Krugman: GOP Austerity Causing Unemployment

[Sundial]

I was responding to Don'tBe's contention that Federal spending had decreased. I don't see that reflected in the numbers.

As for what happens if the GOP wins everything? Right now there is a TON of money sitting on the sidelines because the Private Sector doesn't trust this Administration. You've got to think THAT money will come back into play if investors feel like there's someone in the Oval Office working with them instead of against them.

You are correct about federal spending. It is not falling.

As for the economy, it is true that the Administration has not been instilling confidence in the business community But I think those who believe this is the cause of our sluggishness will be in for rude shock when unemployment is still high (though trending lower) in 2013 and 2014. This is a balance sheet recession caused by a massive housing bubble and the implosion of the credit markets. Time, not policy, heals this. In the same way that conservatives are slamming liberals for the economy now, we will see liberals slamming conservatives after 2012 because the problems are beyond mere politics. And it is likely that the austerity will make things worse, not better. It will be better long term, but not near-term. Thus, don't be surprised if the Democrats win back Congress in 2014.

I don't believe that time fixes it. Time - if anything - makes things worse. The real productive capacity of our nation - our people, and our real capital - doesn't get better by being wasted. People lose skills if they don't use them, and factories and machines don't improve from sitting idle. To the extent that people and businesses are attempting to improve their balance sheets by increasing savings and paying down debt, unemployment only makes things worse. And if people react to unemployment by spending less and saving more (a perfectly natural reaction), that simply drives the economy further into the ground. Since private savings and debt net to zero, only government can create financial savings for the private sector and reduce private sector debt, and only by spending more than it taxes - in other words, by running a deficit.

The Great Depression lasted ten years, and it wasn't until government deficits reached 30% of GDP - during WWII - that it finally ended. (By comparison, current deficits are about 9% - and New Deal deficits ranged from 0% - 6%.)

As far as long-term is concerned, it's worth noting that all that WWII debt had no lasting harmful effects at all. WWII just caused us to do what we could have done ten years earlier, without having to have a war.

 

[Sundial]

With a weak economy and a weak job market, there is simply no logical reason to cut government spending at this time. And no one seems to want to provide one.

Wait 5 years. Get the economy growing. Get the job market booming again. THEN we can cut spending and lay off workers and they'll actually have some place to go.

In 5 years the debt will $23 trillion. That's one very good reason to start cutting now. However, the claim that deficit spending is good for the economy is thoroughly discredited. It didn't work during the Roosevelt administration, it didn't work during the Carter administration, and it isn't working now.

It worked during the Roosevelt administration. It wasn't tried during the Carter administration. It arguably worked during the Reagan administration.

This chart shows deficit spending as a percent of GDP:

This one shows debt as percent of GDP:

 

[Sundial]

Actually it's closer to 20%. And government doesn't consume GDP, it creates it. And the average government worker creates value not just for himself, but for everyone who benefits from his services - whether they're students, drivers, people who just enjoy living in a free, democratic country.

So, pretty much everything you said was wrong.

Is everything you know wrong? The federal government alone consumes 25% of GDP. Throw in state and local government, and you are easily pushing 50%.

The claim the government creates wealth is absolutely hysterical. What "wealth" does the EPA create? Social Security? Medicare? Welfare?

Please, I'm dying to know.

Social Security and welfare are transfer programs. Transfers move money around, but they don't - themselves - produce goods and services. Because they don't produce anything, they're not part of GDP. (Recipients might use the money to buy goods and services, but you don't count it until then. Otherwise you're double-counting.)

 

[Trajan]

I have to ask, do you have some special knowledge you've been holding back? and to think I just repped you yesterday...give it up!what do you k now???and how long have you know it?

We've had the work done for us. It is simple math. If you look at the number of homes being built today plus attrition versus household formation, at some point, the supply imbalance gets wiped away. From the analysis we've seen, that occurs in 2012 or 2013. Household formation is about 1.1-1.2 million a year. We're only building 400-500k homes a year. We were building ~2 million a year during the Housing Bubble. That's why we have excess capacity. But that is being wiped out. What I expect to happen - since it always seems to happen - is that when the market gets into equilibrium, this tremendous negativity will be prevalent for some time thereafter. But it will be wrong, and housing will become a net positive to the economy.

who is wiping out the excess? how much does the gov. have to pay to keep people in homes? Thats going to disappear? This will go on right up until nov 2012, so you see this vaporizing in a year there after? I am sorry, I don't.and if obama wins, well?

so let me ask, would you be fine with cutting all borrowing? and living on our income?

