Debt Ceiling Debacle 2013: It's the End of the World As We Know It and the GOP Feels Fine

Knight_ · January 2013

spacekungfuman wrote: »

Astaereth wrote: »

I will point out two things:

1. Much of the current deficit is due to the recession itself, because it increases earned benefit payments (more people need unemployment) and decreases revenues (fewer people have jobs, those with jobs earn less or miss raises, therefore incomes and the tax base shrink, therefore income tax revenues shrink overall). Here's Krugman on that:

Krugman wrote:

For starters, we need to be aware that we don’t need a balanced budget to have a stable fiscal situation; all we need is for debt to grow no faster than GDP. At the beginning of fiscal 2012, federal debt in the hands of the public was $10 trillion. Meanwhile, most estimates of long-run growth and inflation put them at a bit more than 2 and 2 respectively; so we can reasonably say that nominal GDP growth can be expected to be more than 4 percent per year. If debt grew at 4 percent, it would grow by $400 billion. So the deficit should be scaled down by that much.

That still leaves $700 billion. Where’s that coming from?

OK, revenues were $2.45 trillion, which was 15.7 percent of GDP, at $15.5 trillion. The CBO estimates, however, that potential GDP — what the economy would have produced at full employment — was $16.5 trillion over the same period. And if the economy had been at more or less full employment, we wouldn’t just have collected taxes on the additional income; historically, the tax share of GDP varies strongly with the business cycle. If the economy had been at potential and revenue had been a historically normal 18 percent of GDP, revenue would have been more than $500 billion more than it was; even if revenue had been only 17.5 percent, it would have been almost $450 billion more than it was.

[...]

Put these together: $400 billion that doesn’t increase the debt-GDP ratio; $450 billion or so in slump-related revenue loss; $150 billion or more in slump-related expenses; and guess what: the ONE TRILLION DOLLARS is basically just a depressed-economy story, having nothing to do with any fundamental mismatch between what we want and what we’re willing to pay.

And this makes a lot of sense! The budget wasn’t deep in the red in 2007, and there have been no fundamental increases in government responsibilities or cuts in taxes since then (Obamacare won’t kick in until 2014, and it’s paid for in any case).

2. What we've seen in recent years is that austerity in a recession merely kicks up this same cycle--the more you cut spending, the worse the recession gets, and the more your revenues go down. It's like the businessman who decides to stop cutting his hair and cleaning his suits in order to save money and then gets fired for having an unpresentable appearance.

In other words, you can't cut your way to fiscal stability; you can only grow your way there. And that means spending money, or at the very least not cutting expenses.

Nor can you use arbitrarily "necessary" cuts (like those a debt-ceiling default would entail) to do an end-run around decades of democratically-negotiated budgeting. Starving the beast doesn't work, because whether or not people are willing to pay their debts, they are always willing to incur them. To go back to the household metaphor, you can try quitting your high-paying job to go work at McDonalds as a self-encouragement to scale back your expenses, but it will turn out that your spouse won't let you pull the kids out of private school, your subscription to Steak of the Month can't be canceled without 90 days notice, and you can't bear to garage sale your home entertainment center with the 10.2 Surround Sound.

I think I got a little too deep into the metaphor there, but the point is, "painful austerity now, balanced budgets later" isn't a strategy we shouldn't pursue because it's too painful now; it's a strategy we shouldn't pursue because it won't work.

I disagree with Krugman on ACA costs (the government has already spent a lot, although it pales in comparison to what the premium subsidies will cost).

But more importantly, I disagree that we can't cut spending as a way out of the hole, it just requires us to accept fewer benefits. For example, we did not have to extend unemployment benefits as far as we did, but not doing so would have meant choosing to allow a lot of people to fall into abject poverty. This may make it harder to get out of the recession, but we would still do it, the resulting picture would just be one of more income inequality than before it started. So I don't think that the choice is austerity and perpetual recession or debt financed spending and recovery. It's austerity and a recession that lasts longer and hurts people more (and for a longer time) or spending and a faster recovery, at the cost of more debt. I think the latter is clearly preferable, but preferring the former is not incoherent.

Incoherent in a first world country. Choosing to willfully screw the neediest people is not the response of a civilized nation.

Astaereth · January 2013

spacekungfuman wrote: »

Astaereth wrote: »

I will point out two things:

1. Much of the current deficit is due to the recession itself, because it increases earned benefit payments (more people need unemployment) and decreases revenues (fewer people have jobs, those with jobs earn less or miss raises, therefore incomes and the tax base shrink, therefore income tax revenues shrink overall). Here's Krugman on that:

Krugman wrote:

For starters, we need to be aware that we don’t need a balanced budget to have a stable fiscal situation; all we need is for debt to grow no faster than GDP. At the beginning of fiscal 2012, federal debt in the hands of the public was $10 trillion. Meanwhile, most estimates of long-run growth and inflation put them at a bit more than 2 and 2 respectively; so we can reasonably say that nominal GDP growth can be expected to be more than 4 percent per year. If debt grew at 4 percent, it would grow by $400 billion. So the deficit should be scaled down by that much.

That still leaves $700 billion. Where’s that coming from?

OK, revenues were $2.45 trillion, which was 15.7 percent of GDP, at $15.5 trillion. The CBO estimates, however, that potential GDP — what the economy would have produced at full employment — was $16.5 trillion over the same period. And if the economy had been at more or less full employment, we wouldn’t just have collected taxes on the additional income; historically, the tax share of GDP varies strongly with the business cycle. If the economy had been at potential and revenue had been a historically normal 18 percent of GDP, revenue would have been more than $500 billion more than it was; even if revenue had been only 17.5 percent, it would have been almost $450 billion more than it was.

[...]

Put these together: $400 billion that doesn’t increase the debt-GDP ratio; $450 billion or so in slump-related revenue loss; $150 billion or more in slump-related expenses; and guess what: the ONE TRILLION DOLLARS is basically just a depressed-economy story, having nothing to do with any fundamental mismatch between what we want and what we’re willing to pay.

And this makes a lot of sense! The budget wasn’t deep in the red in 2007, and there have been no fundamental increases in government responsibilities or cuts in taxes since then (Obamacare won’t kick in until 2014, and it’s paid for in any case).

2. What we've seen in recent years is that austerity in a recession merely kicks up this same cycle--the more you cut spending, the worse the recession gets, and the more your revenues go down. It's like the businessman who decides to stop cutting his hair and cleaning his suits in order to save money and then gets fired for having an unpresentable appearance.

In other words, you can't cut your way to fiscal stability; you can only grow your way there. And that means spending money, or at the very least not cutting expenses.

Nor can you use arbitrarily "necessary" cuts (like those a debt-ceiling default would entail) to do an end-run around decades of democratically-negotiated budgeting. Starving the beast doesn't work, because whether or not people are willing to pay their debts, they are always willing to incur them. To go back to the household metaphor, you can try quitting your high-paying job to go work at McDonalds as a self-encouragement to scale back your expenses, but it will turn out that your spouse won't let you pull the kids out of private school, your subscription to Steak of the Month can't be canceled without 90 days notice, and you can't bear to garage sale your home entertainment center with the 10.2 Surround Sound.

I think I got a little too deep into the metaphor there, but the point is, "painful austerity now, balanced budgets later" isn't a strategy we shouldn't pursue because it's too painful now; it's a strategy we shouldn't pursue because it won't work.

I disagree with Krugman on ACA costs (the government has already spent a lot, although it pales in comparison to what the premium subsidies will cost).

But more importantly, I disagree that we can't cut spending as a way out of the hole, it just requires us to accept fewer benefits. For example, we did not have to extend unemployment benefits as far as we did, but not doing so would have meant choosing to allow a lot of people to fall into abject poverty. This may make it harder to get out of the recession, but we would still do it, the resulting picture would just be one of more income inequality than before it started. So I don't think that the choice is austerity and perpetual recession or debt financed spending and recovery. It's austerity and a recession that lasts longer and hurts people more (and for a longer time) or spending and a faster recovery, at the cost of more debt. I think the latter is clearly preferable, but preferring the former is not incoherent.

The whole point of my post is that the bolded is incorrect; when the economy recovers, GDP goes up, revenue goes up, inflation goes up, and the ratio of debt to GDP goes down, down, down. Unemployment benefits help the economy recover (because it maintains consumption levels), so the debt that we incur paying for them will be paid off and then some when the economy recovers sooner.

So in my opinion the bolded in your post should be rewritten as, "The choice is between austerity and a recession that lasts longer, at the cost of the same debt now and more debt later, or spending and a faster recovery, at a cost of more debt now but less debt eventually." This is standard Keynesian stuff, where the government uses investment multipliers to help improve the economy out of a recession via deficit spending.

