There is 'false choice' debate underway within Congress and the administration between "cutters" of the federal deficit and the "postponers", and it played out in spades in last week's unemployment benefits extension debate in Congress.
Even with the U.S. indisputably mired in a prolonged jobless recovery, only two Republicans in the Senate had the sensitivity to vote with 56 Democrats and two Independents to extend unemployment benefits, despite weeks of delay and, in the interim, myriad hardships being dumped on millions of long-term unemployed Americans. The other 39 Republican Senators (and the always-impossible-to-understand 'Democratic' Senator from Nebraska, Ben Nelson) ran from this moral imperative because, according to their Leader, they were "determined to prevent its costs from being piled onto the mounting federal debt".
Of course, on the very same day that these Senators were rejecting a puny average of $309 in benefits per unemployed worker per week because of the absence of an 'offset', the entire Republican Caucus -- plus Nelson and another 'Democrat' -- repeated their demand that the $55 billion of annual Bush tax cuts for the extremely wealthy be extended without any offset.
With this year's federal deficit now estimated to total $1.47 trillion, a majority of Americans agree with the comment made during the unemployment benefits debate that "the federal debt has grown to an alarming level, where it is threatening the future of our children and grandchildren". But they strongly disagree when this very honest observation is used (abused) by Republican Senators to resist major new-jobs efforts while keeping alive the "trickle-down economics" of President Reagan. Of course, the theory of 'trickling' the increased wealth of the richest Americans down to the poorest, which has created more income inequality than at any time since 1928, has been thoroughly debunked by nearly every responsible economist. Yet even more discredited is the contention that well-conceived job efforts are not stimulative -- in fact, in the medium term they are at least deficit neutral and, most likely, substantially deficit reducing.
For most of the G-20 nations -- but especially for the United States -- the truth is that both additional short-term stimulus that targets job creation and responsible deficit reduction are needed right now, and they are not, as some contend, mutually exclusive. In fact, jobs-based stimulus, because of the large multiplier effect of high-quality job creation, is a much more responsible and effective way to reduce the deficit than is slashing spending for slashing's sake.
"Cutters" argue that large fiscal deficits threaten long-term fiscal credibility and depress private confidence and spending. While generally agreeing with last year's stimulus, they now say that enough is enough, especially since so much of that first $787 million of stimulus money didn't create a meaningful number of jobs and wasn't spent very effectively otherwise. These deficit hawks are also 'owed' because of the large (and to date unexplained) disconnects between, on the one hand, President Obama's recent commitment to get the federal deficit down to about 3% of GDP by 2015 and, on the other, the IMF's very contrary conclusion that by 2015 America will have a structural deficit more than twice this figure and the Congressional Budget Office's "most likely" conclusion that the federal debt in public hands will rise from 62% of GDP this year to above 90% by 2021.
"Postponers", of which I am most definitely one, strongly agree with the need to slow the growth of long-term spending. However, right now, above all else, they're motivated to create jobs any way they can, but especially by drawing out for hiring and investment the $2 trillion of private sector cash reserves that have accumulated since the start of the Recession. "Postponers" believe that the country is at least looking ahead to a "double dip recession" -- I actually think we're already stuck in a very prolonged "L" -- and that a premature tightening of fiscal policy, instead of further fiscal stimulus, will doom us.
But "cutters" and "postponers" are not, as I said, in a winner-take-all contest, unless they foolishly insist on being in such -- and the U.S. does not have to choose between stimulus and austerity.
The ultimate 'balancer' in this critical debate should be the White House, led, I assume, by Larry Summers, who is the chief economic adviser. To his credit, Mr. Summers has in the past correctly pointed out that "in normal times...a range of considerations all make the case for fiscal prudence and reduced budget deficits."
But then he turns all of this -- and frankly all of us -- on our heads by declaring that the administration intends to be guided at this time primarily by his deficit-cutting oriented assertion that "the combination of measures that prevent sharp declines in demand in the short run and that add to confidence by controlling the factors that drive deficits offers the best prospect for moving the economy forward in the next few years."
