Costs of austerity

[oldfart]

The famous Marxist think tank, the Peter G Peterson Foundation that never met a hedge fund or Wall Street bailout it didn't like, commissioned a new report on the direct economic effects of deficit bashing and austerity. The result: Austerity since 2010 has raised the unemployment rate 1.4% (meaning it would be just under 6% without austerity), cost the economy $700 billion and lowered the GDP growth rate 1% per year. And it is going to get worse if the sequester, government shutdown, and debt default rhetoric don't disappear. The "favorable scenario" has the unemployment rate going to 8.5% and not beginning to go down until the end of 2014; that's the BEST CASE Peterson's boys came up with, the more probable (but by no means the worst case) has unemployment at 8.9% and not going down until the end of 2015. In all an additional 5.2 million jobs will have been lost.

A new report, prepared by Macroeconomic Advisers, LLC for the Peter G. Peterson Foundation, examines the cost of crisis-driven fiscal policy over the past few years by looking at indicators including GDP growth, the unemployment rate and the corporate credit spread. The paper considers recent policy and political battles including the sequester, the government shutdown and brinksmanship on the debt ceiling.

Top-level findings include:

Fiscal Policy Uncertainty: Since late 2009, fiscal policy uncertainty has raised the Baa corporate bond spread by 38 basis points, lowered GDP growth by 0.3 percentage points per year, and raised the unemployment rate in 2013 by 0.6 percentage points, equivalent to 900,000 lost jobs.

Government Shutdown: A 2-week partial government shutdown would directly trim about 0.3 percentage points from 4th-quarter growth.

The Debt Ceiling: The paper considers two scenarios. The first assumes a brief, technical default that is quickly resolved, and the second assumes an extended, two-month stalemate.

1. In scenario one, risk aversion rises, financing costs rise, prices of risk assets fall, and the economy enters a recession. Exacerbated by the Fed’s inability to lower short-term interest rates, growth only begins to rebound at end of 2014 and the unemployment rate rises to a peak of 8.5% before starting to decline. At its peak, 2.5 million jobs would be lost.

2. Scenario two implies a longer and deeper recession than in the first scenario, but one characterized by extreme volatility. Annualized GDP growth fluctuates rapidly between plus and minus 8% until the oscillations diminish in 2015. Unemployment rises to a peak of 8.9% — equivalent to 3.1 million lost jobs — before trending down.

Discretionary Spending: Reductions in discretionary spending have reduced annual GDP growth by 0.7 percentage points since 2010 and raised the unemployment rate 0.8 percentage points, representing a cost of 1.2 million jobs.

- See more at: Special Report: The Cost of Crisis-Driven Fiscal Policy | pgpf.org

And 100% of this damage is caused by the conservative Republican economic program. If they had been able to control both houses of Congress, we would have had 25% unemployment. See how well austerity works in America? We are making Greece look like a success story.

 

[oldfart]

The famous Marxist think tank, the Peter G Peterson Foundation that never met a hedge fund or Wall Street bailout it didn't like, commissioned a new report on the direct economic effects of deficit bashing and austerity. The result: Austerity since 2010 has raised the unemployment rate 1.4%, cost the economy $700 billion and lowered the GDP growth rate 1% per year. In all an additional 5.2 million jobs will have been lost.

Just a bump. So everyone agrees that austerity is an economic disaster? Then we can stop talking about spending cuts and go home? Expansionary austerity is truly dead?

 

[Rshermr]

The famous Marxist think tank, the Peter G Peterson Foundation that never met a hedge fund or Wall Street bailout it didn't like, commissioned a new report on the direct economic effects of deficit bashing and austerity. The result: Austerity since 2010 has raised the unemployment rate 1.4%, cost the economy $700 billion and lowered the GDP growth rate 1% per year. In all an additional 5.2 million jobs will have been lost.

Just a bump. So everyone agrees that austerity is an economic disaster? Then we can stop talking about spending cuts and go home? Expansionary austerity is truly dead?