For example, I am underemployed at the moment and looking for work. I could stop making my car insurance payments, on the theory that this would make my savings last longer; but if I couldn't drive, I wouldn't be able to show up to interviews. It's not a dumb thing to do because it sucks to not be able to drive; it's a dumb thing to do because it'd be shooting myself in the foot. The few hundred a month I'd save pale in comparison to how much longer it would take to find a job without a car, to the extent that I'd be better off putting that money on a credit card now and paying it off once I found work.

electricitylikesme · January 2013

Astaereth wrote: »

spacekungfuman wrote: »

Astaereth wrote: »

I will point out two things:

1. Much of the current deficit is due to the recession itself, because it increases earned benefit payments (more people need unemployment) and decreases revenues (fewer people have jobs, those with jobs earn less or miss raises, therefore incomes and the tax base shrink, therefore income tax revenues shrink overall). Here's Krugman on that:

Krugman wrote:

For starters, we need to be aware that we don’t need a balanced budget to have a stable fiscal situation; all we need is for debt to grow no faster than GDP. At the beginning of fiscal 2012, federal debt in the hands of the public was $10 trillion. Meanwhile, most estimates of long-run growth and inflation put them at a bit more than 2 and 2 respectively; so we can reasonably say that nominal GDP growth can be expected to be more than 4 percent per year. If debt grew at 4 percent, it would grow by $400 billion. So the deficit should be scaled down by that much.

That still leaves $700 billion. Where’s that coming from?

OK, revenues were $2.45 trillion, which was 15.7 percent of GDP, at $15.5 trillion. The CBO estimates, however, that potential GDP — what the economy would have produced at full employment — was $16.5 trillion over the same period. And if the economy had been at more or less full employment, we wouldn’t just have collected taxes on the additional income; historically, the tax share of GDP varies strongly with the business cycle. If the economy had been at potential and revenue had been a historically normal 18 percent of GDP, revenue would have been more than $500 billion more than it was; even if revenue had been only 17.5 percent, it would have been almost $450 billion more than it was.

[...]

Put these together: $400 billion that doesn’t increase the debt-GDP ratio; $450 billion or so in slump-related revenue loss; $150 billion or more in slump-related expenses; and guess what: the ONE TRILLION DOLLARS is basically just a depressed-economy story, having nothing to do with any fundamental mismatch between what we want and what we’re willing to pay.

And this makes a lot of sense! The budget wasn’t deep in the red in 2007, and there have been no fundamental increases in government responsibilities or cuts in taxes since then (Obamacare won’t kick in until 2014, and it’s paid for in any case).

2. What we've seen in recent years is that austerity in a recession merely kicks up this same cycle--the more you cut spending, the worse the recession gets, and the more your revenues go down. It's like the businessman who decides to stop cutting his hair and cleaning his suits in order to save money and then gets fired for having an unpresentable appearance.

In other words, you can't cut your way to fiscal stability; you can only grow your way there. And that means spending money, or at the very least not cutting expenses.

Nor can you use arbitrarily "necessary" cuts (like those a debt-ceiling default would entail) to do an end-run around decades of democratically-negotiated budgeting. Starving the beast doesn't work, because whether or not people are willing to pay their debts, they are always willing to incur them. To go back to the household metaphor, you can try quitting your high-paying job to go work at McDonalds as a self-encouragement to scale back your expenses, but it will turn out that your spouse won't let you pull the kids out of private school, your subscription to Steak of the Month can't be canceled without 90 days notice, and you can't bear to garage sale your home entertainment center with the 10.2 Surround Sound.

I think I got a little too deep into the metaphor there, but the point is, "painful austerity now, balanced budgets later" isn't a strategy we shouldn't pursue because it's too painful now; it's a strategy we shouldn't pursue because it won't work.

I disagree with Krugman on ACA costs (the government has already spent a lot, although it pales in comparison to what the premium subsidies will cost).

But more importantly, I disagree that we can't cut spending as a way out of the hole, it just requires us to accept fewer benefits. For example, we did not have to extend unemployment benefits as far as we did, but not doing so would have meant choosing to allow a lot of people to fall into abject poverty. This may make it harder to get out of the recession, but we would still do it, the resulting picture would just be one of more income inequality than before it started. So I don't think that the choice is austerity and perpetual recession or debt financed spending and recovery. It's austerity and a recession that lasts longer and hurts people more (and for a longer time) or spending and a faster recovery, at the cost of more debt. I think the latter is clearly preferable, but preferring the former is not incoherent.

The whole point of my post is that the bolded is incorrect; when the economy recovers, GDP goes up, revenue goes up, inflation goes up, and the ratio of debt to GDP goes down, down, down. Unemployment benefits help the economy recover (because it maintains consumption levels), so the debt that we incur paying for them will be paid off and then some when the economy recovers sooner.

So in my opinion the bolded in your post should be rewritten as, "The choice is between austerity and a recession that lasts longer, at the cost of the same debt now and more debt later, or spending and a faster recovery, at a cost of more debt now but less debt eventually." This is standard Keynesian stuff, where the government uses investment multipliers to help improve the economy out of a recession via deficit spending.

For example, I am underemployed at the moment and looking for work. I could stop making my car insurance payments, on the theory that this would make my savings last longer; but if I couldn't drive, I wouldn't be able to show up to interviews. It's not a dumb thing to do because it sucks to not be able to drive; it's a dumb thing to do because it'd be shooting myself in the foot. The few hundred a month I'd save pale in comparison to how much longer it would take to find a job without a car, to the extent that I'd be better off putting that money on a credit card now and paying it off once I found work.

I don't know why we give you any benefits at all. You should be selling your computer, TV, microwave and refrigerator first!

Mill · January 2013

Astaereth, that's a pretty good analogy. Unfortunately, we have a party that looks at all the social spending as "handouts to moochers," while failing to get that that spending does help us economically.

If the GOP gave a fuck about the debt, we wouldn't have gotten the Bush tax cuts or the Iraq war because all that money would be spent on paying the debt down instead (Afghanistan probably would have still happened, but maybe things would have turned out better in such a scenario).

mcdermott · January 2013

Somebody said they thought getting rid of the debt ceiling would be a popular position for Obama to take. Any polling on that? I get the impression that stupid household analogies are enough to keep public opinion on that even at most, despite the crisis it causes when we approach it.

Malkor · January 2013

I really think that would be shut down by claiming that he could spend as much as he wanted on anything he wanted forever. I can just see the headlines with disingenuous question marks right now.

Atomika · January 2013

mcdermott wrote: »

Somebody said they thought getting rid of the debt ceiling would be a popular position for Obama to take. Any polling on that? I get the impression that stupid household analogies are enough to keep public opinion on that even at most, despite the crisis it causes when we approach it.

The problem is that Obama would be moving to make a parliamentary change, but the Right Wing would spin it as executive excess and tell everyone that Obama is going to spend the country into calamity without restriction. He'd be "the tyrant who won't pay America's bills," despite how this is demonstrably not true and also exactly what Bush II was literally guilty of.

spacekungfuman · January 2013

Astaereth wrote: »

spacekungfuman wrote: »

Astaereth wrote: »

I will point out two things:

1. Much of the current deficit is due to the recession itself, because it increases earned benefit payments (more people need unemployment) and decreases revenues (fewer people have jobs, those with jobs earn less or miss raises, therefore incomes and the tax base shrink, therefore income tax revenues shrink overall). Here's Krugman on that:

Krugman wrote:

For starters, we need to be aware that we don’t need a balanced budget to have a stable fiscal situation; all we need is for debt to grow no faster than GDP. At the beginning of fiscal 2012, federal debt in the hands of the public was $10 trillion. Meanwhile, most estimates of long-run growth and inflation put them at a bit more than 2 and 2 respectively; so we can reasonably say that nominal GDP growth can be expected to be more than 4 percent per year. If debt grew at 4 percent, it would grow by $400 billion. So the deficit should be scaled down by that much.

That still leaves $700 billion. Where’s that coming from?

OK, revenues were $2.45 trillion, which was 15.7 percent of GDP, at $15.5 trillion. The CBO estimates, however, that potential GDP — what the economy would have produced at full employment — was $16.5 trillion over the same period. And if the economy had been at more or less full employment, we wouldn’t just have collected taxes on the additional income; historically, the tax share of GDP varies strongly with the business cycle. If the economy had been at potential and revenue had been a historically normal 18 percent of GDP, revenue would have been more than $500 billion more than it was; even if revenue had been only 17.5 percent, it would have been almost $450 billion more than it was.

[...]

Put these together: $400 billion that doesn’t increase the debt-GDP ratio; $450 billion or so in slump-related revenue loss; $150 billion or more in slump-related expenses; and guess what: the ONE TRILLION DOLLARS is basically just a depressed-economy story, having nothing to do with any fundamental mismatch between what we want and what we’re willing to pay.

And this makes a lot of sense! The budget wasn’t deep in the red in 2007, and there have been no fundamental increases in government responsibilities or cuts in taxes since then (Obamacare won’t kick in until 2014, and it’s paid for in any case).

2. What we've seen in recent years is that austerity in a recession merely kicks up this same cycle--the more you cut spending, the worse the recession gets, and the more your revenues go down. It's like the businessman who decides to stop cutting his hair and cleaning his suits in order to save money and then gets fired for having an unpresentable appearance.

