CBO Warns of Higher Unemployment: Washington Worries About the Deficit
The Congressional Budget Office (CBO) will release a new set of economic and budget projections for the next decade on Tuesday. These projections are likely to show a cumulative deficit over the next 10 years that is $2 trillion higher (at 1 percent of GDP) than the deficit CBO projected in January.
The reason for the higher projected deficit is not that Congress has suddenly blown another 2 trillion of the taxpayers' dollars on frivolous projects. Rather, the main reason for the jump in the projected deficit is that CBO is now projecting lower growth and higher unemployment over this decade than it did last January.
In other words, CBO now believes that the collapse of the housing bubble will cause even more and longer lasting damage than it did back in January. As a result of slow growth and high unemployment, the government will collect considerably less in tax revenues over the next decade than would have been implied by the earlier set of economic projections. The government will also be paying out more money in unemployment benefits, food stamps and other transfer programs than would be the case if the economy were healthier.
The real story in the new CBO projections should be the more dire economic outlook. CBO now expects the unemployment rate to be near 10 percent through most of 2010. Its new projections will show that the unemployment rate will only return to more normal levels in 2013 or even 2014, more than six years after the collapse of the housing bubble threw the economy into recession.
The implication of the new CBO projections is that millions more people will be needlessly suffering because of the economic mismanagement of the Greenspan-Bernanke-Bush crew. CBO views 4.5 percent unemployment as being the sustainable rate of unemployment. If the unemployment rate is 10 percent, more than 8 million people are needlessly out of work, with another 5 million or so being forced to work part-time because they cannot find full-time employment. These people will be struggling to pay their health care bills, cover their mortgage or rent payments, and meet other necessary expenses for themselves and their families.
The rational response to the news that the economy will be far worse than had previously been projected should be a demand for more stimulus. After all, why should millions of people lose their jobs, their homes, and their health just because the people who managed the country's economic policy over the last decade were incompetent?
Unfortunately, the same people who wrecked the economy are largely still running it and they still have the same set of economic priorities. Therefore, instead of talking about the economic weakness implied by the new CBO projections, the discussion will focus almost completely on the larger projected budget deficit. Instead of discussing ways in which we can reduce the unemployment rate and stimulate growth, the media will be highlighting calls for tax increases and spending cuts -- measures that will slow the economy and raise the unemployment rate further.
The deficit hawks who wrecked the economy will be insisting that the government cannot borrow this much money. They will do their best to scare people by talking about "trillion" dollar deficits. To be sure, these are big deficits, but there is no reason to believe that the economy cannot support them.
Japan now has a debt to GDP ratio of close to 180 percent. This would be the equivalent of a $27 trillion debt in the United States. Yet investors around the world are happy to hold yen and in fact hold 10-year Japanese government bonds at interest rates of less than 2.0 percent.
Looking back to U.S. history, after World War II, the debt to GDP ratio rose to 120 percent. This would be $18 trillion in today's economy. Yet, the three decades following the war were the period of most rapid growth in U.S. history, and the debt to GDP ratio fell to less than 30 percent.
The basic story is that we need to have large deficits now for the next several years in order to boost the economy back to full employment. Forcing a large portion of our workforce to endure a prolonged period of unemployment will inflict an enormous cost on these workers and on their children (i.e. the future generations whom the deficit hawks claim as their main concern).
The deficit hawks were hugely wrong in ignoring the $8 trillion housing bubble and the country is paying an enormous price for their mistake -- including much higher deficits. It is time to stop taking these birds seriously.
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CBO Warns of Higher Unemployment.
Washington Worries About Deficits.
Progressive Economists Back Bernanke: Have No Clue That Money System is Insolvent.
The Chicago Plan for Monetary Reform.
The Money System Common.
We don't need another stimulus package we need jobs, now. We need the government to step up and predict the future which is actually one of the government's greatest tools in bringing us out of a deep recession and has been used many times before, like WW2 to get us out of the depression, Kennedy's we're going to the moon, Eisenhower's inter-state highway system and Reagan's 600 ship navy. We are in need of a V-shaped rebound, the only way to get that is to identify and create a market so that business is willing to invest it's capital in research, capacity, hiring and training to insure the market is met. And that customers are willing and able to spend.
