This is a guest post by Ben Lehman.
I’ve seen the phrase “austerity” getting floated a lot in political discussions lately. In all the languages in all of human history, never has there been a word that crammed more bullshit into less space that “austerity,” at least as it applies to the political practice. What is particularly galling is it appeals to people’s sense of value: saving is good! And, indeed, saving is good, if you’re a person. But economies and governments are not people, and not only is saving, for them, a terrible idea, it is actually the road to complete economic collapse.
Austerity is used by the IMF and World Bank as a form of economic warfare. And, let’s be clear here, when I say “warfare” I mean it. It is better to drop a bomb on a country than impose austerity measures. Just like a bomb, austerity measures kill people, destroy infrastructure, and destabilize governments. At least with a bomb you can sell the scrap metal. Most countries which have austerity measures imposed on them never recover and, of those that do, it takes a long-ass time. South Korea is one exception but the second time around, they knew much better than to accept this assault (instead, they were backed up by China and Japan, who knew that it was a no brainer to bail out the economy of a major trading partner.)
All this and we, in the US, are seriously thinking about imposing these on ourselves. It’s as if our government was saying “hey, maybe we should nuke Iowa City” and all the grave, Serious people in the political press were going “well, I mean, if we don’t, what else are we going to do with these shiny nuclear bombs?”
(If you don’t follow the news on TV, in the newspapers, or in blogs you may have missed this, but there’s been a big surge of interest towards “austerity measures” applied domestically. This is related to several things, but the republican House and the PIGS crisis-brewing in Europe are biggies.)
So why is austerity so bad? Time for a lesson in basic economics.
Okay, so imagine that Alice has a pound of coffee beans, and Bob has a pound of chocolate. Each of them is expecting to get a certain amount of joy out of their respective treats. Let’s say that each of them is going to get 100 units of joy. Together, there are 200 joy units in the system. But now, if they get together, they can swap half a pound of coffee beans for half a pound of chocolate. Now, each of them has a half a pound of each, and they can both make mochas, which everyone knows are better than the components separately. A pound of mochas is worth 120 units of joy, so now there are 240 joy units in the system. Alice and Bob are now %20 more joyful than they were pre-trade.
Now, when we say “joy” economists say “value” but it’s the same thing. Whenever good exchange is made (a good exchange being on where both parties benefit), value is created. This happens *every time that there’s an exchange of goods* It’s totally awesome and magic and it fuels the modern world.
When money comes into it, it’s a little more complicated. Money is a medium of exchange, which means that theoretically it’s worth the same to everyone. So when I buy a book for $10, I’m betting that I will get more than $10 worth of joy out of the book. Most of the time, this is true (it’s possible to make bad exchanges but we have various protections against this like reviews, friends recommendations, etc.)
Note that value is created in the exchange. This is what fuels economies. A healthy economy is full of exchanges, the more the better, because in each exchange, more value is created. (Thus: more joy, more alleviation of suffering.)
If there isn’t an exchange, no growth, no joy. If Alice stuffs her coffee beans into a mattress, she’s stuck at 100 units of joy, period.
Now let’s look at how loans come in. Let’s say that Bob, having made his exchange and gotten his pound of mochas, is planning on selling them (to carol, dan, elizabeth, frank, and gertrude). Since they’re worth more separately than together, he can sell them at a mark-up. He’s confidence that he’ll get the money, so he can borrow against that future earnings. If his friend Harriet has some money sitting around that she’s not using, he might borrow it against future earnings, knowing that he can use it to buy more ingredients and pay her back. This is a win-win: Bob adds value, more customers get mochas, and Harriet’s money (which she wasn’t planning on using immediately) increases during the loan.
That’s how economies work. Now let’s look at how economies collapse. Throughout this whole thing, there are bad deals, where one side (or even both) ends up with less than they started. This is pretty much going to happen, although we avoid it as best we can, and particularly if we think someone is going to make us a bad trade, we avoid it by not trusting them. The problem is that trust is what fuels all the exchanges. When Alice gives Bob coffee for chocolate, she trusts that his chocolate isn’t cut with sawdust, and he trusts that her coffee isn’t decaf. If that trust breaks down, they can’t make that trade anymore, which means that they’re stuck with what they have and the economy doesn’t grow. But not only that, if Bob has a loan from Harriet, all of a sudden he can’t make mochas, he can’t sell them, and he can’t make good the loan. Bob declares bankruptcy, which means Harriet doesn’t get her money. In this case, it’s not just that there’s less money than there could be, but money has actually left the system.