In other words, you can't cut your way to fiscal stability; you can only grow your way there. And that means spending money, or at the very least not cutting expenses.

Nor can you use arbitrarily "necessary" cuts (like those a debt-ceiling default would entail) to do an end-run around decades of democratically-negotiated budgeting. Starving the beast doesn't work, because whether or not people are willing to pay their debts, they are always willing to incur them. To go back to the household metaphor, you can try quitting your high-paying job to go work at McDonalds as a self-encouragement to scale back your expenses, but it will turn out that your spouse won't let you pull the kids out of private school, your subscription to Steak of the Month can't be canceled without 90 days notice, and you can't bear to garage sale your home entertainment center with the 10.2 Surround Sound.

I think I got a little too deep into the metaphor there, but the point is, "painful austerity now, balanced budgets later" isn't a strategy we shouldn't pursue because it's too painful now; it's a strategy we shouldn't pursue because it won't work.

I disagree with Krugman on ACA costs (the government has already spent a lot, although it pales in comparison to what the premium subsidies will cost).

But more importantly, I disagree that we can't cut spending as a way out of the hole, it just requires us to accept fewer benefits. For example, we did not have to extend unemployment benefits as far as we did, but not doing so would have meant choosing to allow a lot of people to fall into abject poverty. This may make it harder to get out of the recession, but we would still do it, the resulting picture would just be one of more income inequality than before it started. So I don't think that the choice is austerity and perpetual recession or debt financed spending and recovery. It's austerity and a recession that lasts longer and hurts people more (and for a longer time) or spending and a faster recovery, at the cost of more debt. I think the latter is clearly preferable, but preferring the former is not incoherent.

The whole point of my post is that the bolded is incorrect; when the economy recovers, GDP goes up, revenue goes up, inflation goes up, and the ratio of debt to GDP goes down, down, down. Unemployment benefits help the economy recover (because it maintains consumption levels), so the debt that we incur paying for them will be paid off and then some when the economy recovers sooner.

So in my opinion the bolded in your post should be rewritten as, "The choice is between austerity and a recession that lasts longer, at the cost of the same debt now and more debt later, or spending and a faster recovery, at a cost of more debt now but less debt eventually." This is standard Keynesian stuff, where the government uses investment multipliers to help improve the economy out of a recession via deficit spending.

For example, I am underemployed at the moment and looking for work. I could stop making my car insurance payments, on the theory that this would make my savings last longer; but if I couldn't drive, I wouldn't be able to show up to interviews. It's not a dumb thing to do because it sucks to not be able to drive; it's a dumb thing to do because it'd be shooting myself in the foot. The few hundred a month I'd save pale in comparison to how much longer it would take to find a job without a car, to the extent that I'd be better off putting that money on a credit card now and paying it off once I found work.

And the point I am making (putting aside how hard those multipliers are to pin down) is that the government could stop providing a lot of the services it currently provides and the economy would still come out of recession. Your assumption of debt now plus more debt later under austerity seems to be predicated on the notion that austerity wouldn't really cut that deep. Again, I do not support this view, but I think it is fully coherent for someone to say (for example) that the government ought to stop providing unemployment, medical and retirement benefits entirely, and balance the budget on the back of these cuts. Drastically cut spending, and you simply need less revenue.

V1m · January 2013

spacekungfuman wrote: »

Astaereth wrote: »

spacekungfuman wrote: »

Astaereth wrote: »

I will point out two things:

1. Much of the current deficit is due to the recession itself, because it increases earned benefit payments (more people need unemployment) and decreases revenues (fewer people have jobs, those with jobs earn less or miss raises, therefore incomes and the tax base shrink, therefore income tax revenues shrink overall). Here's Krugman on that:

Krugman wrote:

For starters, we need to be aware that we don’t need a balanced budget to have a stable fiscal situation; all we need is for debt to grow no faster than GDP. At the beginning of fiscal 2012, federal debt in the hands of the public was $10 trillion. Meanwhile, most estimates of long-run growth and inflation put them at a bit more than 2 and 2 respectively; so we can reasonably say that nominal GDP growth can be expected to be more than 4 percent per year. If debt grew at 4 percent, it would grow by $400 billion. So the deficit should be scaled down by that much.

That still leaves $700 billion. Where’s that coming from?

OK, revenues were $2.45 trillion, which was 15.7 percent of GDP, at $15.5 trillion. The CBO estimates, however, that potential GDP — what the economy would have produced at full employment — was $16.5 trillion over the same period. And if the economy had been at more or less full employment, we wouldn’t just have collected taxes on the additional income; historically, the tax share of GDP varies strongly with the business cycle. If the economy had been at potential and revenue had been a historically normal 18 percent of GDP, revenue would have been more than $500 billion more than it was; even if revenue had been only 17.5 percent, it would have been almost $450 billion more than it was.

[...]

Put these together: $400 billion that doesn’t increase the debt-GDP ratio; $450 billion or so in slump-related revenue loss; $150 billion or more in slump-related expenses; and guess what: the ONE TRILLION DOLLARS is basically just a depressed-economy story, having nothing to do with any fundamental mismatch between what we want and what we’re willing to pay.

And this makes a lot of sense! The budget wasn’t deep in the red in 2007, and there have been no fundamental increases in government responsibilities or cuts in taxes since then (Obamacare won’t kick in until 2014, and it’s paid for in any case).

2. What we've seen in recent years is that austerity in a recession merely kicks up this same cycle--the more you cut spending, the worse the recession gets, and the more your revenues go down. It's like the businessman who decides to stop cutting his hair and cleaning his suits in order to save money and then gets fired for having an unpresentable appearance.

In other words, you can't cut your way to fiscal stability; you can only grow your way there. And that means spending money, or at the very least not cutting expenses.

Nor can you use arbitrarily "necessary" cuts (like those a debt-ceiling default would entail) to do an end-run around decades of democratically-negotiated budgeting. Starving the beast doesn't work, because whether or not people are willing to pay their debts, they are always willing to incur them. To go back to the household metaphor, you can try quitting your high-paying job to go work at McDonalds as a self-encouragement to scale back your expenses, but it will turn out that your spouse won't let you pull the kids out of private school, your subscription to Steak of the Month can't be canceled without 90 days notice, and you can't bear to garage sale your home entertainment center with the 10.2 Surround Sound.

I think I got a little too deep into the metaphor there, but the point is, "painful austerity now, balanced budgets later" isn't a strategy we shouldn't pursue because it's too painful now; it's a strategy we shouldn't pursue because it won't work.

I disagree with Krugman on ACA costs (the government has already spent a lot, although it pales in comparison to what the premium subsidies will cost).

But more importantly, I disagree that we can't cut spending as a way out of the hole, it just requires us to accept fewer benefits. For example, we did not have to extend unemployment benefits as far as we did, but not doing so would have meant choosing to allow a lot of people to fall into abject poverty. This may make it harder to get out of the recession, but we would still do it, the resulting picture would just be one of more income inequality than before it started. So I don't think that the choice is austerity and perpetual recession or debt financed spending and recovery. It's austerity and a recession that lasts longer and hurts people more (and for a longer time) or spending and a faster recovery, at the cost of more debt. I think the latter is clearly preferable, but preferring the former is not incoherent.

The whole point of my post is that the bolded is incorrect; when the economy recovers, GDP goes up, revenue goes up, inflation goes up, and the ratio of debt to GDP goes down, down, down. Unemployment benefits help the economy recover (because it maintains consumption levels), so the debt that we incur paying for them will be paid off and then some when the economy recovers sooner.

So in my opinion the bolded in your post should be rewritten as, "The choice is between austerity and a recession that lasts longer, at the cost of the same debt now and more debt later, or spending and a faster recovery, at a cost of more debt now but less debt eventually." This is standard Keynesian stuff, where the government uses investment multipliers to help improve the economy out of a recession via deficit spending.

For example, I am underemployed at the moment and looking for work. I could stop making my car insurance payments, on the theory that this would make my savings last longer; but if I couldn't drive, I wouldn't be able to show up to interviews. It's not a dumb thing to do because it sucks to not be able to drive; it's a dumb thing to do because it'd be shooting myself in the foot. The few hundred a month I'd save pale in comparison to how much longer it would take to find a job without a car, to the extent that I'd be better off putting that money on a credit card now and paying it off once I found work.

And the point I am making (putting aside how hard those multipliers are to pin down) is that the government could stop providing a lot of the services it currently provides and the economy would still come out of recession. Your assumption of debt now plus more debt later under austerity seems to be predicated on the notion that austerity wouldn't really cut that deep. Again, I do not support this view, but I think it is fully coherent for someone to say (for example) that the government ought to stop providing unemployment, medical and retirement benefits entirely, and balance the budget on the back of these cuts. Drastically cut spending, and you simply need less revenue.

Except that money spent on umnployment, retirement benfits and so on doesn't just disappear. In fact it tends to get spent immediately, and that lovely high-velocity money being spent in the local economy (who then pay taxes) is exactly what's needed to bring an economy out of recession.