I think that when the economy is running at full bore, we should be running surpluses and paying down debt. That's why I was so enraged by the Bush tax cuts, at least the cuts in 2003. It's a big reason why I've moved away from the Republican camp over the years. A "fiscal conservative" used to mean being fiscally responsible. Now it is "tax cuts solve every problem," which is ridiculous. Obama's spending would bother me immensely in a different environment. But we are in a unique time, and I think the GOP are wrong on this, at least on the timing. However, even though I think the timing is misguided, there seems to be a greater emphasis on balancing the budget within the GOP than during the past 30 years, which is good long-term.

a) obama has to lose for that surplus to occur, b) even if the reps win, we are facing not only the pay down, but more monies required of medicare and medicaid and SSI as boomers retire full bore in the coming years......I don't see all of that getting settled or balanced for at least a decade....

and my question was to cutting the borrowing, but not the current operating budget ( which they can make balance) ? as in no baseline increases.

you think that more deficit spending will do what exactly? stasis? advance us...? if so how?

 

[bripat9643]

WWII spending didn't improve the economy? I thought the rightwing mantra was that WWII brought us out of the depression.

Nope. All WW II did is take a lot of unemployed men off the street and put them in the army. The end of FDR's socialism after WW II is what ended the depression.

 

[bripat9643]

Show us how jobs are killed if the government buys a thousand Chevy trucks from GM.

The money for those trucks was extracted from the hides of taxpayers who would have spent it on something they actually wanted. Plus, the government tacks on the usual handling fee which is just money pissed down the toilet. The trucks will inevitably put to some nefarious be purpose that makes it more difficult and expensive to do business in this country.

It's lose, lose, lose, any way you look at it.

 

[bripat9643]

Not all government spending hurts the economy.

Yes it does, every last dime.

 

[bripat9643]

It worked during the Roosevelt administration. It wasn't tried during the Carter administration. It arguably worked during the Reagan administration.

This chart shows deficit spending as a percent of GDP:

This one shows debt as percent of GDP:

No, it didn't work during the Roosevelt administration. The deficit spending began well before war, but it did nothing to decrease unemployment. It also did not do anything during the Reagan administration. If deficit spending is what boosted the economy under Reagan, then why didn't it work for Carter? Why isn't it working for Obama?

The fact is government spending is a drag on the economy.

 

[bripat9643]

Social Security and welfare are transfer programs. Transfers move money around, but they don't - themselves - produce goods and services. Because they don't produce anything, they're not part of GDP. (Recipients might use the money to buy goods and services, but you don't count it until then. Otherwise you're double-counting.)

They are government spending. Most government programs are transfer programs. The ones that aren't are boondoggles and disasters.

You still haven't explained what wealth the government produces.

 

[Zander]

Not all government spending hurts the economy.

Yes it does, every last dime.

Some spending is on essential serviced. Fire, Police, National Defense all come to mind. I am more than happy to have government provide those services.

 

[hellofromwarsaw]

It worked during the Roosevelt administration. It wasn't tried during the Carter administration. It arguably worked during the Reagan administration.

This chart shows deficit spending as a percent of GDP:

This one shows debt as percent of GDP:

No, it didn't work during the Roosevelt administration. The deficit spending began well before war, but it did nothing to decrease unemployment. It also did not do anything during the Reagan administration. If deficit spending is what boosted the economy under Reagan, then why didn't it work for Carter? Why isn't it working for Obama?



The fact is government spending is a drag on the economy.

Raygun quadrupled the Debt in 8 years, much on "defense" spending...worked for Hitler too...

 

[Sundial]

Let's start with a simple formula-

GDP = C + I + G (+ or - Net Exports)
C= Consumption (normally the largest component of GDP)
I= Investment or Savings
G= Government spending

If we cut G (Government spending) we are going to have lower GDP, obviously. But is that going to cost jobs? Probably. But it doesn't matter. Obama's and Krugman's idea of "new jobs" is to create more Government jobs. The problem is Government jobs are non-productive. Government already consumes about 44 percent of GDP. This means the average American worker has to produce enough goods and services to support himself—and the overpaid, non-productive government worker.

Actually it's closer to 20%. And government doesn't consume GDP, it creates it. And the average government worker creates value not just for himself, but for everyone who benefits from his services - whether they're students, drivers, people who just enjoy living in a free, democratic country.

So, pretty much everything you said was wrong.

How does the government create GDP? Keynesian theory treats private sector and public sector spending separately because the private sector spending supports public sector spending. Every dollar the government spends comes from the private sector, the government does not create GDP.

This can be clearly seen if we use the production method to determine GDP, government actually figures in as an expense in this model. If we use GDP(I) government subsidies actually factor in as a negative.

The government creates GDP by doing things like building roads, educating children, and defending the country.

Every dollar anybody ever spends comes from somewhere else. That has nothing to do with anything.

Every expense is also income. If you pay anyone anything it's an expense to you, and income to someone else.

When somebody says such-and-such "consumes" X% of GDP, they're simultaneously it produces that same percent.

 

[bigrebnc1775]

It worked during the Roosevelt administration. It wasn't tried during the Carter administration. It arguably worked during the Reagan administration.

This chart shows deficit spending as a percent of GDP:

This one shows debt as percent of GDP:

No, it didn't work during the Roosevelt administration. The deficit spending began well before war, but it did nothing to decrease unemployment. It also did not do anything during the Reagan administration. If deficit spending is what boosted the economy under Reagan, then why didn't it work for Carter? Why isn't it working for Obama?



