Quote of the Day

“Yes, total debt in the U.S. economy, public and private combined, has risen dramatically relative to G.D.P. No, this doesn’t mean that we as a nation have been living far beyond our means, and must drastically tighten our belts. While we have run up a significant foreign debt (although not as big as many imagine), the rise in debt overwhelmingly represents Americans borrowing from other Americans, which doesn’t make the nation as a whole any poorer, and doesn’t require that we collectively spend less. In fact, the biggest problem created by all this debt is that it’s keeping the economy depressed by causing us collectively to spend too little, with debtors forced to cut back while creditors see no reason to spend more.

“So what should we be doing? By all means, let’s restore the kind of effective financial regulation that, in the years before the Reagan revolution, helped deter excessive leverage. But that’s about preventing the next crisis. To deal with the crisis that’s already here, we need monetary and fiscal stimulus, to induce those who aren’t too deeply indebted to spend more while the debtors are cutting back.

“Unemployment, not excessive money printing, is what ails us now — and policy should be doing more, not less.”  Emphasis added.

Paul Krugman, from “The Urge to Purge,” NYT

Quote of the Day

“This economy has no forward momentum and little help from monetary or fiscal policy.  As if that were not enough, ill winds are blowing in from both a contracting Europe and slowing growth in emerging markets.”

Kathy Bostjancic, director of macroeconomic analysis, the Conference Board

I would say no help from monetary or fiscal policy.

But Obama does have one thing going for him — he has Mitt.

Friedman Links Messes in Europe and Mideast

From “Two Worlds Cracking Up,” Thomas Friedman, NYT:

“In Europe, the supranational project did not work, and now, to a degree, Europe is falling back into individual states.  In the Arab world, the national project did not work, so some of the Arab states are falling back onto sects, tribes, regions and clans.

“In Europe, the supranational project did not work because the European states were never ready to cede control over their budgets to a central authority that would ensure a common fiscal policy to back up a common currency.

“In the Arab world, the national project did not work — in many, but not all cases — because the tribes, sects, clans and regional groups that make up these Arab states, whose borders were drawn up by colonial powers, were unwilling or unable to meld genuine national communities.”  Italics in original.

And all timed to determine the outcome of America’s presidential election!

 

Hey, GOP, Darwin and Keynes Were Both Right

I guess it’s too much to ask from folks who can’t accept Darwin, but why can’t the GOP recognize that Keynes was right?  They look at Europe and draw exactly the wrong conclusions.

From “Europe’s Ills Reach the Heart of the Presidential Race,” Richard W. Stevenson, NYT:

“But whichever side of the ocean you are on, few topics are more ideologically divisive than fiscal policy, so it is no surprise that left and right are drawing very different conclusions from what is happening.

“From one perspective, the European experience provides yet more evidence that trying to cut budget deficits too aggressively can backfire in a big way when economies in most nations remain fragile.

“Britain’s austerity experiment in particular has been judged by economists to have been ill-timed and poorly constructed at best.  It is a reminder, in the consensus view, that the basic tenets of Keynesian economics — primarily, that government spending plays a key role in maintaining demand when the private sector is struggling in a financial crisis — remain as valid as ever.

“In the United States, the British experience is being held up by Democrats and mainstream economists as an object lesson in the risks inherent in aggressive short-term budget cutting amid signs that the recovery could be losing traction again.

“However flawed the stimulus plan that Mr. Obama pushed through Congress in 2009, fiscal policy has helped the United States generate stronger growth rates coming out of the recession than Britain or the euro zone countries as a whole.”  Emphasis added.

 

While the Storm Clouds Gather, Far Across the Sea…

Once again (see WWI, WWII), we will get dragged into Europe’s mishegas and suffer for it.  In a global economy, the Atlantic Ocean really is just a pond, or maybe just a puddle.

From “Europe’s Economic Suicide,” Paul Krugman, NYT:

“The question then was whether this brave and effective action [the European Central Bank’s making money available to banks late last fall] would be the start of a broader rethink, whether European leaders would use the breathing space the bank had created to reconsider the policies that brought matters to a head in the first place.

“But they didn’t.  Instead they doubled down on their failed policies and ideas.

“Consider the state of affairs in Spain, which is now the epicenter of the crisis.  Never mind talk of recession; Spain is in full-on depression, with the overall unemployment rate at 23.6 percent…, and the youth unemployment rate over 50 percent.  This can’t go on — and the realization that it can’t go on is what is sending Spanish borrowing costs ever higher.

“[T]he prescription coming from Berlin and Frankfurt is, you guessed it, even more fiscal austerity.

“This is, not to mince words, insane.  Europe has had several years of experience with harsh austerity programs, and the results are exactly what students of history told you would happen:  such programs push depressed economies even deeper into depression.  And because investors look at the state of a nation’s economy when assessing its ability to repay debt, austerity programs haven’t even worked as a way to reduce borrowing costs.

“The Continent needs more expansionary monetary policies, in the form of a willingness…on the part of the European Central Bank to accept somewhat higher inflation;  it needs more expansionary fiscal policies, in the form of budgets in Germany that offset austerity in Spain and other troubled nations around the Continent’s periphery, rather than reinforcing it.

“What we’re actually seeing, however, is complete inflexibility.

“Rather than admit that they’ve been wrong, European leaders seem determined to drive their economy — and their society — off a cliff.”  Emphasis added.

The lamps are going out all over Europe, and we shall not see them lit again in President Obama’s first term, which may make it his only term.  He’s not just facing Mitt, he’s facing Merkel.