Chanus · January 2013

spacekungfuman wrote: »

Astaereth wrote: »

spacekungfuman wrote: »

Astaereth wrote: »

I will point out two things:

1. Much of the current deficit is due to the recession itself, because it increases earned benefit payments (more people need unemployment) and decreases revenues (fewer people have jobs, those with jobs earn less or miss raises, therefore incomes and the tax base shrink, therefore income tax revenues shrink overall). Here's Krugman on that:

Krugman wrote:

For starters, we need to be aware that we don’t need a balanced budget to have a stable fiscal situation; all we need is for debt to grow no faster than GDP. At the beginning of fiscal 2012, federal debt in the hands of the public was $10 trillion. Meanwhile, most estimates of long-run growth and inflation put them at a bit more than 2 and 2 respectively; so we can reasonably say that nominal GDP growth can be expected to be more than 4 percent per year. If debt grew at 4 percent, it would grow by $400 billion. So the deficit should be scaled down by that much.

That still leaves $700 billion. Where’s that coming from?

OK, revenues were $2.45 trillion, which was 15.7 percent of GDP, at $15.5 trillion. The CBO estimates, however, that potential GDP — what the economy would have produced at full employment — was $16.5 trillion over the same period. And if the economy had been at more or less full employment, we wouldn’t just have collected taxes on the additional income; historically, the tax share of GDP varies strongly with the business cycle. If the economy had been at potential and revenue had been a historically normal 18 percent of GDP, revenue would have been more than $500 billion more than it was; even if revenue had been only 17.5 percent, it would have been almost $450 billion more than it was.

[...]

Put these together: $400 billion that doesn’t increase the debt-GDP ratio; $450 billion or so in slump-related revenue loss; $150 billion or more in slump-related expenses; and guess what: the ONE TRILLION DOLLARS is basically just a depressed-economy story, having nothing to do with any fundamental mismatch between what we want and what we’re willing to pay.

And this makes a lot of sense! The budget wasn’t deep in the red in 2007, and there have been no fundamental increases in government responsibilities or cuts in taxes since then (Obamacare won’t kick in until 2014, and it’s paid for in any case).

2. What we've seen in recent years is that austerity in a recession merely kicks up this same cycle--the more you cut spending, the worse the recession gets, and the more your revenues go down. It's like the businessman who decides to stop cutting his hair and cleaning his suits in order to save money and then gets fired for having an unpresentable appearance.

In other words, you can't cut your way to fiscal stability; you can only grow your way there. And that means spending money, or at the very least not cutting expenses.

Nor can you use arbitrarily "necessary" cuts (like those a debt-ceiling default would entail) to do an end-run around decades of democratically-negotiated budgeting. Starving the beast doesn't work, because whether or not people are willing to pay their debts, they are always willing to incur them. To go back to the household metaphor, you can try quitting your high-paying job to go work at McDonalds as a self-encouragement to scale back your expenses, but it will turn out that your spouse won't let you pull the kids out of private school, your subscription to Steak of the Month can't be canceled without 90 days notice, and you can't bear to garage sale your home entertainment center with the 10.2 Surround Sound.

I think I got a little too deep into the metaphor there, but the point is, "painful austerity now, balanced budgets later" isn't a strategy we shouldn't pursue because it's too painful now; it's a strategy we shouldn't pursue because it won't work.

I disagree with Krugman on ACA costs (the government has already spent a lot, although it pales in comparison to what the premium subsidies will cost).

But more importantly, I disagree that we can't cut spending as a way out of the hole, it just requires us to accept fewer benefits. For example, we did not have to extend unemployment benefits as far as we did, but not doing so would have meant choosing to allow a lot of people to fall into abject poverty. This may make it harder to get out of the recession, but we would still do it, the resulting picture would just be one of more income inequality than before it started. So I don't think that the choice is austerity and perpetual recession or debt financed spending and recovery. It's austerity and a recession that lasts longer and hurts people more (and for a longer time) or spending and a faster recovery, at the cost of more debt. I think the latter is clearly preferable, but preferring the former is not incoherent.

The whole point of my post is that the bolded is incorrect; when the economy recovers, GDP goes up, revenue goes up, inflation goes up, and the ratio of debt to GDP goes down, down, down. Unemployment benefits help the economy recover (because it maintains consumption levels), so the debt that we incur paying for them will be paid off and then some when the economy recovers sooner.

So in my opinion the bolded in your post should be rewritten as, "The choice is between austerity and a recession that lasts longer, at the cost of the same debt now and more debt later, or spending and a faster recovery, at a cost of more debt now but less debt eventually." This is standard Keynesian stuff, where the government uses investment multipliers to help improve the economy out of a recession via deficit spending.

For example, I am underemployed at the moment and looking for work. I could stop making my car insurance payments, on the theory that this would make my savings last longer; but if I couldn't drive, I wouldn't be able to show up to interviews. It's not a dumb thing to do because it sucks to not be able to drive; it's a dumb thing to do because it'd be shooting myself in the foot. The few hundred a month I'd save pale in comparison to how much longer it would take to find a job without a car, to the extent that I'd be better off putting that money on a credit card now and paying it off once I found work.

And the point I am making (putting aside how hard those multipliers are to pin down) is that the government could stop providing a lot of the services it currently provides and the economy would still come out of recession. Your assumption of debt now plus more debt later under austerity seems to be predicated on the notion that austerity wouldn't really cut that deep. Again, I do not support this view, but I think it is fully coherent for someone to say (for example) that the government ought to stop providing unemployment, medical and retirement benefits entirely, and balance the budget on the back of these cuts. Drastically cut spending, and you simply need less revenue.

But... this is literal insanity.

This is what Greece and Spain are being forced to do.

This is what the U.K. did.

And it doesn't work. It plainly makes things worse. There's absolutely nothing coherent about taking this position at this point. It's utter nonsense.

Spawnbroker · January 2013

spacekungfuman wrote: »

Astaereth wrote: »

spacekungfuman wrote: »

Astaereth wrote: »

I will point out two things:

1. Much of the current deficit is due to the recession itself, because it increases earned benefit payments (more people need unemployment) and decreases revenues (fewer people have jobs, those with jobs earn less or miss raises, therefore incomes and the tax base shrink, therefore income tax revenues shrink overall). Here's Krugman on that:

Krugman wrote:

For starters, we need to be aware that we don’t need a balanced budget to have a stable fiscal situation; all we need is for debt to grow no faster than GDP. At the beginning of fiscal 2012, federal debt in the hands of the public was $10 trillion. Meanwhile, most estimates of long-run growth and inflation put them at a bit more than 2 and 2 respectively; so we can reasonably say that nominal GDP growth can be expected to be more than 4 percent per year. If debt grew at 4 percent, it would grow by $400 billion. So the deficit should be scaled down by that much.

That still leaves $700 billion. Where’s that coming from?

OK, revenues were $2.45 trillion, which was 15.7 percent of GDP, at $15.5 trillion. The CBO estimates, however, that potential GDP — what the economy would have produced at full employment — was $16.5 trillion over the same period. And if the economy had been at more or less full employment, we wouldn’t just have collected taxes on the additional income; historically, the tax share of GDP varies strongly with the business cycle. If the economy had been at potential and revenue had been a historically normal 18 percent of GDP, revenue would have been more than $500 billion more than it was; even if revenue had been only 17.5 percent, it would have been almost $450 billion more than it was.

[...]

Put these together: $400 billion that doesn’t increase the debt-GDP ratio; $450 billion or so in slump-related revenue loss; $150 billion or more in slump-related expenses; and guess what: the ONE TRILLION DOLLARS is basically just a depressed-economy story, having nothing to do with any fundamental mismatch between what we want and what we’re willing to pay.

And this makes a lot of sense! The budget wasn’t deep in the red in 2007, and there have been no fundamental increases in government responsibilities or cuts in taxes since then (Obamacare won’t kick in until 2014, and it’s paid for in any case).

2. What we've seen in recent years is that austerity in a recession merely kicks up this same cycle--the more you cut spending, the worse the recession gets, and the more your revenues go down. It's like the businessman who decides to stop cutting his hair and cleaning his suits in order to save money and then gets fired for having an unpresentable appearance.

In other words, you can't cut your way to fiscal stability; you can only grow your way there. And that means spending money, or at the very least not cutting expenses.

Nor can you use arbitrarily "necessary" cuts (like those a debt-ceiling default would entail) to do an end-run around decades of democratically-negotiated budgeting. Starving the beast doesn't work, because whether or not people are willing to pay their debts, they are always willing to incur them. To go back to the household metaphor, you can try quitting your high-paying job to go work at McDonalds as a self-encouragement to scale back your expenses, but it will turn out that your spouse won't let you pull the kids out of private school, your subscription to Steak of the Month can't be canceled without 90 days notice, and you can't bear to garage sale your home entertainment center with the 10.2 Surround Sound.

I think I got a little too deep into the metaphor there, but the point is, "painful austerity now, balanced budgets later" isn't a strategy we shouldn't pursue because it's too painful now; it's a strategy we shouldn't pursue because it won't work.