Austerity is the heart and soul of the republican politic. In bad times, according to the republican party, you lower taxes and spending and try to balance the budget. Which is, of course, exactly the same policy you follow in mediocre times or good times. Because, of course, it makes for higher income levels for the wealthy.
So, seeing what has happened with austerity is not what will go on with republicans. They believe what is said in their own echo chamber. And if unemployment goes to 25% as it did during the great depression, they will push the exact same agenda.

 

[Freemason9]

The only fiscal policy that makes sense is one that creates full employment. Any level of federal spending on productive activities should be committed to achieve this goal.

This nonsense of maintaining low inflation-rate environments by restricting monetary growth is killing the middle class.

 

[jasonnfree]

The only fiscal policy that makes sense is one that creates full employment. Any level of federal spending on productive activities should be committed to achieve this goal.

This nonsense of maintaining low inflation-rate environments by restricting monetary growth is killing the middle class.

Isn't quantitative easing monetary growth?

 

[expat_panama]

...Austerity since 2010...

Whether US fiscal policy became austere in 2010 or as early as 2009, we need to say what austerity is. Here's a standard definition of the word (from here):

aus•ter•i•ty
Pronunciation: (ô-ster'i-t&#275, [key]

1. austere quality; severity of manner, life, etc.; sternness.
2. Usually, austerities. ascetic practices: austerities of monastery life.
3. strict economy.​

Random House Unabridged Dictionary, Copyright © 1997, by Random House, Inc., on Infoplease.​

One would think that those who practice austerity would spend less. However, what we're calling "austertiy" is in fact a time when spending has--

--increased by about a trillion dollars and soared to all time highs. On top of that, this new kind of "austerity" is being blamed on one party when it actually began when the other party controlled both the legislative and executive branches of government.

 

[oldfart]

The only fiscal policy that makes sense is one that creates full employment. Any level of federal spending on productive activities should be committed to achieve this goal.

This nonsense of maintaining low inflation-rate environments by restricting monetary growth is killing the middle class.

To be fair, monetary policy can't get much more expansionary than it is now with $2 trillion in excess reserves. The Fed's inflation goal of 2% is too low, but the goal is largely irrelevant when you have trouble getting to it.

Basically full employment policies are what the world needs, contractionary policies is what we have gotten since 2010.

 

[oldfart]

The only fiscal policy that makes sense is one that creates full employment. Any level of federal spending on productive activities should be committed to achieve this goal.

This nonsense of maintaining low inflation-rate environments by restricting monetary growth is killing the middle class.

Isn't quantitative easing monetary growth?

Not when you are in a liquidity trap. 97% of quantitative easing has gone into excess reserves.

 

[oldfart]

...Austerity since 2010...

One would think that those who practice austerity would spend less. However, what we're calling "austertiy" is in fact a time when spending has--

--increased by about a trillion dollars and soared to all time highs. On top of that, this new kind of "austerity" is being blamed on one party when it actually began when the other party controlled both the legislative and executive branches of government.

Congratulations, you can generate a graph in FRED. Obviously you cannot read it however. Your graph show an increase in nominal spending since 2010 less than the rate of population growth. Real per capita government spending has gone down in that period.

Is it that you simply don't read what you post? Or do you intend to mislead people thinking no one will notice? So, are you the fool or the knave?

 

[william the wie]

And how would stimulus reduce dissatisfaction? There is no example of any proposed or implemented economic stimulus increasing per capita utility. In a 15 year period 1943-58 this country won the biggest war ever; stopped the Syphilis, TB and polio epidemics and launched rock and roll. But did the lower third feel any better in 1958 than in 1943? Considering that peak birthrates for the lower 48 was achieved in 1958 the answer appears to be no.

 

[BillyV]

...Austerity since 2010...

One would think that those who practice austerity would spend less. However, what we're calling "austertiy" is in fact a time when spending has--

--increased by about a trillion dollars and soared to all time highs. On top of that, this new kind of "austerity" is being blamed on one party when it actually began when the other party controlled both the legislative and executive branches of government.