The fact is government spending is a drag on the economy.

Raygun quadrupled the Debt in 8 years, much on "defense" spending...worked for Hitler too...

and obama has surpassed every presidents spending in two years. What's he going to do his last two years in office? Have it so fucked up that America's enemy won't touch us?

 

[Sundial]

How does the government create GDP? Keynesian theory treats private sector and public sector spending separately because the private sector spending supports public sector spending. Every dollar the government spends comes from the private sector, the government does not create GDP.

This can be clearly seen if we use the production method to determine GDP, government actually figures in as an expense in this model. If we use GDP(I) government subsidies actually factor in as a negative.

That's not quite correct.

In the Keynesian model, government supports private spending because the private sector is not spending. Keynes argued that recessions were often due to a lack of demand, so when a recession hit and private demand pulled back, government demand should increase to offset the lack of private demand.

In the national accounting function, G is consumption as well as investment. It is a net positive. The argument against Keynesian spending is that as G rises, C and I declines. Keynes supporters argue otherwise.

Private sector production would fall if the government were taking resources from the private sector the private sector would otherwise use. If the private sector isn't using those resources then the government isn't taking them away. It's using resources that would otherwise go to waste.

 

[Sallow]

If government spending is necessary to sustain the recovery, is it crazy to pursuing cuts in spending now, while unemployment is still about 9%?

Conservatives don't want to believe this, but if the government fires people that means more people unemployed.

Hard to believe, I know.

Where the fuck do you think Big Daddy gets the money to pay those bureaucrats, numbnutz?

The same place it gets money to shovel at the "Free Market" capitalists...you zany anarchist you.

 

[Sallow]

Not all government spending hurts the economy.

Yes it does, every last dime.

Cool.

Then you are okay with government cutting off it's addiction to the miltary industrial complex.

A little radical..but it's for the best.

 

[ScienceRocks]

Not all government spending hurts the economy.

Yes it does, every last dime.

Cool.

Then you are okay with government cutting off it's addiction to the miltary industrial complex.

A little radical..but it's for the best.

What is funny is the defense of this nation is one of the few area's that are within the federal governments power, but you went that area cut. WHY?

 

[Sundial]

With a weak economy and a weak job market, there is simply no logical reason to cut government spending at this time. And no one seems to want to provide one.

Wait 5 years. Get the economy growing. Get the job market booming again. THEN we can cut spending and lay off workers and they'll actually have some place to go.

Have you not been paying attention the past month? Our credit rating just got downgraded because we didn't address the deficit. If we continue to borrow money and not address entitlements and spending we WILL be downgraded again. We don't have a choice...spending cuts have to be made. PLEASE...get that through your head. This isn't some Republican plot to take away your "goodies" away...it's a fiscal reality.

It's not fiscal reality. S&P had less than zero effect on the cost of borrowing - it went down after the S&P decision, and has continued to fall. Investors are so desperate to get Treasury debt, they're currently paying us to lend us money.

 

[Sallow]

Yes it does, every last dime.

Cool.

Then you are okay with government cutting off it's addiction to the miltary industrial complex.

A little radical..but it's for the best.

What is funny is the defense of this nation is one of the few area's that are within the federal governments power, but you went that area cut. WHY?

Ever read the Constitution, ace?

It's really cool.

Check out section 8..the first clause. It's a doozy!

 

[Sundial]

I have to ask, do you have some special knowledge you've been holding back? and to think I just repped you yesterday...give it up!what do you k now???and how long have you know it?

We've had the work done for us. It is simple math. If you look at the number of homes being built today plus attrition versus household formation, at some point, the supply imbalance gets wiped away. From the analysis we've seen, that occurs in 2012 or 2013. Household formation is about 1.1-1.2 million a year. We're only building 400-500k homes a year. We were building ~2 million a year during the Housing Bubble. That's why we have excess capacity. But that is being wiped out. What I expect to happen - since it always seems to happen - is that when the market gets into equilibrium, this tremendous negativity will be prevalent for some time thereafter. But it will be wrong, and housing will become a net positive to the economy.

During the Great Depression, farmers slaughtered pigs in the hope that destroying supply would drive prices up. They did that while families were hungry.

Our problem isn't that we have too much housing - just like the problem in the Great Depression wasn't too many pigs. Our problem is insufficient supply of money to buy them - that's an artificial problem.

so let me ask, would you be fine with cutting all borrowing? and living on our income?

I think that when the economy is running at full bore, we should be running surpluses and paying down debt. That's why I was so enraged by the Bush tax cuts, at least the cuts in 2003. It's a big reason why I've moved away from the Republican camp over the years. A "fiscal conservative" used to mean being fiscally responsible. Now it is "tax cuts solve every problem," which is ridiculous. Obama's spending would bother me immensely in a different environment. But we are in a unique time, and I think the GOP are wrong on this, at least on the timing. However, even though I think the timing is misguided, there seems to be a greater emphasis on balancing the budget within the GOP than during the past 30 years, which is good long-term.

The GOP's interest in deficits seems to wan as soon as they hold the power.