For over 30 years we've been on this energy roller coaster it's time to get off. We can't keep paying for both sides of the war on terror. But the Climate bill isn't enough. Homeowners and small businesses need to know the investments they make now for energy efficiency will pay off in the long run and that the solutions are serviceable. We need an energy audit of every home and business to get some metrics, completed by the utility companies, so that manufacturers, homeowners and businesses know what the current market is like and we have a chance at economies of scale. The audit is also done to front-load the workload providing a bridge between the green jobs of tomorrow and the lack of jobs today. Neshaped.) So at least I don't look like the village idiot spending thousands of dollars on an electric car and have the price of gas go to a dollar a gallon the next day. This is not about free enterprise or raising taxesxt we need Congress to set up to the plate and looking over a ten year period to set up a series of tax breaks for energy efficiency and tax increases on petroleum products with year one having the most tax breaks decreasing logarithmically and year ten the most taxes increasing exponentially (U-. It's about America creating a plan and pulling together to get us out of this hole and giving Americans back their sense of control .
Folks, what Clinton and Bush -Cheney and company left us is unconscionable.
In the middle of the night Clinton and his congress passed NAFTA, sending our jobs anyplace but here. Bush and Cheney deregulated banks so the crooks could steal our money (our children's and grandchildren's too).
We have mega-mansions built by illegals that no one can afford. We have mortgages increasingly going into forclosure because people have no jobs. We have insurance companies taking the money but refusing to cover medical conditions and even dropping people at the first sign of illness.
Thank God we have a President now who seems to be trying to turn things around.
Screw Bernanke... Dean Baker for Fed Chair!
Thank you Dean Baker for once again being one of the few that understands our monetary system. People keep coming on here talking about how the govt. is taking from one hand to feed the other and our wasted tax dollars etc. Your really don't understand your own monetary system at all. The biggest misconception is the belief that tax dollars are used to fund things. Your tax payment is merely debited from your bank account. A credit is marked at the fed, but it is just accounting, not a purse. If you pay your tax dollars in actual cash do you think it goes into a purse? No it is destroyed. The govt. has currency monopoly, it can spend as much as it likes and as long as there is little inflation and high unemployment it can stimulate more without raising an extra nickel in taxes (this is because tax is demand control tool, not a tool to raise funds to pay for things). The sooner people start taking economics and monetary policy seriously and begin to understand how it really works, the sooner we can start having real discussions about what we can do with our government.
First of all the housing bubble that started this is gone what we are seeing now with foreclosures is the unemployment kicking in. Yes we are going to see this last a long time and the reason for that is our government has done nothing to stop this depression. The reason for that is they truly believe they should never let a crisis go without taking full advantage of it. Get things passed that would never pass before i.e. health care and more government spending. When government spends they must take it from somewhere eventually and where they get it is from the economy. It is kind of like the analogy of taking water from one end of the bath tube and putting it into the other.
We are now doing all the things that have been proven not to help in a recession. We are raising taxes with Cap and Trade. We are elimanating the use of our own natural resources Coal, natural Gas, and Oil, while giving Brazil money to exploit theirs. Raise taxes again on the most productive part of our economy with health care. A almost trillion dollar stimulus yet it goes to government projects, that are short term at best, and have only spent 10%. Obama needs to write a book on how to turn a recession into a depression.
The prices of housing are still going down. Your suggestion on how to deal with this is nothing more than 'let the market take care of it'. The market is what caused this.
Health care is the least productive part of our economy. It is a gigantic money waster to the point that the U.S. has the worst health system as far as price and quality of any developed country. We spend over $1 trillion more per year based on per person rates compared to any other developed country.