I disagree with Krugman on ACA costs (the government has already spent a lot, although it pales in comparison to what the premium subsidies will cost).

But more importantly, I disagree that we can't cut spending as a way out of the hole, it just requires us to accept fewer benefits. For example, we did not have to extend unemployment benefits as far as we did, but not doing so would have meant choosing to allow a lot of people to fall into abject poverty. This may make it harder to get out of the recession, but we would still do it, the resulting picture would just be one of more income inequality than before it started. So I don't think that the choice is austerity and perpetual recession or debt financed spending and recovery. It's austerity and a recession that lasts longer and hurts people more (and for a longer time) or spending and a faster recovery, at the cost of more debt. I think the latter is clearly preferable, but preferring the former is not incoherent.

The whole point of my post is that the bolded is incorrect; when the economy recovers, GDP goes up, revenue goes up, inflation goes up, and the ratio of debt to GDP goes down, down, down. Unemployment benefits help the economy recover (because it maintains consumption levels), so the debt that we incur paying for them will be paid off and then some when the economy recovers sooner.

So in my opinion the bolded in your post should be rewritten as, "The choice is between austerity and a recession that lasts longer, at the cost of the same debt now and more debt later, or spending and a faster recovery, at a cost of more debt now but less debt eventually." This is standard Keynesian stuff, where the government uses investment multipliers to help improve the economy out of a recession via deficit spending.

For example, I am underemployed at the moment and looking for work. I could stop making my car insurance payments, on the theory that this would make my savings last longer; but if I couldn't drive, I wouldn't be able to show up to interviews. It's not a dumb thing to do because it sucks to not be able to drive; it's a dumb thing to do because it'd be shooting myself in the foot. The few hundred a month I'd save pale in comparison to how much longer it would take to find a job without a car, to the extent that I'd be better off putting that money on a credit card now and paying it off once I found work.

And the point I am making (putting aside how hard those multipliers are to pin down) is that the government could stop providing a lot of the services it currently provides and the economy would still come out of recession. Your assumption of debt now plus more debt later under austerity seems to be predicated on the notion that austerity wouldn't really cut that deep. Again, I do not support this view, but I think it is fully coherent for someone to say (for example) that the government ought to stop providing unemployment, medical and retirement benefits entirely, and balance the budget on the back of these cuts. Drastically cut spending, and you simply need less revenue.

I feel like this is really easy for someone to say when they aren't depending on benefits like these. What happens to those people when we cut those benefits? They starve, become homeless, they stop spending money because they literally have none left. I fear what would happen if the government suddenly created a few million extra starving homeless people in this country.

electricitylikesme · January 2013

Spawnbroker wrote: »

spacekungfuman wrote: »

Astaereth wrote: »

spacekungfuman wrote: »

Astaereth wrote: »

I will point out two things:

1. Much of the current deficit is due to the recession itself, because it increases earned benefit payments (more people need unemployment) and decreases revenues (fewer people have jobs, those with jobs earn less or miss raises, therefore incomes and the tax base shrink, therefore income tax revenues shrink overall). Here's Krugman on that:

Krugman wrote:

For starters, we need to be aware that we don’t need a balanced budget to have a stable fiscal situation; all we need is for debt to grow no faster than GDP. At the beginning of fiscal 2012, federal debt in the hands of the public was $10 trillion. Meanwhile, most estimates of long-run growth and inflation put them at a bit more than 2 and 2 respectively; so we can reasonably say that nominal GDP growth can be expected to be more than 4 percent per year. If debt grew at 4 percent, it would grow by $400 billion. So the deficit should be scaled down by that much.

That still leaves $700 billion. Where’s that coming from?

OK, revenues were $2.45 trillion, which was 15.7 percent of GDP, at $15.5 trillion. The CBO estimates, however, that potential GDP — what the economy would have produced at full employment — was $16.5 trillion over the same period. And if the economy had been at more or less full employment, we wouldn’t just have collected taxes on the additional income; historically, the tax share of GDP varies strongly with the business cycle. If the economy had been at potential and revenue had been a historically normal 18 percent of GDP, revenue would have been more than $500 billion more than it was; even if revenue had been only 17.5 percent, it would have been almost $450 billion more than it was.

[...]

Put these together: $400 billion that doesn’t increase the debt-GDP ratio; $450 billion or so in slump-related revenue loss; $150 billion or more in slump-related expenses; and guess what: the ONE TRILLION DOLLARS is basically just a depressed-economy story, having nothing to do with any fundamental mismatch between what we want and what we’re willing to pay.

And this makes a lot of sense! The budget wasn’t deep in the red in 2007, and there have been no fundamental increases in government responsibilities or cuts in taxes since then (Obamacare won’t kick in until 2014, and it’s paid for in any case).

2. What we've seen in recent years is that austerity in a recession merely kicks up this same cycle--the more you cut spending, the worse the recession gets, and the more your revenues go down. It's like the businessman who decides to stop cutting his hair and cleaning his suits in order to save money and then gets fired for having an unpresentable appearance.

In other words, you can't cut your way to fiscal stability; you can only grow your way there. And that means spending money, or at the very least not cutting expenses.

Nor can you use arbitrarily "necessary" cuts (like those a debt-ceiling default would entail) to do an end-run around decades of democratically-negotiated budgeting. Starving the beast doesn't work, because whether or not people are willing to pay their debts, they are always willing to incur them. To go back to the household metaphor, you can try quitting your high-paying job to go work at McDonalds as a self-encouragement to scale back your expenses, but it will turn out that your spouse won't let you pull the kids out of private school, your subscription to Steak of the Month can't be canceled without 90 days notice, and you can't bear to garage sale your home entertainment center with the 10.2 Surround Sound.

I think I got a little too deep into the metaphor there, but the point is, "painful austerity now, balanced budgets later" isn't a strategy we shouldn't pursue because it's too painful now; it's a strategy we shouldn't pursue because it won't work.

I disagree with Krugman on ACA costs (the government has already spent a lot, although it pales in comparison to what the premium subsidies will cost).

But more importantly, I disagree that we can't cut spending as a way out of the hole, it just requires us to accept fewer benefits. For example, we did not have to extend unemployment benefits as far as we did, but not doing so would have meant choosing to allow a lot of people to fall into abject poverty. This may make it harder to get out of the recession, but we would still do it, the resulting picture would just be one of more income inequality than before it started. So I don't think that the choice is austerity and perpetual recession or debt financed spending and recovery. It's austerity and a recession that lasts longer and hurts people more (and for a longer time) or spending and a faster recovery, at the cost of more debt. I think the latter is clearly preferable, but preferring the former is not incoherent.

The whole point of my post is that the bolded is incorrect; when the economy recovers, GDP goes up, revenue goes up, inflation goes up, and the ratio of debt to GDP goes down, down, down. Unemployment benefits help the economy recover (because it maintains consumption levels), so the debt that we incur paying for them will be paid off and then some when the economy recovers sooner.

So in my opinion the bolded in your post should be rewritten as, "The choice is between austerity and a recession that lasts longer, at the cost of the same debt now and more debt later, or spending and a faster recovery, at a cost of more debt now but less debt eventually." This is standard Keynesian stuff, where the government uses investment multipliers to help improve the economy out of a recession via deficit spending.

For example, I am underemployed at the moment and looking for work. I could stop making my car insurance payments, on the theory that this would make my savings last longer; but if I couldn't drive, I wouldn't be able to show up to interviews. It's not a dumb thing to do because it sucks to not be able to drive; it's a dumb thing to do because it'd be shooting myself in the foot. The few hundred a month I'd save pale in comparison to how much longer it would take to find a job without a car, to the extent that I'd be better off putting that money on a credit card now and paying it off once I found work.

And the point I am making (putting aside how hard those multipliers are to pin down) is that the government could stop providing a lot of the services it currently provides and the economy would still come out of recession. Your assumption of debt now plus more debt later under austerity seems to be predicated on the notion that austerity wouldn't really cut that deep. Again, I do not support this view, but I think it is fully coherent for someone to say (for example) that the government ought to stop providing unemployment, medical and retirement benefits entirely, and balance the budget on the back of these cuts. Drastically cut spending, and you simply need less revenue.

I feel like this is really easy for someone to say when they aren't depending on benefits like these. What happens to those people when we cut those benefits? They starve, become homeless, they stop spending money because they literally have none left. I fear what would happen if the government suddenly created a few million extra starving homeless people in this country.

It's the type of thinking which utterly discounts the long-term lost productivity those people represent, and very sudden short-term increase in spending you're going to face on law & order and policing (unless you start fencing off huge parts of the city and declaring them free-for-all zones, but then you're de facto seceding parts of the United States).

Ask South Africa how well massive wealth and benefits stratification works out.

mcdermott · January 2013

Seriously, unemployment benefits are much cheaper than prisons.

AManFromEarth · January 2013

It also ignores the knockoff effects of increased crime caused by increased pressure on the lower classes.