Congratulations, you can generate a graph in FRED. Obviously you cannot read it however. Your graph show an increase in nominal spending since 2010 less than the rate of population growth. Real per capita government spending has gone down in that period.

Is it that you simply don't read what you post? Or do you intend to mislead people thinking no one will notice? So, are you the fool or the knave?

However, it seems a fair question. Between 2008 and 2010, extraordinary measures taken to deal with the financial crisis increased annual Federal outlays by $800 billion; for them to stabilize at that level (which is 30% higher than pre-crisis outlays) does not strike me as austere, either. The unanswered question in your OP is what constitutes austerity, and to what level would you advise outlays to increase, given that there have already been multiple years of "stimulative" deficit spending in excess of one trillion dollars per year? And is there not a limit on the amount of debt which would overshadow whatever benefit you might receive from this additional spending?

 

[expat_panama]

...Real per capita government spending has gone down...

...extraordinary measures taken to deal with the financial crisis increased annual Federal outlays by $800 billion; for them to stabilize at that level (which is 30% higher than pre-crisis outlays) does not strike me as austere, either...

With the official recession beginning in 2007, the 2008 increase in federal spending per every American man, woman and child was 439.10 in 2013 constant real dollars. The study that began this thread (like Krugman) says that austerity began in 2009 and in that year federal spending per every American man, woman and child in 2013 constant real dollars increased by another $2,275.66 and that brought the total to $2,714,77. To this day our "austere" spending levels per every American man, woman and child in 2013 constant real dollars have never cut the total back below pre-crisis levels and the current per-capita real excess now totals $7,569.20.

It means that since the crisis began the average family of four has added over thirty thousand dollars to their credit card bills. We can call it what we may but we really shouldn't call this "austerity".

[ame=http://www.youtube.com/watch?v=Li0no7O9zmE]DEBT LIMIT - A GUIDE TO AMERICAN FEDERAL DEBT MADE EASY. - YouTube[/ame]

 

[oldfart]

However, it seems a fair question.

As phrased it is a loaded question. So I'm not going to waste effort on much of a response. When you make an argument, don't phrase it as a question and act dumb all the time.

Between 2008 and 2010, extraordinary measures taken to deal with the financial crisis increased annual Federal outlays by $800 billion; for them to stabilize at that level (which is 30% higher than pre-crisis outlays) does not strike me as austere, either.

That's a statement making an argument, not a question. Since you are calling something "not austere" perhaps you could give the definition you are using.

The unanswered question in your OP is what constitutes austerity, and to what level would you advise outlays to increase, given that there have already been multiple years of "stimulative" deficit spending in excess of one trillion dollars per year? And is there not a limit on the amount of debt which would overshadow whatever benefit you might receive from this additional spending?

OK, since you obviously haven't been following the arguments, here are the "Cliff's notes" summary:

1. I favored Christine Romer's proposal of $1.8 trillion stimulus in 2009 and I currently favor $2.5 trillion over two years which is what works in any good econometric model. I note that embedded in your question was an argumentative comment which confirms that you are not interested in any answer I might give but regard this board as an outlet for your intellectual masturbation. I hope it makes you feel good, because it sure isn't going to make you any more knowledgeable.

2. If there is a limit to America's public debt, we are nowhere near it and would not be near it with double the stimulus I advocate. Ken Rogoff threw away his professional reputation making your argument, so ask him if you insist on presenting thoroughly discredited positions.

I think by now its obvious that all economic conservatives are either fools, knaves, or dupes. Since I was nice enough to answer your questions no matter how loaded, please answer mine: Which of the three are you?