Once this starts happening on a grand scale, non-trusting behavior becomes rewarded. If many trades and loans are resulting in losses, then the smart thing to do is hold onto your money and your goods, so that locks down exchange, which means that we can no longer add value to the system. Enter misery and suffering, which makes bankruptcies and bad debts and bad trades more likely, which in turn locks up money even more.
That’s what’s going on right now, in the US. It’s not that businesses don’t have money; in fact, most US businesses are rolling in cash right now. It’s that there’s very little exchange going on: businesses are terrified of getting a bad deal, so they’re not spending the money. No trust means no spending means no exchange means less value means more suffering means more bankruptcies means less trust. It’s a vicious cycle.
One of the only means of interrupting this cycle is spending by the state. Because the state can print money, and also because they can issue bonds and sovereign (essentially trustworthy) debt, they can be the “spender of last resort,” entering the market and making the deals that need to be made. For the state, such spending is doubly valuable: first, it carries whatever value it actually has, but additionally it has the advantage of getting money flowing again. Moving money adds value. Stationary money destroys it.
Austerity measures call for, in this situation, the state to enter a spending lockdown and actually spend less money, which means less trust, less value, more suffering. Austerity means we sit and watch as our economy dwindles to nothing. Austerity means resigning ourselves to economic death.
When this is forced on a country by the international monetary fund (IMF), it’s usually as a means of punishing that country, extracting as much capital as possible from a failing economy, and of weakening that country so it can be the victim of exploitation by the various countries that run the IMF. This is a terrible, horrible thing to do, but at least it’s a fucking strategy. Like, I can understand why someone would do it, the same way I can understand why someone would stab a guy for $50.
When we talk about austerity for our own country it’s just mind-numbingly stupid. There’s no strategy. It’s like killing yourself by gouging through your own eyeballs with a rusted butterknife. There’s just no fucking reason for it.
So why do we have people going on about “austerity?”
(There’s a tangent here about why carrying a certain amount of national debt is a good sign for a country, and that you don’t want to be living in a country without national debt, but I couldn’t fit it in. If people want to hear it, ask in the comments or I’ll post another bit on it.)
See, that’s the sort of straight-up understandable stuff so many of our ‘elected leaders’ seem to have missed in high school civics. Thanks Ben.
Your post is akin to saying that vitamin D is good for people…and therefore people should always and everywhere increase their consumption/production of vitamin D.
Except that after a certain very high level, vitamin D causes you to go into renal failure and die. The same thing is true of government debt and national economies. A certain level of debt is not economically toxic; in times of recession or depression, government debt can indeed be critical in getting the economy lubricated again and, as you state colorfully, getting deals in train.
But when the economy is back on track and the recession ends, government has to get that debt back under control. If it doesn’t, then the next time it needs to go into debt, it’s starting further underwater. The supply of world credit is not infinite; at this point on the Federal level, we’re attempting to do things like borrow 40% of the Federal budget of (by far) the largest government on earth.
Austerity measures in this circumstance are like being the doctors at the ER who get a patient suffering from renal failure, and they find a dozen bottles of huge vitamin D megacapsules on him, and he tells them he’s been taking 150,000 IU a day (~three times the toxic dose) for a year. The first thing they do is take away his pills and say “bro, you gotta cut this stuff out for a while – a LONG while”.
Well, the first thing they do is probably get him on a kidney machine, but you know what I mean.
The Federal government has been popping D for about fifty years now. With the exception of a couple years in the Bush presidency and a few years of the Clinton presidency, we have gone further and further into debt with every budgetary cycle. That simply isn’t sustainable, just as you can’t take 50,000 IU of vitamin D for years upon years. Once a month, it won’t kill you; every day, it will.