The two realities that Summers overlooks -- and that he has overlooked for the entire past eighteen months -- are that these are not "normal times" and that the "best prospect for moving the economy forward" is to create the 22 million jobs we are missing, the latter by combining private sector capabilities with targeted large-scale Keynesian-type and Galbraith-type government intervention.
Much more than the theories and wishes of the "cutters" or "postponers", it is only the needs of voters and workers which really matter, and right now workers need Congress to first address unemployment. Voters see the absence of jobs as far and away the biggest problem facing the economy today, and they strongly favor, by two-to-one, aggressive jobs initiatives over a long-term deficit reduction program. And we owe them this attention and this priority because, as I noted, indisputable analysis shows that additional thoughtful job creation would be at least deficit neutral over the medium term and most likely deficit reducing.
Attacking jobs first does not mean we should hesitate to responsibly attack the deficit as well, starting with eliminating waste and inefficiency -- it simply means we should attack jobs first.
In reflecting on this, there's a memorable line relevant to today in Michael Hiltzik's wonderful new book, "Colossus", about the building of Boulder/Hoover Dam while the Great Depression was ravaging the nation. Hiltzik writes: "The dam's imposing mass seems to ask whether we as a nation are still capable of such an undertaking today -- whether we would still have the drive and resourcefulness to conceive it, build it, and even finish it an astonishing two years ahead of schedule."
This question of course relates to much more than just building a great dam. It is really a call by Hiltzik for vision and courage -- and for progressive economics -- like that which FDR and his advisors clearly had. Traits that if we widely displayed today would once again readily find the proper balance between cutting excesses out of the federal budget and stimulating the economy.
But instead what we have right now are the two co-chairs of President Obama's commission on the deficit saying every day things like "This debt is like a cancer" and "This pig is dead -- there's no more bacon". They are not offering a lick of optimism to our bankrupt states and municipalities and to our 30 million out-of-work Americans. This commission, and by inference the Obama administration, seem focused only on 'balancing the books' and on surreptitiously cutting back on the core of our national social contract (Social Security and Medicare) without seeing actual faces and names and cities in distress. This is cruel, and it is unwarranted under any honest economic theory.
Federal Reserve Chairman Ben Bernanke testified to the Senate Banking Committee, on July 21, 2010, that, "At the current moment, some fiscal support for the economy is an appropriate and constructive thing."
He's right.
Leo Hindery, Jr. is Chairman of the US Economy/Smart Globalization Initiative at the New America Foundation and a member of the Council on Foreign Relations. Currently an investor in media companies, he is the former CEO of Tele-Communications, Inc. (TCI), Liberty Media and their successor AT&T Broadband. He also serves on the Board of the Huffington Post Investigative Fund.
The riots ARE organizing.......exactly what they pushed for.
Too bad Obama did not keep his promises of listening to his constituents, he will be remembered and responsible for, riots making the 60's look like a school yard argument.
Thanks Mr. O.........you have done a wonderful job of finishing off the end of America.
Yet you all cry and do not understand why you are so hated.
Duh !
This means that fundamentally you can either have out of control deficits or a recession, because soon most of what we do will just be pushing money around.
Problem, of course, is that pushing money around isn't real work. It doesn't produce. And all "innovation" means in finance is finding ways to hide risk from your customers, so the free market dynamics that drive things upward in industry drive them downward in finance.
And since we've gone with the "wind down" model instead of the "break up" model of dealing with Too Big To Fail(tm) we've essentially acknowledged that the new normal is that we will have a major financial collapse once or twice a decade or so...like we did before Glass-Stegall in the 19th century.
So, suck it up. Lowering the deficit means mass unemployment, period, because contrary to the fantasies of free marketeers ONLY the government creates finance jobs, because the government creates money.
Deficit reduction destroys money. Less money, less money to manage, less need to pay the "best and the brightest" to find more "sh*tty deals" for everyone.
Or, you know, we could start making things again. Just a thought.
