I Wish the Whole Country Would Read This

If I could get everyone in America to read one thing today, it would be Paul Krugman’s NYT column, “Dwindling Deficit Disorder.”  Some excerpts:

“What’s really remarkable at this point, however, is the persistence of the deficit fixation in the face of rapidly changing facts. People still talk as if the deficit were exploding, as if the United States budget were on an unsustainable path; in fact, the deficit is falling more rapidly than it has for generations, it is already down to sustainable levels, and it is too small given the state of the economy.

“Start with the raw numbers. America’s budget deficit soared after the 2008 financial crisis and the recession that went with it, as revenue plunged and spending on unemployment benefits and other safety-net programs rose. And this rise in the deficit was a good thing! Federal spending helped sustain the economy at a time when the private sector was in panicked retreat….

“But after peaking in 2009 at $1.4 trillion, the deficit began coming down. The Congressional Budget Office expects the deficit for fiscal 2013…to be $845 billion.

“Bear in mind that the budget doesn’t have to be balanced to put us on a fiscally sustainable path; all we need is a deficit small enough that debt grows more slowly than the economy. To take the classic example, America never did pay off the debt from World War II — in fact, our debt doubled in the 30 years that followed the war. But debt as a percentage of G.D.P. fell by three-quarters over the same period.

“Right now, a sustainable deficit would be around $460 billion.   The actual deficit is bigger than that. But according to new estimates by the budget office, half of our current deficit reflects the effects of a still-depressed economy. The “cyclically adjusted” deficit — what the deficit would be if we were near full employment — is only about $423 billion, which puts it in the sustainable range; next year the budget office expects that number to fall to just $172 billion. And that’s why budget office projections show the nation’s debt position more or less stable over the next decade.

“So we do not, repeat do not, face any kind of deficit crisis either now or for years to come.

“There are, of course, longer-term fiscal issues: rising health costs and an aging population will put the budget under growing pressure over the course of the 2020s. But I have yet to see any coherent explanation of why these longer-run concerns should determine budget policy right now.

“Yes, we’ll want to reduce deficits once the economy recovers, and there are gratifying signs that a solid recovery is finally under way. But unemployment, especially long-term unemployment, is still unacceptably high. … [A]ll you have to do is look at Europe to see the disastrous effects of austerity on weak economies.

“Now, I’m aware that the facts about our dwindling deficit are unwelcome in many quarters. Fiscal fearmongering is a major industry inside the Beltway, especially among those looking for excuses to do what they really want, namely dismantle Medicare, Medicaid and Social Security. “

We can’t make smart political decisions based on phony economic analysis.  Let’s have honest debates about the size and scope of government, but let’s not rely on scare tactics that depend on disinformation about our deficits and national debt.  To me, the GOP is engaging in economic terrorism.

WSJ Warns Against Cutting Deficit Too Quickly

The economics editor at the WSJ, David Wessel, sounds like Paul Krugman!  From “Putting the Brakes on Cutting the Deficit”:

“The deficit…is shrinking even before the year-end fiscal cliff or a last-minute compromise to avoid it.  In the depths of the most recent recession, the fiscal year that ended Sept. 20,.2009, the deficit was 10.1% of gross domestic product….  Since then, the deficit has shrunk to 9% of GDP in 2010, 8.7% in 2011 and 7% in fiscal 2012.  Private analysts predict the deficit will be between 5.5% and 6% of GDP in fiscal 2013…

“One reason the deficit is still large is that the economy is still lousy:  More unemployment means fewer taxpayers as well as more government spending on jobless benefits, food stamps and the like.  As the economy slowly improves, the deficit shrinks as these automatic stabilizers…adjust.  Tax revenue rises.  Safety-net spending falls.  The U. S. budget deficit has been coming down at roughly the same pace as the U. K..’s — with far less austerity than Britain’s David Cameron has prescribed and substantially better growth.”

Really, people, short-term, we’d be better off with more government spending. 


Krugman 1, Brooks 0

I posted recently disagreeing with a David Brooks column  in the NYT where he said that the economic cyclicalists (a reference to Paul Krugman) were wrong and the economic structuralists (including himself) were right.

Today’s Krugman column, “Easy Useless Economics,” is a “right back atcha” to Brooks.