I am constantly amazed that the 'fiscal conservatives' think that paying a health care tax that is twice as much as any developed country is OK, as long as it goes to the big health care gouging corporations who pay to support politicians. The only difference is that only half goes through the government. The other (expensive) half comes directly out of our pockets and our employer's pockets. It's OK to gouge people directly, but don't raise taxes.
http://static.seekingalpha.com/uploads/2009/7/2/saupload_health.png
http://www.reuters.com/article/domesticNews/idUSN1747974920080717
Housing prices are dictated today by the amount of foreclosures on the market. I have talked with congress on how to take care of this problem. They have used part of it just not the main part. We can cut the foreclosures drastically by just doing the modifications or short sales. Fannie Mae and Freddie mac said they would modify the loans they currently have which is 3-4 million loans. This was part of my idea the other was a system where they could do 2 million modifications per year. They have done 160,000 in the first six months.
Second we can change what we pay for health care with regulation. We can let insurance companies sell across state lines and regulate how they sell insurance. This cost the tax payer nothing. Unfortunately the government only wants to look at a plan that will give them control and allow them to spend 1.5 trillion more of China's money.
If Obama paid as much attention to the economy as he does to healthcare, we would all be better off.
You mean that DC's finally figured out that the banks aren't the only ones in this country that needs to make money? Sheeshe. Without the working stiff, DC is toast. There is no "recovery" without main street incomes.
"After all, why should millions of people lose their jobs, their homes, and their health just because the people who managed the country's economic policy over the last decade were incompetent?"
because their company needs to cut jobs to survive. not hard, my friend. i don't care who you are or what you do, you do not have a "right" to your job. very, very, very simple.
if society chooses to lend a hand by using the power of government force to take additional resources from those who have to give to those who do not, then so be it. but there is exactly zero responsibility to do so. those who receive aid should accept it gratefully, and be eager to minimize the burden they are putting on others however, wherever, and whenever possible.
the instant that gratitude becomes a mentality of entitlement is the instant that the aid should be cut off.
An overwhelming majority of people are grateful for those benefits. Food stamps are keeping my alive. I have no income whatsoever. There are no jobs. I send at least two resumes out a day, somedays around 10, but have had one interview since April. People like you can deal with me in the streets, pay for my medical bills because I can't or buy extra locks because I will do what I have to to survive.
So you support a significant change to the health care system? Cutting millions of jobs in the "arguing over whether the doctor is right," business?
Maybe we can tax corporations on excessive compensation? Or at least stop giving them a tax break so that taxpayers pay 35% of those million dollar bonuses?
Maybe we should take over the companies that are insolvent, instead of loaning them money so they can survive as "zombies?"
As I said before, this is a Depression similar to the last Big Depression.
If the government is more worried about the deficit, this Depression will drag on for years and the unemployment rate will hit close to 20%.
Again, the only thing that will save this country is the reinstatement of FDR's Depression Era reforms.
Remember you heard it here!
If Reaganomics/Free Market failed so badly and wiped out the country, why the Hell is Washington still clinging to it.
It's now "Weekend at Bernies" economics.
> the government will collect considerably less in tax revenues over the next decade <
I know how to fix that. Bring back the progressive income tax, with a 90 percent top bracket. Let the racketeers who made this mess pay to get us out of it.
Quote: The basic story is that we need to have large deficits now for the next several years in order to boost the economy back to full employment. Forcing a large portion of our workforce to endure a prolonged period of unemployment will inflict an enormous cost on these workers and on their children (i.e. the future generations whom the deficit hawks claim as their main concern). Unquote.
Spot on as usual thank you Dean Baker.
Don't talk to me about the deficit.
Get out of Iraq and Afghanistan and there's plenty of money to stimulate the economy here or do what's necessary.
Yes and no...
The cost of wars, in excess of the normal cost of military operations, is probably only about enough to pay for health care if we had no cost savings. For an economic stimulus, you would have to get a refund of the money spent on the war to date. I don't know how we could get that money back from Halliburton, so we would have to cut future military research, military spending, or raise taxes. Or continue increasing the deficit...
Which is why healthcare reform is simply going to fail. The deficit. It's all about the economics of the time.
We can afford a war that does nothing for our children, but cannot afford to keep them healthy...
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