 

[oldfart]

With the official recession beginning in 2007, the 2008 increase in federal spending per every American man, woman and child was 439.10 in 2013 constant real dollars. The study that began this thread (like Krugman) says that austerity began in 2009 and in that year federal spending per every American man, woman and child in 2013 constant real dollars increased by another $2,275.66 and that brought the total to $2,714,77. To this day our "austere" spending levels per every American man, woman and child in 2013 constant real dollars have never cut the total back below pre-crisis levels and the current per-capita real excess now totals $7,569.20.

It means that since the crisis began the average family of four has added over thirty thousand dollars to their credit card bills. We can call it what we may but we really shouldn't call this "austerity".

DEBT LIMIT - A GUIDE TO AMERICAN FEDERAL DEBT MADE EASY. - YouTube

Since your numbers conflict with the OMB numbers, I assume you are relying on the website you reference. Is there a reason other than ignorance that you choose to use Youtube videos rather than real statistics? IOW are you a fool or a knave?

 

[BillyV]

However, it seems a fair question.

As phrased it is a loaded question. So I'm not going to waste effort on much of a response. When you make an argument, don't phrase it as a question and act dumb all the time.

Between 2008 and 2010, extraordinary measures taken to deal with the financial crisis increased annual Federal outlays by $800 billion; for them to stabilize at that level (which is 30% higher than pre-crisis outlays) does not strike me as austere, either.

That's a statement making an argument, not a question. Since you are calling something "not austere" perhaps you could give the definition you are using.

The unanswered question in your OP is what constitutes austerity, and to what level would you advise outlays to increase, given that there have already been multiple years of "stimulative" deficit spending in excess of one trillion dollars per year? And is there not a limit on the amount of debt which would overshadow whatever benefit you might receive from this additional spending?

OK, since you obviously haven't been following the arguments, here are the "Cliff's notes" summary:

1. I favored Christine Romer's proposal of $1.8 trillion stimulus in 2009 and I currently favor $2.5 trillion over two years which is what works in any good econometric model. I note that embedded in your question was an argumentative comment which confirms that you are not interested in any answer I might give but regard this board as an outlet for your intellectual masturbation. I hope it makes you feel good, because it sure isn't going to make you any more knowledgeable.

2. If there is a limit to America's public debt, we are nowhere near it and would not be near it with double the stimulus I advocate. Ken Rogoff threw away his professional reputation making your argument, so ask him if you insist on presenting thoroughly discredited positions.

I think by now its obvious that all economic conservatives are either fools, knaves, or dupes. Since I was nice enough to answer your questions no matter how loaded, please answer mine: Which of the three are you?

To answer your last question first, your answer was not “nice” in any way, nor is that question; therefore, I will decline your invitation to answer it, as it also “loaded” as you say.

I will not debate economics with you. I simply wanted to understand how a 30% increase in the budget could be considered “austere”. In fact I agree with your link that uncertainty is costly; perhaps if both sides in this debate were more cognizant of that fact (or cared more about that cost than their political rhetoric) they would push to settle these matters before they become crises. But that isn’t the point that you were making in your OP; you specifically referred to “austerity” which formed the basis of the responses you received. If you wanted to make a case for a $2.5 trillion 2 year stimulus, you could have done that; not providing $2.5 trillion in stimulus is not an indication of “austerity.”

I honestly believed that, given some of your posting history, I would get an informed and interesting answer, instead of the aggressive drivel you served up. My mistake, one I won’t make again.

 

[william the wie]

...Real per capita government spending has gone down...

...extraordinary measures taken to deal with the financial crisis increased annual Federal outlays by $800 billion; for them to stabilize at that level (which is 30% higher than pre-crisis outlays) does not strike me as austere, either...

With the official recession beginning in 2007, the 2008 increase in federal spending per every American man, woman and child was 439.10 in 2013 constant real dollars. The study that began this thread (like Krugman) says that austerity began in 2009 and in that year federal spending per every American man, woman and child in 2013 constant real dollars increased by another $2,275.66 and that brought the total to $2,714,77. To this day our "austere" spending levels per every American man, woman and child in 2013 constant real dollars have never cut the total back below pre-crisis levels and the current per-capita real excess now totals $7,569.20.

