The reality of the budget drama in Congress is that it's almost entirely about the house majority stymieing any forward momentum by the current administration at just about any cost. This is why Congress has such a low approval rating.
Translation(?): the econometric models used to measure the length of the road were off by a little bit, we have more time to kick the can.
Econometric models are descriptive in any case (they are measuring quantities that are based on the human actions causing those metrics, those metrics are not controlling those behaviors), past performance is no guarantee of future behavior.
If you trim debt by a little and hurt GDP growth by a little, you wind up with the same ratio you had before. If you trim debt in a way that really hurts GDP, you'll likely increase the debt:GDP ratio.
The original paper implied that we'd wind up in a spiral of shrinking GDP, increasing that ratio, shrinking the GDP more, and so on. But it turns out it was complete bullshit.
I don't get it. I was in sync with the Left when they decried George W. Bush's no-veto policy and ballooning of the debt. Now that "their guy" is in the WhiteHouse, they no longer agree that it's irresponsible to set the deficit meter on 11 and walk away like we have been.
Can't we all agree that this guy was totally correct? http://www.youtube.com/watch?v=1kuTG19Cu_Q
I guess I wouldn't be so against some amount of debt if it looked like we had it under control. It's funny that we're dissecting the results of a study on what 90% debt:GDP would do. Well that was back in 2010, we've blown way past 90%. We're at 107% as of 2012 and climbing.
It's not just about the debt's exact impact at a certain percentage. If it were just that, we could debate it and fine tune it. It's about our Government's complete inability to get it under control.
Maybe 90% Debt:GDP won't hurt too badly, but sooner or later as it rises, it will crater even our economy.
The second important argument is that (again, right now), this emphasis on austerity is actively making things worse.
Well since we've exploded our debt to supposedly lower unemployment and the meter has barely moved, maybe we're doing it wrong? We've indulged the Keynesians quite enough over the last $6+ TRILLION dollars, tyvm.
I see people in this thread demanding evidence that more debt is bad for the country. Well where the hell is the evidence that shows that staggering debt is good for the country?
Maybe we should fall back on common sense "household" or "business" models until that evidence appears, huh?
this emphasis on austerity is actively making things worse.
What austerity? I've heard some talking about it, but we're not practicing it anywhere. Don't you dare use the word "sequester", because that was a joke.
The sequester is real, but it may take more time for the effects to reverberate throughout the country.
http://www.realclearpolitics.com/articles/2013/02/27/sequest...
Also, these cuts aren't even close to what are desired by a certain segment of law makers. If that desired austerity were to be put in place, and you think agencies at trying to make an examples now, their current examples would pale in comparison to what we would see.
If it is so easy to say an agency doesn't need to cut X when they can cut Y, then pass a bill cutting Y.
I don't know how educated people concerned about politics and the economic health of this country could not read these kinds of stories that come over the wire and know that there's an extraordinary amount of waste in the Federal government that could easily be cut.
http://articles.sun-sentinel.com/2011-02-19/news/fl-federal-...
Unfortunately, so many voters have their heads in the sand and don't know what's going on - or worse yet, they're doing like you are here and propagating misinformation.
That is a complete non-sequitur. The amount a grant from one federal entity is reduced is not limited to the same percentage as the total federal budget.
Keep the fat and cut the muscle makes great sense when you are commanded to drop 1.5% of mass and you want to make the case you're going to lose a ton of strength.
That really doesn't help your case.
First, most of the debt racked up was not even remotely related to stimulus. So it's not like we have $6tn in stimulus. But mostly, even if it was, the hole we blew in our economy was much larger than even that $6tn.
Shouldn't we be instead be giving more credence to those who said that the stimulus wouldn't accomplish what the Administration was selling? Since those contrarians were right?
You say that it would have been "worse", but how much worse? The justification for adding such a huge amount to our debt was the big return. If the stimulus got us to 7.7% unemployment right now, but without it we'd be at 7.9%... then maybe we should have not incurred so much more debt?