We’re getting the guy on the kidney machine and taking away his pills at this point. You can talk all you want about how great vitamin D is and you won’t be wrong, in principle, but in the immediate circumstance, no sale.
Robert,
Growing Federal debt is not a problem. Growing Federal debt relative to GDP is potentially a problem. There isn’t any sign that it is currently a problem for the US (the US is still able to sell debt at incredibly low interest rates). If it is a problem for the US, then austerity is still not the solution. The current austerity program that the Republican House is pushing fails to even offset the tax cuts that the Republicans won last December.
Also, your claim that the US Debt has grown continuously except under part of the reign of Bush I and part of the reign of Clinton is simply wrong. The only way you can get the numbers to match your claim is if we ignore inflation and count in nominal dollars, which is a useless comparison. Counted in real dollars, the Debt fell from after WWII pretty much until the rise of Reagan (there is a small uptick under Carter to 1960’s levels, but it only balloons after the Reagan tax cuts). If you want to get rid of the perpetual deficit, repeal the Reagan tax cuts. Tax rates haven’t been producing sustainable levels of revenue since then. Problem solved. No austerity required.
Hi Meg!
Yeah, post it.
From about 1950 to about 1980 the debt in real dollars was fairly flat (it did decline, but very slightly); however, the government was borrowing new funds (running deficits) every year. Strong economic growth kept the situation from appearing dire, in much the same way that someone who takes out (and maxes) a new credit card every year, but who keeps getting pay raises that allowed them to keep making the payments, doesn’t appear to be in crisis. But they are.
Since 1980 the debt in both real-dollar and % of GDP terms has exploded. You can blame the Reagan tax cuts for this if you want to, but Federal revenue continued to grow at very respectable rates all through the Reagan years (and since); when income is going up and so is the debt, the problem is clearly on the spending side.
You’re quite right that the Republican austerity program is not nearly sufficient to get us out of this hole – yet the Democratic response has been to scream bloody murder, and then scramble to find new ways to spend money. We need much larger cuts to restore fiscal sanity. My bi-partisan proposal is that we match defense and social-sector spending 1:1 until we have a balanced budget.
you don’t want to be living in a country without national debt
Yeah, Brunei and Lichtenstein are real shitholes.
So your compromise is a 0% increase in revenue, maintaining tax levels at the lowest they have been since WWII? That pretty much disqualifies you from claiming to give the least little bit of a shit about the deficit. “Let us cut the deficit, but not if it means paying the horrifying tax rates my parents slaved under (or even the rates you and I slaved under back in the 90s)! Better that the economy collapse (or whatever other horror it is that you postulate continuing to hold debt would cause) than that I have to pay a single penny extra of my hard earned cash!”
The competing sides of the revenue equation are income and expenses, not some expenses and some other expenses.
Here’s my compromise: let’s repeal the entire Bush tax cuts and end the wars in Afghanistan and Iraq, and then lets split the remaining deficits that are above the rate of average GDP growth between tax increases and spending cuts, dividing the spending cuts across the programs that lack a dedicated revenue stream in a manner proportional to the size of their budgets, and then let’s add back in some reasonable amount of expansionary deficit spending while the economy is still struggling to recover from the financial collapse of ’08.
Also, running deficits every year while maintaining a steady debt level is nothing like maxing out new credit cards every year (that is the equivalent of a stable debt to GDP ratio). Maxing out a new credit card every year increases your debt in real dollars and we weren’t doing that until Reagan came along. Running a constant deficit is like perpetually rolling over your debt. Every year you issue new savings bonds (a deficit) and every year you pay off your old savings bonds (an expense), and your debt remains stable.
Since Reagan, the debt to GDP ratio (the real signifier of potential trouble) has grown reliably under Republicans, fell under Clinton (after 95) and rose under Obama through one time spending in response to the Great Recession. Paying that debt down over the next 30 years (as we did with the WWII debt) is a good idea. Thrashing about and creating a new recession or using it as an excuse to gut the limited amount of social welfare programs that we have managed to develop is not (it is not an effective solution to the debt problem). I suppose if you hate the fact that we have any social welfare programs, now is a great time to use the debt as an excuse to attack the social welfare programs is pretty clearly good politics (thus the Austerity program, which isn’t like poking out your own eye as long as you don’t think of the bottom 60% of America as part of you).