It means that since the crisis began the average family of four has added over thirty thousand dollars to their credit card bills. We can call it what we may but we really shouldn't call this "austerity".

[ame=http://www.youtube.com/watch?v=Li0no7O9zmE]DEBT LIMIT - A GUIDE TO AMERICAN FEDERAL DEBT MADE EASY. - YouTube[/ame]

The excuses began before the General Theory was written. The Weimar hyperinflation began with a speech by Keynes in Hamburg but that "success" did not prevent the Cambridge school from being victorious. Give it up, if the real world refutation of this erroneous method of analysis has not yet kicked in it ain't going to.

 

[oldfart]

The excuses began before the General Theory was written. The Weimar hyperinflation began with a speech by Keynes in Hamburg but that "success" did not prevent the Cambridge school from being victorious. Give it up, if the real world refutation of this erroneous method of analysis has not yet kicked in it ain't going to.

Could you state the point you are making? Thanks.

 

[oldfart]

To answer your last question first, your answer was not “nice” in any way, nor is that question; therefore, I will decline your invitation to answer it, as it also “loaded” as you say.

Lesson learned. Don't start off with "Have you stopped beating your wife?" questions if you want a decent answer.

I will not debate economics with you. I simply wanted to understand how a 30% increase in the budget could be considered “austere”.

Great; we can call them discussions and try not to be confrontational. My OP referred to policies since 2010, and for that period there has not been a 30% increase in government spending; government spending in real per capita amounts and as a percentage of GDP have both gone down, and in the budget year just ended the absolute amount of federal spending has decreased. So your premise is based on a false fact. If you want to look up the numbers yourself, I'll be happy to help out. I'd also be curious as to where you got your information. I suggest you double check sources that you find may have been misleading or inaccurate in the past.

In fact I agree with your link that uncertainty is costly; perhaps if both sides in this debate were more cognizant of that fact (or cared more about that cost than their political rhetoric) they would push to settle these matters before they become crises.

I'm glad we both agree with the Peterson financed study. Since the OP, that study has come under some professional criticism for leaving out a couple of considerations which would increase the cost estimates significantly.

But that isn’t the point that you were making in your OP; you specifically referred to “austerity” which formed the basis of the responses you received. If you wanted to make a case for a $2.5 trillion 2 year stimulus, you could have done that; not providing $2.5 trillion in stimulus is not an indication of “austerity.”

I think you are confusing my posts. The OP made the case that austerity has created major economic costs to the economy. I brought up the size of stimulus in answer to your question, not in the OP.

I honestly believed that, given some of your posting history, I would get an informed and interesting answer, instead of the aggressive drivel you served up. My mistake, one I won’t make again.

OK I was snarky to you. This happens four times a year for a couple of weeks after tax deadlines; this time was worse because my phone has been blowing up with calls from people getting certified mail notices of intent to levy and finding that there is no one at the IRS to respond to.

Add to that, I am getting less tolerant on this board of certain habits, like loaded questions (and I admit yours was one of the least offensive of late), misrepresenting sources and data, and using unreliable sources without checking. For pity's sake, one post on this thread used Youtube as a source and reported false numbers!

I'll try to be more civil with you in the future.

All the best, Jamie

 

[expat_panama]

...The unanswered question in your OP is what constitutes austerity...

...If there is a limit to America's public debt, we are nowhere near it and would not be near it with double the stimulus I advocate...

Hard to tell if that's your answer but the post seems to say you consider fiscal policy over the past four years to have been one of austerity in contrast to say, the four previous.

The total deficit spending over the past four years has been more than double that of the four previous, and that alone should characterize post crisis fiscal policy --however necessary-- as anything but "austere".

 

[bianco]

The rot is going to have to be stopped sometime...before the US loses its credit rating, and becomes a third world basketcase like many others.

Can't just keep on borrowing and spending money like there's no tomorrow.