“A few days ago, I read an authoritative-sounding paper in the American Economic Review, one of the leading journals in the field, arguing at length that the nation’s high unemployment rate had deep structural roots and wasn’t amenable to any quick solution.  The author’s diagnosis was that the U. S. economy just wasn’t flexible enough to cope with rapid technological change.  The paper was especially critical of programs like unemployment insurance, which it argued actually hurt workers because they reduced the incentive to adjust.

“O.K., there’s something I didn’t tell you:  The paper in question was published in June 1939.

“And, once again, authoritative-sounding figures [like you, David Brooks] insist that our problems are ‘structural,’ that they can’t be fixed quickly.  We must focus on the long-run, such people say, believing that they are being responsible.  But the reality is that they’re being deeply irresponsible.

“What does it mean to say that we have a structural unemployment problem?  The usual version involves the claim that American workers are stuck in the wrong industries or with the wrong skills.

“Instead, the economy has bled jobs across the board, in just about every sector and every occupation, just as it did in the 1930s.  Also, if the problem was that many workers have the wrong skills or are in the wrong place, you’d expect workers with the right skills in the right place to be getting big wage increases;  in reality, there are very few winners in the work force.

“Every time some self-important politician or pundit starts going on about how deficits are a burden on the next generation, remember that the biggest problem facing young Americans today isn’t the future burden of debt….  It is, rather, the lack of jobs, which is preventing many graduates from getting started on their working lives.”

At the bottom of Krugman’s column, it says, “David Brooks is off today.”  I think Krugman would argue that Brooks is “off” every day.





A False Choice

In his NYT column today, “The Structural Revolution,” David Brooks sets up a false choice between those whom he calls “cyclicalists” (he means you, Paul Krugman) and those whom he calls “structuralists” (hi, Paul Ryan, hi Mitt):

“The main argument you hear from these cyclicalists is that the economy is operating well below capacity.  To get it moving at full speed, the government should borrow and spend more.

“The diverse people in this camp — and I’m one of them — believe the core problems are structural, not cyclical.

“There are several overlapping structural problems.  First, there are those surrounding globalization and technological change. … Then there are the structural issues surrounding the decline in human capital.  The United States, once the world’s educational leader, is falling back in the pack.

“Then there is political sclerosis.  Over the decades, companies and other entities have implanted  a growing number of special-interest deals into the tax and regulatory codes, making it harder for politically unconnected, new competitors, making the economy less dynamic.

Unlike the cyclicalists, we structuralists do not believe that the level of government spending is the main factor in determining how fast an economy grows.”

Brooks’ false choice is highlighted in that last sentence.  I consider myself both a cyclicalist and a structuralist.  We need to focus on this cyclical downturn in the short term and on our undoubted structural problems in the short, medium, and long term.  I don’t see government spending as a force to make our economy grow under normal circumstances.  I see it as a temporary spur to counter the lack of demand in the private sector from the Great Recession.  Once we get the private sector kick-started, government should pull back.  This is classic Keynesian economics, which Republicans used to accept and believe in.

We can address some of our structural problems at the same time as we do our cyclical ones.  They are not mutually exclusive.  Brooks bemoans our decline in education.  So let’s hire back or replace some of the hundreds of thousands of teachers who have been fired in the last few years.  Some of those teachers weren’t very good?  Fine, there are plenty of unemployed people to choose from.  Same with his complaint about special deals in the tax code.  Let’s close the loopholes.  That raises more revenue that can be used to stimulate the economy and makes the playing  field more even.  Scrubbing regulatory codes of provisions that favor one company over another is irrelevant to government stimulus spending.  You can do both simultaneously.

Brooks says the problem is that “different people are having entirely different debates.”  The real problem, the sad and shameful problem, is that we’re having an election.  Some people, whose initials are GOP, don’t want the economy to get better.



Not-So-Smart ALEC

Paul Krugman places Florida’s Stand Your Ground law in the broader context of the American Legislative Exchange Council (ALEC), and its adverse effect on our society*:

“And if there is any silver lining to Trayvon Martin’s killing, it is that it might finally place a spotlight on what ALEC is doing to our society — and our democracy.

“What is ALEC?  Despite claims that it’s nonpartisan, it’s very much a movement-conservative organization, funded by the usual suspects:  the Kochs, Exxon Mobil, and so on.  Unlike other such groups, however, it doesn’t just influence laws, it literally writes them, supplying fully drafted bills to state legislators.

“Many ALEC-drafted bills pursue standard conservative goals:  union-busting, undermining environmental protection, tax breaks for corporations and the wealthy.   ALEC seems, however to have a special interest in privatization — that is, on turning the provision of public services, from schools to prisons, over to for-profit corporations.