This isn’t really about debt or taxes rates per se. It’s about spending. Particularly, the state’s role as a spender of last resort during economic downturn.
I think that it can be very easy, politically, to get caught up in talking about tax rates and other things that parties bicker about, rather than discussing real issues. Talking about tax rates is, in the context of the absolutely simple economics that I’m discussing in this post, a distraction at best.
Robert: Do you agree or disagree that the state is the primary spender of last resort in times of economic downturn? If the state is not to function as the spender of last resort, what’s your alternative spender of last resort?
yrs–
–Ben
Yes, the government is the spender of last resort.
Unfortunately we have pushed that basically sound Keynesian principle past the breaking point, and now we cannot afford to be the spender of last resort. Unlike in previous cycles, when we would spend (in wartime, usually) and repay in later cycles, we’ve been priming the pump year after year after year.
Robert: I’m not arguing your other points.
Given that:
1) The state actually turns a profit being the spender of last resort: it makes up in revenues from boosted economic activity what it spends.
2) We have plenty of debt capacity (as countries go, we’re fairly middling in the debt department, and we can still get a very good interest rate on our bonds).
and
3) The alternative to a spender of last resort is misery, suffering, and decay of our nation.
isn’t it in the best interests of the state (and it’s people) to act as a spender of last resort?
I mean, it’s pretty much win-win-not lose.
This sort of stimulatory spending is wholly separate from the question of year-to-year spending, by the way. Adding on new year to year spending without increasing revenue is a terrible idea and you won’t see me arguing in favor of it.
Muddling those two issues (one-time expenditures vs. year-on-year expenditures) is pretty common throughout the political spectrum in the US, largely because our media reports on it so badly and that we tend to deal with budgets at the last possible moment. It’s still an error, though.
yrs–
–Ben
I don’t think 2 is correct.
http://seekingalpha.com/article/194404-the-u-s-treasury-s-bond-problem
If we have to monetize our own bond sales, then your (1) becomes incorrect.
There’s going to be misery and pain. It’s become unescapable.
Robert: We’re middling, with respect to debt, in almost any measure which is / GDP (the right way to measure debt.) Go look it up. We’re basically world average (a touch above world average.)
Because of this, and because it’s pretty clear we can make good on our debt, we still get plenty of buyers for our bonds. The link you posted is wholly unclear on how a bond auction works. You can tell it’s mostly scare-mongering because it uses big numbers instead of debt / gdp.
Regardless, debt isn’t the issue. If you were concerned about debt you’d be in favor of the government spending during an economic downturn: ultimately, such spending has a positive effect on debt (as in: it results in less debt down the road.)
The only possible exception to this is if the spending is year-on-year spending, such as tax cuts or new programs.
yrs–
–Ben
Ben, I am reasonably familiar with how the bond markets work. Our recent auctions have not been highly successful; some have been almost outright failures. (http://seekingalpha.com/article/152523-u-s-5-year-bond-auction-effectively-fails) We do NOT have “plenty of buyers” for our bonds; we are being forced to recourse to the Federal Reserve buying our bonds with whistled-up money, which is an enormous red flag.
We are middling with respect to debt-to-GDP ratios, yes. But we have the biggest GDP in the world by far. Bill Gates being $200 billion in the hole is, proportionally, less significant than me being $20,000 in the hole – but my debt is not going to break any banks. Bill Gates’ just might. There simply are not enough liquid creditors, particularly in a world where just about every government is hemorrhaging money, to buy the TRILLIONS in bonds that we need to float in order to engage in the kind of fiscal stimulus you’re advocating.
If spending during the downturn inevitably leads to less debt in the future, then where the hell is our huge debt coming from? By your logic we should have grown our way out of it years ago.
The truth is that modest Keynesian actions to curb recession by a basically sound government that represents only a small piece of the global economic picture make good sense. Enormous Keynesian actions taken by a government which is basically insolvent and which represents an enormous slice of the international financial system, do not make sense.