Chanus · January 2013

I mean, really, the idea that Austerity policies during a recession don't stem from either selfishness and a desire to "punish" people or from simple ignorance of macroeconomics is a bit laughable.

Julius · January 2013

spacekungfuman wrote: »

And the point I am making (putting aside how hard those multipliers are to pin down) is that the government could stop providing a lot of the services it currently provides and the economy would still come out of recession. Your assumption of debt now plus more debt later under austerity seems to be predicated on the notion that austerity wouldn't really cut that deep. Again, I do not support this view, but I think it is fully coherent for someone to say (for example) that the government ought to stop providing unemployment, medical and retirement benefits entirely, and balance the budget on the back of these cuts. Drastically cut spending, and you simply need less revenue.

Well because of things like the law and such cuts like that can't have an immediate effect. The government simply can't say "ok, next year no more retirement benefits".

But disregarding that, even if austerity could cut that deep the problem of a depression is that cutting costs leads to less spending within the economy. On all levels. The problem with austerity during these times is not that the cuts aren't deep enough, it's that it cannot work.

AManFromEarth · January 2013

mcdermott wrote: »

Seriously, unemployment benefits are much cheaper than prisons.

Not cheaper than bullets, though.

Or just stringing up some fence in major cities and keeping people there until they learn how to use their bootstraps properly.

Fencingsax · January 2013

Listen, when the friggin' IMF admits that austerity does the opposite of solving the problem, then it's extremely difficult to take seriously.

AManFromEarth · January 2013

That link to a Memory Alpha article is a placeholder until a Republican takes the White House.

enlightenedbum · January 2013

AManFromEarth wrote: »

It also ignores the knockoff effects of increased crime caused by increased pressure on the lower classes.

Also dead starving old people. Or their kids taking a serious financial hit to care for them.

All so geese like skfm can have more.

Kid Presentable · January 2013

AManFromEarth wrote: »

That link to a Memory Alpha article is a placeholder until a Republican takes the White House.

I prefer all my economic analysis to include an applicable link to Memory Alpha, so thank you.

spacekungfuman · January 2013

Again, to be clear, I do not agree with austerity, and think it is a poor response to a recession. All I am saying is that there is another side to this debate, it is just a side that must accept a prolonged recession, much lower level of government provider benefits, and greater inequality in wealth distribution. Put another way, we could have chosen to spend less to help people, (bassically limiting government invilvement to the bank bailout) and in return received a more concentrated recovery which did not really help everyone who was hurt (well, even moreso than the actual recovery, which still has not helped everyone).

I think this would be bad policy and just the wrong thing to do, but it doesn't make the anti-redistribution, let people fail or succeed as they will crowd incoherent.

Chanus · January 2013

spacekungfuman wrote: »

Again, to be clear, I do not agree with austerity, and think it is a poor response to a recession. All I am saying is that there is another side to this debate, it is just a side that must accept a prolonged recession, much lower level of government provider benefits, and greater inequality in wealth distribution. Put another way, we could have chosen to spend less to help people, (bassically limiting government invilvement to the bank bailout) and in return received a more concentrated recovery which did not really help everyone who was hurt (well, even moreso than the actual recovery, which still has not helped everyone).

I think this would be bad policy and just the wrong thing to do, but it doesn't make the anti-redistribution, let people fail or succeed as they will crowd incoherent.

It is incoherent.

It doesn't work.

There isn't really a valid debate on this point any more.

The idea that making things worse is a "more concentrated recovery" is just ridiculous... as in, "deserving of ridicule".

Spawnbroker · January 2013

spacekungfuman wrote: »

Again, to be clear, I do not agree with austerity, and think it is a poor response to a recession. All I am saying is that there is another side to this debate, it is just a side that must accept a prolonged recession, much lower level of government provider benefits, and greater inequality in wealth distribution. Put another way, we could have chosen to spend less to help people, (bassically limiting government invilvement to the bank bailout) and in return received a more concentrated recovery which did not really help everyone who was hurt (well, even moreso than the actual recovery, which still has not helped everyone).

I think this would be bad policy and just the wrong thing to do, but it doesn't make the anti-redistribution, let people fail or succeed as they will crowd incoherent.

I agree that it doesn't make their side incoherent, just morally bankrupt.

Chanus · January 2013

Spawnbroker wrote: »

spacekungfuman wrote: »

Again, to be clear, I do not agree with austerity, and think it is a poor response to a recession. All I am saying is that there is another side to this debate, it is just a side that must accept a prolonged recession, much lower level of government provider benefits, and greater inequality in wealth distribution. Put another way, we could have chosen to spend less to help people, (bassically limiting government invilvement to the bank bailout) and in return received a more concentrated recovery which did not really help everyone who was hurt (well, even moreso than the actual recovery, which still has not helped everyone).

I think this would be bad policy and just the wrong thing to do, but it doesn't make the anti-redistribution, let people fail or succeed as they will crowd incoherent.

I agree that it doesn't make their side incoherent, just morally bankrupt.

It's also incoherent.

Unless they think the productivity of their industries just appears out of the love of money.

spacekungfuman · January 2013

Chanus wrote: »

spacekungfuman wrote: »

Again, to be clear, I do not agree with austerity, and think it is a poor response to a recession. All I am saying is that there is another side to this debate, it is just a side that must accept a prolonged recession, much lower level of government provider benefits, and greater inequality in wealth distribution. Put another way, we could have chosen to spend less to help people, (bassically limiting government invilvement to the bank bailout) and in return received a more concentrated recovery which did not really help everyone who was hurt (well, even moreso than the actual recovery, which still has not helped everyone).

I think this would be bad policy and just the wrong thing to do, but it doesn't make the anti-redistribution, let people fail or succeed as they will crowd incoherent.

It is incoherent.

It doesn't work.

There isn't really a valid debate on this point any more.

The idea that making things worse is a "more concentrated recovery" is just ridiculous... as in, "deserving of ridicule".

My industry (PE) started recovering long before the economy as a whole was recovering. All it took was stabilizing the banks and restarting the flow of credit. In a global economy, US firms with adequate capital can thrive independent of the US worker, Because there are other markets available. I don't just believe a targetted recovery was possible. I lived it. Even if the government had not spent a penny in anything but the bank bailouts, the economy could have rallied, it just wouldn't have taken as many people along for the ride.

Chanus · January 2013

I guess we just disagree that leaving people to starve and die to support your own interests is a coherent philosophy.

V1m · January 2013

Spawnbroker wrote: »

spacekungfuman wrote: »

Astaereth wrote: »

spacekungfuman wrote: »

Astaereth wrote: »

I will point out two things:

1. Much of the current deficit is due to the recession itself, because it increases earned benefit payments (more people need unemployment) and decreases revenues (fewer people have jobs, those with jobs earn less or miss raises, therefore incomes and the tax base shrink, therefore income tax revenues shrink overall). Here's Krugman on that:

Krugman wrote:

For starters, we need to be aware that we don’t need a balanced budget to have a stable fiscal situation; all we need is for debt to grow no faster than GDP. At the beginning of fiscal 2012, federal debt in the hands of the public was $10 trillion. Meanwhile, most estimates of long-run growth and inflation put them at a bit more than 2 and 2 respectively; so we can reasonably say that nominal GDP growth can be expected to be more than 4 percent per year. If debt grew at 4 percent, it would grow by $400 billion. So the deficit should be scaled down by that much.

That still leaves $700 billion. Where’s that coming from?

OK, revenues were $2.45 trillion, which was 15.7 percent of GDP, at $15.5 trillion. The CBO estimates, however, that potential GDP — what the economy would have produced at full employment — was $16.5 trillion over the same period. And if the economy had been at more or less full employment, we wouldn’t just have collected taxes on the additional income; historically, the tax share of GDP varies strongly with the business cycle. If the economy had been at potential and revenue had been a historically normal 18 percent of GDP, revenue would have been more than $500 billion more than it was; even if revenue had been only 17.5 percent, it would have been almost $450 billion more than it was.

[...]

Put these together: $400 billion that doesn’t increase the debt-GDP ratio; $450 billion or so in slump-related revenue loss; $150 billion or more in slump-related expenses; and guess what: the ONE TRILLION DOLLARS is basically just a depressed-economy story, having nothing to do with any fundamental mismatch between what we want and what we’re willing to pay.

And this makes a lot of sense! The budget wasn’t deep in the red in 2007, and there have been no fundamental increases in government responsibilities or cuts in taxes since then (Obamacare won’t kick in until 2014, and it’s paid for in any case).

2. What we've seen in recent years is that austerity in a recession merely kicks up this same cycle--the more you cut spending, the worse the recession gets, and the more your revenues go down. It's like the businessman who decides to stop cutting his hair and cleaning his suits in order to save money and then gets fired for having an unpresentable appearance.

In other words, you can't cut your way to fiscal stability; you can only grow your way there. And that means spending money, or at the very least not cutting expenses.

