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Title: The Strange Death of Fiscal Policy
Source:
NY Times
URL Source: http://krugman.blogs.nytimes.com/20 ... trange-death-of-fiscal-policy/
Published: Nov 3, 2010
Author: Paul Krugman
Post Date: 2010-11-03 21:41:14 by go65
Keywords: None
Views: 1545
Comments: 8
One clear result of the midterms is that we won’t have anything like a further round of stimulus. And this, in turn, means that the narrative all the Very Serious People will tell is that fiscal policy was tried, it failed, and that’s that. But the real facts don’t at all support the conventional wisdom. Actually, let me focus on an international comparison. You often hear the US experience contrasted with Germany: America, we’re told, went for Keynesian policies, while Germany chose austerity, and Germany did better. But as far as GDP is concerned, Germany did not, in fact, do better: Yes, Germany did better on employment — but this reflects policies that American conservatives surely don’t support, including employment subsidies, strong unions, and rules making it difficult to fire workers. And what may be even more surprising: if we look at actual government purchases of goods and services, as opposed to transfer payments (many of them just payments from the federal government to states), Germany was more Keynesian than the United States: So, it’s an amazing thing: Obama and company have managed to convince people that big government failed, without actually delivering big government. Update: Just to be clear, I’m not saying that the Germans were big Keynesians; the point is that neither of us were.
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#1. To: jwpegler (#0)
ping - thought you would this of interest.
Here's the killer: The Wall St 'asset managers' say their Bonus will be 5% above 2009-Banner Year for the US Economy. 8D They'll need Congress to Pass, and Obama to sign the legislation to provide that >5% Bonus. BWAHAHAHAHAHAHA
Thanksgiving Eve News Dump will have America Nonplussed: What are some key areas in which people should prepare for the worsening collapse of industrial civilization? Basically, people have to be prepared for our centralized life support systems beginning to fail. They don't fail all at once, but all these centralized systems that we provide from the top down are going to get less reliable. Not that they go away instantly, but they get rationed, or they are only available at certain times. Of course, we're not used to living that way, and for some people that will be catastrophic. People could pool resources, get a little mini-van and set up their own local bus service with it. People will most certainly need to create their own food co-op's, and they can also create their own community renewable energy infrastructure. If the scale is kept local, people will accept it far more readily than structures that are beyond local scale and simply imposed on them.
We must be aware of the loss of political legitimacy which we are seeing right now in the U.S. elections. In some communities that are crumbling economically, there is little interest in politics at all. In fact, politics is perceived as a one-way street in which the government extracts tax revenues, and the community gets almost nothing in return. At that point, government becomes completely predatory. Right now the government is completely between a rock and a hard place because in the worsening foreclosure debacle, if the government tells the people that it will not reinforce fraudulent mortgages against them, then the banks collapse, and the people are not happy about that. On the other hand, if the government comes down on the side of the banks, which they are more likely to do, and tells the people that fraudulent mortgages are going to be enforced against them, people are going to be furious. This has the potential to absolutely explode in the administration's face. There are no solutions to this.
What Keynesians like Krugman aren't smart enough to realize is that once you give politicians the power to run huge deficits, they will inevitability use it to create big transfer payments to buy votes. The big deficits won't just appear in an economic downturn, they will be a structural part of the environment until the system collapses under a mountain of debt. I would have supported a serious infrastructure bill to rebuild and expand our roads, shipping ports, airports, railways, etc. That would have taken unemployed people from the construction industry and immediately put them back to work. More importantly, the infrastructure is necessary to support future economic growth. That's not what we got. What the Democrats did instead is dramatically increase federal government debt to bailout irresponsible state governments so that paper pushing bureaucrats could keep their jobs for a year. Government spending didn't stimulate anything, it just delayed the inevitable. Now many of these same bureaucrats are being laid off. It was a bill to buy votes for Democrats. It had nothing to do with fixing anything. It didn't fix anything. This is why you can't give the politicians the power to run large deficits. They are untrustworthy.
You nailed it - the flip side of Keynesian economics is that during expansion you are supposed to run a surplus and pay down debt. That went out the window when Bush and crew took over in 2001 and decided to blow the surplus on massive new spending and tax cuts while launching two wars without paying for them. We would have been in far better shape to deal with the recent economic crisis if we had reduced our debt between 2001-2008 instead of massively adding to it. Same here - I agree with Krugman and Romer that Obama made a huge mistake in not putting far more of the stimulus into infrastructure. I'm not upset with the aid to the states, the idea was that if the rest of the stimulus bill helped grow the economy, then the states could avoid big layoffs. The big flaw in the stimulus, IMHO, was using nearly a third of it on useless tax cuts in an effort to buy GOP votes.
All it does it reward bad behavior and postpone the inevitable day of reckoning. Speaking of this, it's going to be fun to watch Jerry Brown dramatically reduce bureaucrat pensions in California. He's going to do it. The burecrat union leaders will scream bloody murder.
That is where the cuts need to start. Govt workers are by definition lazy and have a i'm entitled mode of thinking. At least 90 percent.
On January 3, 2011 the GOP assumes responsibility for deficit spending.
#2. To: go65 (#0)
#3. To: go65 (#0)
#4. To: go65 (#0)
Update: Just to be clear, I’m not saying that the Germans were big Keynesians; the point is that neither of us were.
#5. To: go65 (#0)
(Edited)
transfer payments
"To compel a man to furnish contributions of money for the propagation of opinions which he disbelieves is sinful and tyrannical." -- Thomas Jefferson
#6. To: jwpegler (#5)
What Keynesians like Krugman aren't smart enough to realize is that once you give politicians the power to run huge deficits, they will inevitability use it to create big transfer payments to buy votes. The big deficits won't just appear in an economic downturn, they will be a structural part of the environment until the system collapses under a mountain of debt.
I would have supported a serious infrastructure bill to rebuild and expand our roads, shipping ports, airports, railways, etc. That would have taken unemployed people from the construction industry and immediately put them back to work. More importantly, the infrastructure is necessary to support future economic growth.
That's not what we got. What the Democrats did instead is dramatically increase federal government debt to bailout irresponsible state governments so that paper pushing bureaucrats could keep their jobs for a year. Government spending didn't stimulate anything, it just delayed the inevitable. Now many of these same bureaucrats are being laid off. It was a bill to buy votes for Democrats. It had nothing to do with fixing anything. It didn't fix anything.
On January 3, 2011 the GOP assumes responsibility for deficit spending.
#7. To: go65 (#6)
I'm not upset with the aid to the states
"To compel a man to furnish contributions of money for the propagation of opinions which he disbelieves is sinful and tyrannical." -- Thomas Jefferson
#8. To: go65 (#6)
then the states could avoid big layoffs.
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