“ALEC’s claim to stand for limited government and free markets is deeply misleading.  To a large extent the organization seeks not limited government but privatized government, in which corporations get their profits from taxpayer dollars, dollars steered their way by friendly politicians. In short, ALEC isn’t so much about promoting free markets as it is about expanding crony capitalism.”  Emphasis added.

*  “Lobbyists, Guns and Money,” NYT

It’s The GOP That Will Turn Us Into Greece

“You may ask what alternative countries like Greece and Ireland had, and the answer is that they had and have no good alternatives short of leaving the euro….

“But the main point is that America does have an alternative:  we have our own currency, and we can borrow long-term at historically low interest rates, so we don’t need to enter a downward spiral of austerity and economic contraction.

“So it is time to stop invoking Greece as a cautionary tale about the dangers of deficits; from an American point of view, Greece should instead be seen as a cautionary tale about the dangers of trying to reduce deficits too quickly, while the economy is still deeply depressed.

“The truth is that if you want to know who is really trying to turn America into Greece, it’s not those urging more stimulus for our still-depressed economy; it’s the people demanding that we emulate Greek-style austerity even though we don’t face Greek-style borrowing constraints, and thereby plunge ourselves into a Greek-style depression.”  Emphasis added.

“What Greece Means,” Paul Krugman, NYT

Pericles 1, Keynes 1, Greece 0

Those who don’t learn from the past are condemned to have high unemployment.

From Paul Krugman, “In Athens, Austerity’s Ugliness,” NYT:

“Europe declared war on Keynes, and Keynes is winning.

“Yet instead of structural reforms or improved tax collection, what has changed in Greece, so far, has mostly been slashed budgets.  And, as in the rest of Europe, austerity in the middle of recession has made matters worse — just as John Maynard Keynes predicted.

“One of the earliest recorded economic crises in the Western world came in Athens in the 5th century B.C.  Fortunately, Athens was then led by the great Pericles, an early Keynesian who did not respond by slashing budgets.

“Instead he ordered a public works initiative and built the Parthenon.”


Quote of the Day

“How did American conservatism end up so detached from, indeed at odds with, facts and rationality?

“My short answer is that the long-running con game of economic conservatives and the wealthy supporters they serve finally went bad.  For decades the G.O.P. has won elections by appealing to social and racial divisions, only to turn after each victory to deregulation and tax cuts for the wealthy….

“Over time, however, this strategy created a base that really believed in all the hokum — and now the party elite has lost control.”

“Severe conservative syndrome,” Paul Krugman, NYT

Florida Projections

Nate Silver from FiveThirtyEight (whom I love on stats the way I love Krugman on fixing the economy) is predicting that Mitt will beat Newt by about 15% in Florida today.  Silver says Mitt has a 97% chance of winning.

I think the GOP primary effectively ends tonight.  Newt will be a thorn in Mitt’s side, but a thorn doesn’t kill you.

The Myth of “Expansionary Austerity”

My favorite voice in the wilderness these days is Nobel-prize-winning economist Paul Krugman and his derision of “expansionary austerity,”* which he defines as “the notion that instead of increasing government spending to fight recessions, you should slash spending instead — and that this would lead to faster economic growth.”

He says that Britain, Spain, and Italy are doing worse today than during the Great Depression by the measure of changes in their GDP since the Great Recession began.

“[S]urpasing the track record of the 1930s shouldn’t be a tough challenge.  Haven’t we learned a lot about economic management over the last 80 years?  Yes, we have — but in Britain and elsewhere, the policy elite decided to throw that hard-won knowledge out the window, and rely on ideologically convenient wishful thinking instead.”

Krugman says that because President Obama has refused to “do a Cameron” (in the sense of emulating Prime Minister David Cameron’s austerity in Britain), things aren’t as bad here as they could be.  But he notes that while federal spending hasn’t been slashed, local and state spending has, and that has hurt our overall economy.  Krugman laments, “Without those spending cuts, we might already have been on the road to self-sustaining growth….”

Krugman concludes:

“The infuriating thing about this tragedy is that it was completely unnecessary.  Half a century ago, any economist…could have told you that austerity in the face of depression was a very bad idea.  But policy makers, pundits and, I’m sorry to say, many economists decided, largely for political reasons, to forget what they used to know.  And millions of workers are paying the price for their willful amnesia.”


* “The Austerity Debacle,” by Paul Krugman, NYT