much more preferable than unemployment.
Well, the Germans tried that once. Just look up the term "hyperinflation" on Wikipedia.
You can't "just sit back on your haunches and print money," and expect the world to beat a path to your door because they're so eager to take this money that so-obviously costs you nothing at all. Just what kind of a fool do you think that over 6 billion people are, just because they don't happen to live within the borders of your land?
America possesses tremendous manufacturing capacity ... rail lines galore ... and it's all sitting right here, smack dab in the middle of a center of enormous demand. We don't need to "get" anything from anyone else. We used to be the nation that everyone else wanted to trade with. We can be so again.
But what's going to have to go-away first, and for good, is this: the notion that "money really does grow on trees, and by the way we own the tree." Ships come over here loaded with goods only to sail back loaded with rocks. China doesn't need yet another breakwater.
So while you want to spend our way out of a recession, the truth is that it only works when you give the private sector the opportunity to grow outside of the government handout programs. Not threaten them with increasing health care costs, fines and higher taxes.
Cause and effect is hard to establish. But stating opinions as facts is part of the mess we are in.
The pols that misrepresent us need no such persuasion, for their ears are cocked and attuned to the mutterings of their donors. And donors, by definition, are folks with money to spare. And folks with money have one great enemy for which they would have us all sacrifice to vanquish: inflation, which dilutes the buying power of their money. Which pol will impress the donor class most with his sincere concern over the possible erosion of their money's buying power? Obama? Gingrich? Romney? It's going to be a photo-finish at the wire, and the American people will come in last.