We’re redlining the engine, bits of metal are flying from under the hood, and you’re saying “relax, just keep accelerating, it will be fine”.
It will not be fine.
I am not the only person saying this.
Well, Greenspan sure does have a history of being right on target in his forecasts of the US economy. I will now take this as a serious issue.
The real estate market is still going up, up, up, and the stock market has been consistently bullish for 12 years, after all. He clearly knows of what he speaks.
“1) The state actually turns a profit being the spender of last resort: it makes up in revenues from boosted economic activity what it spends.”
Whoa, you’re straying into the Laffer curve of the left. Pump priming does not pay for itself at all levels, or even at all levels that we might be talking about, and we aren’t even sure where the cut off point is or how to know when you hit it.
Sebastian, maybe we should seek a bipartisan consensus: cut taxes to one percent (“the growth will pay for everything!”) and borrow enough to pay for any resulting shortfalls plus huge fiscal stimulus. We’ll call it the Laffer-Lehman Plan; everybody gets a huge tax break and nobody loses any government benefits.
We can’t lose!
Pingback: Read: I Command It 27/02/2011 | Let's Drink Tea and Get Laid
I never thought of money as something that should constantly be in production (meaning being used by a healthy economy.) Perhaps that’s why I’m not rich. ;)
I’ve enjoyed this post and Robert’s back and forth with you. Please keep it up!
This is a really great post. thanks for writing it.
World’s largest bond fund dumps all US debt, says US bonds are 150 basis points below where they should be, urges investors to reduce T-bill holdings.
http://www.bloomberg.com/news/2011-03-09/gross-drops-government-debt-from-pimco-s-flagship-fund-zero-hedge-reports.html
A bond fund that held 0 US bonds back in 2009, less than $30 billion in US bonds last summer is now holding no US bonds again and is managed by someone who would like US bonds to be paying 1.5% higher interest. Yup, the sky is falling.
And in order to stop the sky from falling, the US can continue borrowing pretty much exactly as much as previously planned, but it needs to cut funding for planned parenthood and tsunami planning right now. Right.
Is this just going to be the thread in which Robert posts random tidbits of suggestively bad news about government bonds? If it is, Robert, can you tell me how bond auctions have been going in the two years (in which we’ve sold $3 trillion in bonds at historically low rates) since one of your previous Chicken Little links claimed that the bond auctions were failing?
I thought it was an interesting link, so I posted it in a thread where it was relevant.
Bond sales have been reasonably decent for the past two years – one near-failure that I know of, most of the rest have been OK. They just had a very strong auction, probably because a lot of middle eastern capital is suddenly rather nervous. I am more concerned with the prospects going forward.
I think you have me mistaken for a Republican Congressman, most of whom are quite unwilling to take the big political risk of proposing real substantive cuts; at least, I assume that’s the point of the crack about tsunami and abortion funding. However, I am not a Republican Congressman (and if I was I guess I’d be Paul Ryan). I think we need to cut $300 billion from the defense budget, $300 billion from Medicare/Medicaid/Social Security, and $300 billion from discretionary spending. Yes, that pretty much guts the politically-managed portion of the Federal government, and puts a big dent in the programmatically-managed portions, so it isn’t politically attractive.
If the market for US bonds is so strong, then why did the Federal Reserve decide to “buy” $600 billion in T-bills? Why pursue a policy of “quantitative easing”, instead of just using real capital from real investors?
The Fed decides how real investors invest real capital? Who knew?
Can you point me to someone credible who claims that the purpose of quantitative easing is to prop up the market for US bonds? That isn’t what I’m seeing at all. From what I’ve read, the purpose of QE is to increase the money supply and replace a safe investment vehicle with cash that might potentially be invested in something more valuable to society.
Oh nice, just noticed that planned parenthood is “abortion funding.” Maybe I mistake you for a Repub congressman because you talk the same bullshit cant?