Re "we could start making things again", prior to the recession, US manufacturing output was at an all time high. Twice as high as 1980. Three times as high as 1970. Take a look at http://research.stlouisfed.org/fred2/series/OUTMS
The US's top exports by value are: Civilian aircraft, engines, equipment, and parts; pharmaceutical preparations; semi-conductors; chemicals; cars and car parts; telecommunications equipment and plastics. Take a look at http://www.census.gov/foreign-trade/statistics/product/enduse/exports/c0000.html.
Manufacturing constitutes around 11% of GDP.
Nice links, did you notice this disclaimer? Because of the reclassification, these measures are not directly comparable with manufacturing measures published on or before Dec. 3, 2003.
Also of note is the Upjohn Institutes observation that: Phantom GDP results when cost reductions achieved by US firms shifting production offshore are miscounted as US GDP growth. Phantom productivity increases occur when gains from moving design, research and development offshore are counted as increases in US productivity. Obviously, production and productivity that take place abroad are not part of our domestic economy.
I think looking at GDP is fine but I am looking at my friends and relatives out of work. Hence the focus on jobs.
Not sure what your point is. I agree with JShankel - we're headed the wrong way, globalization is resulting in the erosion of our standard of living.
"Here we go again: Hoover got us in, and WWII got us out. Bush got us in, and
to his credit, started trying to get us out. Though, mostly he threw money at bankers.
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.
Of course after the war, we had to pay off a huge national debt, but during that time, from 1946 to 1980, the economy was mainly quite prosperous."........
......"The main thing to remember is that, with consumer spending going down, business is going to lay people off—not hire them. You can't blame business for this. It's just a vicious cycle that the economy gets into. And you can't blame consumers for not spending in bad times. The only way out of this, if we don't want to wait 10 years, is for the government to spend, pay unemployment insurance, or give tax breaks to people who will spend (not the rich). Of course there's also the problem of the banks. Obama should stop saving the bankers, and just take over the bad banks. Once they're working they can be sold back to the private sector."
Sounds spot on to me.
No, enough wasn't enough. The stimulus was too small. That's why it didn't accomplish everything it needed to do. A second stimulus, targeted on jobs, is needed right now. The debate over deficits is nothing but an attempt by the GOP to prevent an economic recovery that would help the Democrats and the president -- and incidentally the citizens of the United States. It's disgusting and reprehensible and as phony as a three dollar bill.
http://www.theatlantic.com/business/archive/2010/07/the-scariest-unemployment-graph-ive-seen-yet/60086/
The postponers are running the government right now and have added $3T of debt in FYs 2009/10. Even Keynes himself never promoted raising taxes during a down economy. We have been out of the recession since July 2009. Contrary to the official state version, the recession began in the 3rd quarter of 2008, not December 2009. To say otherwise is to redefine the definition of a recession (two successive quarters of negative growth).
The laws passed by the biggest spending President and Congress in world history are just now starting to kick in. Add the expiration of the Bush tax cuts and we have a recipe for disaster. We need to reduce spending and get government out of the way of the private sector so that the opportunities for those who seek employment can get back to work.
Obama looks at passing massive legislation bills into law as achievement. The economy is your measure and right now he earns a solid F.
and the rest was state aide
yeah it was such abat thing to do
the bush tax cuts have not let those same companies who are sitting on their money to rehire since we startted to grow the economy
why should they keep more money if they have been laying off workers and not hiring since the recsion started
what they will start hiring if they get the extension??
yeah right they got the extra money and sat on it
this is a republican recesion as 8 of the 9 have been
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=CES0000000001&output_view=net_1mth
The way to solve unemployment is not giving more money to those who simply use that money in financial speculation. Let the working man and woman have more money, and they will spend it, and generate business.
No, what you've got is a run-amok social entitlement system, and an economy that can no longer afford it. Cutting deficit spending is important, question is, does anyone really have the stomach for it? People are going to start screaming bloody murder if you mess with their entitlements. But, when we get to the point where people can live it high off unemployment, and turn their noses up at full-time jobs, then the economy will just get worse.
Cut defense spending in half, and thats 300,000,000,000 a year. Cut out agricultural welfare and corporate welfare, thats another 100,000,000,000 a year.
Were now at 400,000,000,000 saved. Put that money toward the national debt, and in 3-4 years, walla, we're in the black.