Nor can you use arbitrarily "necessary" cuts (like those a debt-ceiling default would entail) to do an end-run around decades of democratically-negotiated budgeting. Starving the beast doesn't work, because whether or not people are willing to pay their debts, they are always willing to incur them. To go back to the household metaphor, you can try quitting your high-paying job to go work at McDonalds as a self-encouragement to scale back your expenses, but it will turn out that your spouse won't let you pull the kids out of private school, your subscription to Steak of the Month can't be canceled without 90 days notice, and you can't bear to garage sale your home entertainment center with the 10.2 Surround Sound.

I think I got a little too deep into the metaphor there, but the point is, "painful austerity now, balanced budgets later" isn't a strategy we shouldn't pursue because it's too painful now; it's a strategy we shouldn't pursue because it won't work.

I disagree with Krugman on ACA costs (the government has already spent a lot, although it pales in comparison to what the premium subsidies will cost).

But more importantly, I disagree that we can't cut spending as a way out of the hole, it just requires us to accept fewer benefits. For example, we did not have to extend unemployment benefits as far as we did, but not doing so would have meant choosing to allow a lot of people to fall into abject poverty. This may make it harder to get out of the recession, but we would still do it, the resulting picture would just be one of more income inequality than before it started. So I don't think that the choice is austerity and perpetual recession or debt financed spending and recovery. It's austerity and a recession that lasts longer and hurts people more (and for a longer time) or spending and a faster recovery, at the cost of more debt. I think the latter is clearly preferable, but preferring the former is not incoherent.

The whole point of my post is that the bolded is incorrect; when the economy recovers, GDP goes up, revenue goes up, inflation goes up, and the ratio of debt to GDP goes down, down, down. Unemployment benefits help the economy recover (because it maintains consumption levels), so the debt that we incur paying for them will be paid off and then some when the economy recovers sooner.

So in my opinion the bolded in your post should be rewritten as, "The choice is between austerity and a recession that lasts longer, at the cost of the same debt now and more debt later, or spending and a faster recovery, at a cost of more debt now but less debt eventually." This is standard Keynesian stuff, where the government uses investment multipliers to help improve the economy out of a recession via deficit spending.

For example, I am underemployed at the moment and looking for work. I could stop making my car insurance payments, on the theory that this would make my savings last longer; but if I couldn't drive, I wouldn't be able to show up to interviews. It's not a dumb thing to do because it sucks to not be able to drive; it's a dumb thing to do because it'd be shooting myself in the foot. The few hundred a month I'd save pale in comparison to how much longer it would take to find a job without a car, to the extent that I'd be better off putting that money on a credit card now and paying it off once I found work.

And the point I am making (putting aside how hard those multipliers are to pin down) is that the government could stop providing a lot of the services it currently provides and the economy would still come out of recession. Your assumption of debt now plus more debt later under austerity seems to be predicated on the notion that austerity wouldn't really cut that deep. Again, I do not support this view, but I think it is fully coherent for someone to say (for example) that the government ought to stop providing unemployment, medical and retirement benefits entirely, and balance the budget on the back of these cuts. Drastically cut spending, and you simply need less revenue.

I feel like this is really easy for someone to say when they aren't depending on benefits like these. What happens to those people when we cut those benefits? They starve, become homeless, they stop spending money because they literally have none left. I fear what would happen if the government suddenly created a few million extra starving homeless people in this country.

In this heavily armed, politically polarised country.

Yes what negative result could possibly result from expecting millions of citizens to meekly starve in the streets in order to keep taxes low?

AManFromEarth · January 2013

spacekungfuman wrote: »

Chanus wrote: »

spacekungfuman wrote: »

Again, to be clear, I do not agree with austerity, and think it is a poor response to a recession. All I am saying is that there is another side to this debate, it is just a side that must accept a prolonged recession, much lower level of government provider benefits, and greater inequality in wealth distribution. Put another way, we could have chosen to spend less to help people, (bassically limiting government invilvement to the bank bailout) and in return received a more concentrated recovery which did not really help everyone who was hurt (well, even moreso than the actual recovery, which still has not helped everyone).

I think this would be bad policy and just the wrong thing to do, but it doesn't make the anti-redistribution, let people fail or succeed as they will crowd incoherent.

It is incoherent.

It doesn't work.

There isn't really a valid debate on this point any more.

The idea that making things worse is a "more concentrated recovery" is just ridiculous... as in, "deserving of ridicule".

My industry (PE) started recovering long before the economy as a whole was recovering. All it took was stabilizing the banks and restarting the flow of credit. In a global economy, US firms with adequate capital can thrive independent of the US worker, Because there are other markets available. I don't just believe a targetted recovery was possible. I lived it. Even if the government had not spent a penny in anything but the bank bailouts, the economy could have rallied, it just wouldn't have taken as many people along for the ride.

Except that is not sustainable in the long term.

Of course, what Chanus misses is that the elected debt scolds and austerity proponents don't really give a shit about recovery, so it's not as incoherent as it would be for say, a Republican voter, to believe.

mcdermott · January 2013

Chanus wrote: »

I guess we just disagree that leaving people to starve and die to support your own interests is a coherent philosophy.

A philosophy can be both abhorrent and coherent.

V1m · January 2013

spacekungfuman wrote: »

Chanus wrote: »

spacekungfuman wrote: »

Again, to be clear, I do not agree with austerity, and think it is a poor response to a recession. All I am saying is that there is another side to this debate, it is just a side that must accept a prolonged recession, much lower level of government provider benefits, and greater inequality in wealth distribution. Put another way, we could have chosen to spend less to help people, (bassically limiting government invilvement to the bank bailout) and in return received a more concentrated recovery which did not really help everyone who was hurt (well, even moreso than the actual recovery, which still has not helped everyone).

I think this would be bad policy and just the wrong thing to do, but it doesn't make the anti-redistribution, let people fail or succeed as they will crowd incoherent.

It is incoherent.

It doesn't work.

There isn't really a valid debate on this point any more.

The idea that making things worse is a "more concentrated recovery" is just ridiculous... as in, "deserving of ridicule".

My industry (PE) started recovering long before the economy as a whole was recovering. All it took was stabilizing the banks and restarting the flow of credit.

So... welfare for the banks: great idea, highly effective?

spacekungfuman · January 2013

Chanus wrote: »

I guess we just disagree that leaving people to starve and die to support your own interests is a coherent philosophy.

I think you are conflating coherency with morality. I agree with you that the people who champion austerity are in the wrong on a moral level. But that doesn't mean that austerity could not result in a return from a recession, and so it is a coherent position.

Chanus · January 2013

But it is incoherent.

Saving your private equity firm isn't going to mean dick in a decade or two if you leave everyone else out in the cold. Private equity is useless without places to invest, and you can't have places to invest in some dystopian society where only the wealthy are left.

Just because it worked for a couple years doesn't mean it's sustainable... and if it's not sustainable, it's not coherent.

enlightenedbum · January 2013

spacekungfuman wrote: »

Chanus wrote: »

I guess we just disagree that leaving people to starve and die to support your own interests is a coherent philosophy.

I think you are conflating coherency with morality. I agree with you that the people who champion austerity are in the wrong on a moral level. But that doesn't mean that austerity could not result in a return from a recession, and so it is a coherent position.

Europe has tried this. It's not working.

BONUS: it's empowering fascists! Like, honest to God literal we're fascists fascists.

AManFromEarth · January 2013

spacekungfuman wrote: »

Chanus wrote: »

I guess we just disagree that leaving people to starve and die to support your own interests is a coherent philosophy.

I think you are conflating coherency with morality. I agree with you that the people who champion austerity are in the wrong on a moral level. But that doesn't mean that austerity could not result in a return from a recession, and so it is a coherent position.

You would be exactly where we are, a technical recovery without actual recovery.

It's also unsustainable, and if your take away from 2008 was that industries can survive on their own and you're really as influential in policy as you say I'm going to start hoarding gold, MREs and ammunition in preparation.

spacekungfuman · January 2013

AManFromEarth wrote: »

spacekungfuman wrote: »

Chanus wrote: »

spacekungfuman wrote: »

Again, to be clear, I do not agree with austerity, and think it is a poor response to a recession. All I am saying is that there is another side to this debate, it is just a side that must accept a prolonged recession, much lower level of government provider benefits, and greater inequality in wealth distribution. Put another way, we could have chosen to spend less to help people, (bassically limiting government invilvement to the bank bailout) and in return received a more concentrated recovery which did not really help everyone who was hurt (well, even moreso than the actual recovery, which still has not helped everyone).

I think this would be bad policy and just the wrong thing to do, but it doesn't make the anti-redistribution, let people fail or succeed as they will crowd incoherent.

It is incoherent.

It doesn't work.

There isn't really a valid debate on this point any more.

The idea that making things worse is a "more concentrated recovery" is just ridiculous... as in, "deserving of ridicule".

My industry (PE) started recovering long before the economy as a whole was recovering. All it took was stabilizing the banks and restarting the flow of credit. In a global economy, US firms with adequate capital can thrive independent of the US worker, Because there are other markets available. I don't just believe a targetted recovery was possible. I lived it. Even if the government had not spent a penny in anything but the bank bailouts, the economy could have rallied, it just wouldn't have taken as many people along for the ride.