Yes, one purpose of QE is to increase the money supply. What would be the point of me finding you a link? If the person says that it’s a red flag to have the Fed engaged in the unusual practice of buying bonds, you’ll just say they aren’t credible. Alan Greenspan takes the controversial position that “there are limits to borrowing”, the world’s biggest bond buyer says the bond situation is fucked up, and those aren’t good enough sources for other assertions I’ve made; who exactly is it that you need to hear from, to believe the novel and bizarre proposition that “buying a bunch of something tends to bolster the market for that something”? Do I need to raise Keynes from the dead, have him say “hey guys, I didn’t mean that you could do this shit FOREVER”?
Because I could do that, but I only have the one scroll of resurrection and I don’t want to waste it. And surely the man has earned his rest.
Is Planned Parenthood not abortion funding? Perhaps I missed something. It’s OK to fund it, but not OK to name it?
Robert, 99.9% of funding from the Federal government for Planned Parenthood goes to services other than abortion. (There are a little over a 100 abortions paid for by federal funds each year, in cases involving rape or incest). The funding cut was funding for birth control, HIV testing, cancer screenings and reproductive health. Ruth Marcus writes:
Tell me, Robert, when the Catholic Church runs charities that get government grants, do you think that’s no different from the government funding the Catholic Church’s Sunday services, which would be unconstitutional? Because by the “money is fungible” argument which says that if you fund one activity of an organization, you’re funding every activity that organization engages, that ought to be the case. How many of the Republicans in congress arguing to defund Planned Parenthood would be willing to apply the same logic consistently?
…But I really just wanted to point to this Bloomberg article:
Even the Bush administration official they quote to argue that the US sucks (which is the default conservative position nowadays) isn’t willing to make the ridiculous and counterfactual claim that the market shows that no one wants to buy US debt; he acknowledges the reality of the market, but claims that the market is wrong.
Your figures regarding PP’s abortion services are misleading. Abortions may be 3 percent of their caseload, because someone will come in once or twice for an abortion but over and over for ongoing contraception, but abortions are approximately 15% of their budget. (http://mediamatters.org/research/201102180003)
If Planned Parenthood wants to reconstitute itself as a provider of cancer screenings, birth control, etc. and refer abortion to some other organization, then I would have no problem with restoring their funding (subject to its prioritization in the drastically-reduced Federal discretionary budget, naturally – see above); as things stand I expect that some non-abortion-providing social services organization will eventually pick up the PP funding block, in fact. If the Catholic Church starts providing abortions, then I’ll have no problem making the same “we need to defund the whole thing” argument. It is not a Constitutional argument, but a moral one; people do not want the Federal government to fund an abortion provider, even indirectly. (Indirect funding of a religious organization does not broadly pose a Constitutional problem.)
Thanks for the info on the credit insurance rates.
Okay, 15%. It remains the case that 85% of Planned Parenthood’s spending — a measure that exaggerates the extent of abortion services, since abortions are very expensive compared to most PP services — is not on abortions. And 0% of the funding from the Feds goes to pay for abortions. So to refer to it as “abortion funding,” as you did, is flat-out untrue.
It’s not true that “people” don’t want any money going for cancer screening if that same org also provides abortions (there’s no movement to defund hospitals). SOME people — specifically, some conservatives — hold the extreme position you refer to. But Republican politicians never put the case honestly; they deliberately shade their language to give the impression that what’s being discussed is federal funding of abortions. This is because they know perfectly well that if they told the truth — that what they really want to do is take away the money that provides non-abortive care for huge numbers of mostly low-income women, from an org that also provides abortions that don’t get federal funding — that would be a very unpopular position.
In a representative democracy, there’s no moral right to never have tax money spent on things you find immoral. (That’s how come my tax dollars helped wage whatever stupid, needless wars abroad you’re eager to support.)
Huh?
Most Americans aren’t members of the Catholic Church, an organization that forthrightly discriminates on the basis of sex, sexual orientation and religion. Would you oppose government contracting with Catholic Charities to provide social services because Catholic Charities has not divested itself from the Catholic Church? Would you oppose government vouchers being used at Catholic schools?
That strikes me as guilt by association. If government wants a service performed — distribution of food to homebound indigent people, say — then government should pick the party that is best able to perform that service whether or not we like that party. Government should restrict itself to considerations of bona fide qualifications. If the Klan is willing to adopt a street and clean the trash off of it, then the Klan is entitled to get its name on the sign.