Why attack the deficit at all? It's just a number, it can't hurt you or anyone - although it's catnip for bond traders. So what if the government spends more than it taxes? Just means that it creates net private assets. How is that a bad thing? Worried the government will run out of money? It can't. It is the sole *creator* of money. How often do you worry that scoreboards at sports games will run out of points?
http://www.ecb.int/pub/pdf/other/monthlyreporteurosystemcoveredbondpurchaseprogramme201006en.pdf
Zimbabwe was messed up by their massive land redistribution program, which collapsed their ability to produce food. Constant demand + supply collapse = hyperinflation.
If you think the only difference between the current situation and hyperinflation is the selling of government bonds, would you care to explain how selling bonds is hyperdeflationary?
China just downgraded our bonds. Others help fund our debt. What happens when people lose faith in our currency? The guesses range from inflation to deflation. Either way, this is not good.
Nothing "funds" our spending. The government spends by adding numbers to bank accounts. It taxes by subtracting those same numbers. When it spends more than it taxes, it sells bonds. Selling bonds is purely voluntary. As long as we have a fiat currency, the government will always be able to spend as much as it wants regardless how many bonds are sold. Here in Australia until a few decades ago, if no one bought our bonds, the central bank bought them. No problem!
WWII was 5 trillion dollars all wasted on destruction.
That equals at least 10-15 trillion worth investing in infrastructure and green energy, both of which save money in the long term.
Save money, cut the deficit, employ everyone, cut energy dependence:
Immediately order energy retrofits for all gov buildings.
Rooftop PV Solar, Offshore wind, and Waste Bio char, can supply the worlds energy and fuel needs: cleanly, safely, Forever, within 12 years and cheaper in the long run 2-6 cents now, and 26$ per barrel bio oils.
http://www.ecobusinesslinks.com/solar_panels.htm
about 1$ per Wp solar panels, new.
install solar plants for about $1.30 per watt, compared with an industry average of about $1.75, according to Hardy." http://www.bloomberg.com/apps/news?pid=20602099&sid=a7K1FZoNgJ0w
Wind: “between two and six cents today, depending on location.12 Wind power approaches competitiveness with conventional generation at this price point. “
http://www.repp.org/articles/static/1/binaries/wind%20issue%20brief_FINAL.pdf
http://www.css.cornell.edu/faculty/lehmann/publ/BiofBioproBioref%203,%20547-562,%202009%20Laird.pdf
26$ per barrel bio oil from waste bio char.
but supply siders?
For the Democrats, Erskine Bowles is a failed politician and Clinton holdover who served during the height of Monicagate. The other 10 Democrats are all extremely liberal Democrat Senators or representatives of organized labor (Unions).
Reaganomics helped create the longest period of sustained economic growth in our history. What he inherited from Carter included double-digit unemployment, inflation,and interest rates. He made inflation a non-issue by the end of his term, cut interest rates in half, and created about 20 million jobs. Yes, spending went up, but who was in charge of the purse strings? A Democrat Congress with with exception of two years where the Republicans held slim majorities in the Senate. Contrary to what we see now, Reagan achieved his agenda with true bipartisan support.
Obamanomics has yet to take effect but will over the next couple of years. We already have near double digit unemployment and he has added what will be about $3T to the National Debt by the end of September. He is the anti-Reagan. Let's hope we don't get anti-Reagan results.
rich got richer
poor got poorer
took 4 years to get unemployment down
and there was a reccsion in 1990 that wiped out all of his "job" gains
bush1 and clinton turned around his terrible economic record
ps he bailed out crysler and the savings and loan
i like how u blame obama for the debt
he came in with the economy sheding 700+ jobs a month( now its gaining jobs)
2 unfunded wars
and a tax code that favored the rich
reagan had nothing like this
dems worked with reagan and when his ideas failed they took back power
gop have done nothig to help
offered weak 2 page plans
every pres candidate would have spent money to stimulate the economy
alll 19 of them
reagan woudl have done the same thing except he would have been able to cut taxes any more
they are at lowest since 1954
without the wars and the terrible tax cuts
the "debt" would be managable!