Many, if not most, Keynesians agree with this -- that the current US policy has been all wrong, even while it some elements were correct in very broad outline. And they were saying that when the policies were proposed, not just when they failed to work.
> We've indulged the Keynesians quite enough over the last $6+ TRILLION dollars, tyvm.
No, what we've done is adopted incoherent policies that are driven by some impulse toward Keynesian with some directly contrary impulses (in part, this is a consequence of different branches of government having different preferences.)
I think you'd be hard pressed to find anyone on the left who understands the issues who is seriously arguing that deficits are never a problem, or never have to be dealt with. What a lot of us ARE arguing is that as long as we have an aggregate demand shortfall (everyone in the economy trying to save at once), paying attention to the debt is exactly the wrong thing to do, since the government is the only actor in the economy that has the freedom to act counter-cyclically and make up for the shortfall in private sector demand. The ultimate goal is to start a virtuous cycle of spending that gets us back toward full employment (and increases GDP). Then and only then does it make sense for the government to try to reduce debt through cuts.
There's decent evidence (see Delong & Summers 2012: http://delong.typepad.com/20120320-conference-draft-final-ca...) that trying to reduce debt through cuts in an economy like we have right now is counter-productive even on it's own terms (reducing the debt-gdb ratio) because any cuts you make further reduce aggregate demand and thus reduce the GDB side of that ratio even further.
It's not a democrat in the white house vs. republican in the white house thing that is causing people who were complaining about deficits under GWB to advocate against cutting short term spending now. It's all about the underlying economic conditions.
And where is that evidence? Included in that evidence, I'd like to see a model that predicted what actually DID happen when we tried the "stimulus" that Obama's economic advisers predicted would lower unemployment to <6% or better.
If you don't have a model that predicts things before they happened consistently, then it isn't Science. It's just guessing.
If we're going to guess, then we should fall back on models that we do understand and have a lot of data for, like how businesses and households manage debt. Common sense should be trumping guessing based upon esoteric economic models that haven't yet yielded reproducible results.
Responding to the complaint about Obama's economic advisors being wrong is easy - they were wildly optimistic. However, plenty of economists including Paul Krugman were saying this at the time (http://www.nytimes.com/2009/01/09/opinion/09krugman.html?par... - note the date Jan 9, 2009, before Obama was even sworn in). The math is pretty basic - according to the aggregate demand view of the crisis you have a combined housing/financial shock that totaled at least 6% of GDB. The stimulus was MAYBE 1.5% of GDB, and that's being generous with assuming that high end tax cuts are just as effective as outright spending money (I would argue that they are not, since in a saver's economy, much of that money is just saved straight away). The Obama stimulus package was 4+ times too small to address the magnitude of the problem by this model; no one who has this view of the world is surprised that unemployment is still high (the only surprise was that Obama's advisors had such a rosy-eyed, not data-driven view of the world. They deserve a LOT of criticism for that).
Your "fall back on models that we do understand and have a lot of data for, like how businesses and households manage debt" is completely at odds with reality for two reasons. One is that it doesn't really imply what you say it does; most rational, not capitally constrained businesses/households (and the US is emphatically not capital constrained - bond yields are as low as they've ever been) invest when they have absurdly low interest rates - you're basically getting free money from the market, it's not a rational response to cut back in a situation like that. The second, and arguably more important, argument, however, is that the government occupies a fairly special position in the economy, since it alone among economic actors will never run out of money. Therefore, the government has the unique ability to act in a counter cyclical manner - it can counteract the collective saving of businesses/households to stimulate demand during recessions, and pull back when the private sector is roaring. (You give me 5% unemployment and 4-5%/yr GDP growth and I will be all for govt deficit reduction)
The government... will never run out of money.
(Honest question here) I'm curious when we should expect to see the huge inflation created by the QE program, and why we haven't seen it yet if it began nearly 5 years ago...
Am I missing something?
Keyesians argue that money supply doesn't cause inflation on its own. Probably worth looking into that, since the predictions it provides seems to match reality pretty closely..