Except that is not sustainable in the long term.

Of course, what Chanus misses is that the elected debt scolds and austerity proponents don't really give a shit about recovery, so it's not as incoherent as it would be for say, a Republican voter, to believe.

That depends on how the rest of the world fares, and population dynamics. If China presents a suitable market for your products, you can succeed as an American firm, even if the Anerican worker has no buying power. As long as the government is stable and order is maintained, I don't see why this is not a sustainable model.

Julius · January 2013

spacekungfuman wrote: »

Again, to be clear, I do not agree with austerity, and think it is a poor response to a recession. All I am saying is that there is another side to this debate, it is just a side that must accept a prolonged recession, much lower level of government provider benefits, and greater inequality in wealth distribution. Put another way, we could have chosen to spend less to help people, (bassically limiting government invilvement to the bank bailout) and in return received a more concentrated recovery which did not really help everyone who was hurt (well, even moreso than the actual recovery, which still has not helped everyone).

I thought we were talking about the debt? Because the longer a recovery takes the higher the debt is, regardless of cuts. Since the faster you recover the faster you get higher revenue and inflation. Both of those reduce debt as a percentage of GDP, which is the only useful measure of debt.

AManFromEarth · January 2013

spacekungfuman wrote: »

AManFromEarth wrote: »

spacekungfuman wrote: »

Chanus wrote: »

spacekungfuman wrote: »

Again, to be clear, I do not agree with austerity, and think it is a poor response to a recession. All I am saying is that there is another side to this debate, it is just a side that must accept a prolonged recession, much lower level of government provider benefits, and greater inequality in wealth distribution. Put another way, we could have chosen to spend less to help people, (bassically limiting government invilvement to the bank bailout) and in return received a more concentrated recovery which did not really help everyone who was hurt (well, even moreso than the actual recovery, which still has not helped everyone).

I think this would be bad policy and just the wrong thing to do, but it doesn't make the anti-redistribution, let people fail or succeed as they will crowd incoherent.

It is incoherent.

It doesn't work.

There isn't really a valid debate on this point any more.

The idea that making things worse is a "more concentrated recovery" is just ridiculous... as in, "deserving of ridicule".

My industry (PE) started recovering long before the economy as a whole was recovering. All it took was stabilizing the banks and restarting the flow of credit. In a global economy, US firms with adequate capital can thrive independent of the US worker, Because there are other markets available. I don't just believe a targetted recovery was possible. I lived it. Even if the government had not spent a penny in anything but the bank bailouts, the economy could have rallied, it just wouldn't have taken as many people along for the ride.

Except that is not sustainable in the long term.

Of course, what Chanus misses is that the elected debt scolds and austerity proponents don't really give a shit about recovery, so it's not as incoherent as it would be for say, a Republican voter, to believe.

That depends on how the rest of the world fares, and population dynamics. If China presents a suitable market for your products, you can succeed as an American firm, even if the Anerican worker has no buying power. As long as the government is stable and order is maintained, I don't see why this is not a sustainable model.

Well the inevitable collapse of the dollar and therefore the yuan is one reason.

Salvation122 · January 2013

spacekungfuman wrote: »

Astaereth wrote: »

spacekungfuman wrote: »

Astaereth wrote: »

I will point out two things:

1. Much of the current deficit is due to the recession itself, because it increases earned benefit payments (more people need unemployment) and decreases revenues (fewer people have jobs, those with jobs earn less or miss raises, therefore incomes and the tax base shrink, therefore income tax revenues shrink overall). Here's Krugman on that:

Krugman wrote:

For starters, we need to be aware that we don’t need a balanced budget to have a stable fiscal situation; all we need is for debt to grow no faster than GDP. At the beginning of fiscal 2012, federal debt in the hands of the public was $10 trillion. Meanwhile, most estimates of long-run growth and inflation put them at a bit more than 2 and 2 respectively; so we can reasonably say that nominal GDP growth can be expected to be more than 4 percent per year. If debt grew at 4 percent, it would grow by $400 billion. So the deficit should be scaled down by that much.

That still leaves $700 billion. Where’s that coming from?

OK, revenues were $2.45 trillion, which was 15.7 percent of GDP, at $15.5 trillion. The CBO estimates, however, that potential GDP — what the economy would have produced at full employment — was $16.5 trillion over the same period. And if the economy had been at more or less full employment, we wouldn’t just have collected taxes on the additional income; historically, the tax share of GDP varies strongly with the business cycle. If the economy had been at potential and revenue had been a historically normal 18 percent of GDP, revenue would have been more than $500 billion more than it was; even if revenue had been only 17.5 percent, it would have been almost $450 billion more than it was.

[...]

Put these together: $400 billion that doesn’t increase the debt-GDP ratio; $450 billion or so in slump-related revenue loss; $150 billion or more in slump-related expenses; and guess what: the ONE TRILLION DOLLARS is basically just a depressed-economy story, having nothing to do with any fundamental mismatch between what we want and what we’re willing to pay.

And this makes a lot of sense! The budget wasn’t deep in the red in 2007, and there have been no fundamental increases in government responsibilities or cuts in taxes since then (Obamacare won’t kick in until 2014, and it’s paid for in any case).

2. What we've seen in recent years is that austerity in a recession merely kicks up this same cycle--the more you cut spending, the worse the recession gets, and the more your revenues go down. It's like the businessman who decides to stop cutting his hair and cleaning his suits in order to save money and then gets fired for having an unpresentable appearance.

In other words, you can't cut your way to fiscal stability; you can only grow your way there. And that means spending money, or at the very least not cutting expenses.

Nor can you use arbitrarily "necessary" cuts (like those a debt-ceiling default would entail) to do an end-run around decades of democratically-negotiated budgeting. Starving the beast doesn't work, because whether or not people are willing to pay their debts, they are always willing to incur them. To go back to the household metaphor, you can try quitting your high-paying job to go work at McDonalds as a self-encouragement to scale back your expenses, but it will turn out that your spouse won't let you pull the kids out of private school, your subscription to Steak of the Month can't be canceled without 90 days notice, and you can't bear to garage sale your home entertainment center with the 10.2 Surround Sound.

I think I got a little too deep into the metaphor there, but the point is, "painful austerity now, balanced budgets later" isn't a strategy we shouldn't pursue because it's too painful now; it's a strategy we shouldn't pursue because it won't work.

I disagree with Krugman on ACA costs (the government has already spent a lot, although it pales in comparison to what the premium subsidies will cost).

But more importantly, I disagree that we can't cut spending as a way out of the hole, it just requires us to accept fewer benefits. For example, we did not have to extend unemployment benefits as far as we did, but not doing so would have meant choosing to allow a lot of people to fall into abject poverty. This may make it harder to get out of the recession, but we would still do it, the resulting picture would just be one of more income inequality than before it started. So I don't think that the choice is austerity and perpetual recession or debt financed spending and recovery. It's austerity and a recession that lasts longer and hurts people more (and for a longer time) or spending and a faster recovery, at the cost of more debt. I think the latter is clearly preferable, but preferring the former is not incoherent.

The whole point of my post is that the bolded is incorrect; when the economy recovers, GDP goes up, revenue goes up, inflation goes up, and the ratio of debt to GDP goes down, down, down. Unemployment benefits help the economy recover (because it maintains consumption levels), so the debt that we incur paying for them will be paid off and then some when the economy recovers sooner.

So in my opinion the bolded in your post should be rewritten as, "The choice is between austerity and a recession that lasts longer, at the cost of the same debt now and more debt later, or spending and a faster recovery, at a cost of more debt now but less debt eventually." This is standard Keynesian stuff, where the government uses investment multipliers to help improve the economy out of a recession via deficit spending.

For example, I am underemployed at the moment and looking for work. I could stop making my car insurance payments, on the theory that this would make my savings last longer; but if I couldn't drive, I wouldn't be able to show up to interviews. It's not a dumb thing to do because it sucks to not be able to drive; it's a dumb thing to do because it'd be shooting myself in the foot. The few hundred a month I'd save pale in comparison to how much longer it would take to find a job without a car, to the extent that I'd be better off putting that money on a credit card now and paying it off once I found work.

And the point I am making (putting aside how hard those multipliers are to pin down) is that the government could stop providing a lot of the services it currently provides and the economy would still come out of recession. Your assumption of debt now plus more debt later under austerity seems to be predicated on the notion that austerity wouldn't really cut that deep. Again, I do not support this view, but I think it is fully coherent for someone to say (for example) that the government ought to stop providing unemployment, medical and retirement benefits entirely, and balance the budget on the back of these cuts. Drastically cut spending, and you simply need less revenue.

Until your law enforcement costs skyrocket because the poor start killing the rich and stealing their shit so they can eat.

Edit: I should really read the whole thread before I respond.

Spawnbroker · January 2013

I think where people are disagreeing with you SKFM is on what is the threshold for sustainability. You seem to be arguing that even with lots of very, very poor people, the rich would still be doing fine. Everyone else is arguing that the poor would eat the rich.

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