Meanwhile hyper-inflation in Russia in the 90's used the dollar as a stable currency with which rubles were exchanged for dollars. Hyper-inflation in Poland, Yugoslavia, and Bulgaria occurred in part due to easily exchange and convertibility of the Deutschmark.
The government is a facilitator of commerce. It's not built to make a profit. It doesn't have the trust circle of a family. It is fundamentally political by mandate and by nature. It couldn't be less common!
No one thinks a ballooning deficit is good, some of us just think it's less bad than cutting social security and medicaid in the middle of a recession.
If you look at the whole picture you have to either say that this extended period of higher unemployment is the new 'natural rate of unemployment' or admit that something might be off.
Let me offer a crude analogy:
Before: 'Don't press down so hard on the accelerator (debt finance), or you will drive this car (economy) into the ditch (recession).'
(crash)
After: 'You need to push down on the accelerator to get out of the ditch and back onto the road.'
That's Keynesianism in a nutshell. If/when the economy is again growing at a decent clip, then government spending should be reduced (as a % of GDP and revenue, not necessarily in absolute terms) and debt service increased. Of course, that doesn't always happen.
Maybe 90% Debt:GDP won't hurt too badly, but sooner or later as it rises, it will crater even our economy.
But the reality is taht the debt probably won't rise that much as time goes on, because it'll be offset by increased revenues from increased growth. The 2010 R-R paper argued (incorrectly) that such growth would never happen due to the high debt load.
Um, no.
Speaking as a proud member of The Left, we objected to blowing the Clinton era surplus by slashing revenue, starting one (or two) unnecessary war(s), and huge wet sloppy kisses to corporations (eg scripts under Medicare Plan-D).
If Bush The Lesser had maintained full employment, deficit or not, The Left would have loved him.
>Maybe 90% Debt:GDP won't hurt too badly, but sooner or later as it rises, it will crater even our economy.
Nobody's suggesting that an infinitely high Debt:GDP is a good thing, but a lot of people were using R-R to argue that we had to prioritize debt reduction now as an emergency even at the expense of stimulating the economy or else we'd wind up as some sort of hybrid Greece/Zimbabwe mess within 5 years.
>It's about our Government's complete inability to get it under control.
I don't really know that that's clear. We've had a period of time where the budget deficits were run up to pay for a major (Cold) war and the tax reforms, and then we ran very low deficits and surpluses in the 1990s. We were basically set such that we'd run a surplus during strong economic years (as the Tech Bubble was) and a slight deficit in weaker ones. We made a series of policy decisions that harmed the budget balance (Iraq, tax cuts, bad policy in Medicare D) but even then, our deficits were still in the neighborhood of nominal GDP growth. So we're actually doing kinda OK, though obviously not great. Then we have the mini-depression, which (a) reduced GDP well below potential, (b) reduced tax revenues due to people making less money, and (c) caused automatic stabilizer payouts (food stamps, unemployment, disability) to rise. It's not like we've been pushing through un-offset new annual spending this last half-decade, beyond the original TARP and ARRA. So if the economy recovers, we'll probably start to level off back into 2005-era deficits, where the deficit/GDP < nominal GDP growth, causing the debt/GDP to shrink.
Regardless of 'who's guy' is in the White House I maintain there's a difference between inheriting a surplus and turning it into a deficit (during the dotcom bust), and inheriting a trillion dollar deficit and not fixing it right away (during the worst crash since 1929).
The Left never decried Bush ballooning the debt, the Left decried Bush ballooning the debt by cutting taxes in a manner which disproportionately favored the rich and focussing massive additional spending on unnecessary war -- that is, he was decried by the left for the <i>distribution</i> of taxation and spending as the debt was being ballooned, not for the balance of taxes vs. spending.
(Secondarily, the Republican Party as a whole was decried by the Left at that time for ballooning the debt to advance those policies after having recently previously taken the position that budget balance was a pre-eminent government priority, a position which Republicans surprisingly returned to embracing once they no longer controlled the White House.)