(Admittedly, here we get into a sticky question of what constitutes a bona fide qualification….)
Ironically, government has MORE justification to discriminate against Catholic Charities than against Planned Parenthood. Many First Amendment cases prohibit “undue entanglement” with religious institutions — in effect, these cases call for discriminating against an organization if it presents itself as “religious.”
So to refer to it as “abortion funding,” as you did, is flat-out untrue.
Fair enough. I withdraw the characterization. Please replace it with “funding for strangers’ birth control pills”.
It’s not true that “people” don’t want any money going for cancer screening if that same org also provides abortions (there’s no movement to defund hospitals).
There’s no movement to defund hospitals because hospitals by and large don’t get direct grants of money to directly provide healthcare. Rather, people on Medicare and Medicaid have a healthcare benefit which they use at any hospital that accepts those programs.
If we ended Medicaid and instead announced massive direct grants to hospitals that would agree to treat poor people for free, you can be darn sure there would be a huge push against any of that money going to hospitals that provide abortions.
Most Americans aren’t members of the Catholic Church, an organization that forthrightly discriminates on the basis of sex, sexual orientation and religion. Would you oppose government contracting with Catholic Charities to provide social services because Catholic Charities has not divested itself from the Catholic Church? Would you oppose government vouchers being used at Catholic schools?
No, because those things aren’t nearly as immoral as providing abortions. If the Catholic Church started murdering hobos, then yes, I would have a problem with choosing them as a contractor for social services or allowing their affiliated schools to qualify for student voucher eligibility.
What if the Catholic Church ran the Elk Mountain Resort?
Well, that would be fine. They have a strict policy of no killing hobos on the grounds.
“Strict”? Did you watch the video all the way to the end?
It’s kind of a cliché to say that money is fungible, but….money is fungible. If the government gives them money and says they can’t spend it on abortions, then they can just spend the government money on something else, and use the money they would have spent on that to subsidize abortions. Unless Planned Parenthood’s demand for subsidizing abortions is perfectly inelastic with respect to funding, any increase in their funding is going to result in an increase in the amount they spend on abortions.
Update: I scrolled up a bit more and read the comment where you acknowledged this, but said that it doesn’t really matter because the same is true of many hospitals. Fair enough, and I don’t really care because I don’t have a problem with abortion anyway, but it seems like you just repeated something you’ve already admitted not to be true in any meaningful sense.
Mannequins are OK.
You’re admirable embrace of mannequin culture isn’t getting you off the hook, Robert.
Yes, Planned Parenthood provides abortion services. I still find no basis to assume that Planned Parenthood would use any marginal dollar for that purpose. This is a bit like saying that if I give Elton John the day off, I can assume he’ll spend it having sex; his sexuality is a really salient feature TO ME, so I can safely project my obsessions onto him.
Fine, don’t give the money to Planned Parenthood. Now what will happen to the money? Will government give the money to some other organization? Ok, what proof do we have that the other organization won’t use the funds for abortions? Maybe they’ll pay their staff, and their staff will buy abortions, or contribute the money to Planned Parenthood. Alternatively, maybe they’ll give the money to the Klan. Or to the Catholic Church. OH MY GOD, now we’ve got government funding of religion! Maybe it’s best to scrap the program entirely and simply return the funds to the taxpayers. BUT OH NO – the taxpayers might use the money to buy abortions! Is there no way out?????
And it doesn’t stop there: Think of all the crimes that have involved US currency — ironclad proof that US Mint is involved in crime!
Robert doesn’t like abortions; I don’t begrudge him is policy preferences. Robert embraces government discrimination against people who provide abortions; I do begrudge him this. How far should we go with this policy? Should we withhold government-backed student loans from the children of people who work for Planned Parenthood? Tax exemptions? Mortgage interest deductions? After all, all of these policies have the effect of transferring fungible, fungible dollars into the hands of abortionists.
Enough. The buck stops where there’s a bona fide exchange for value. The government should decide what it wants and then pay for what it wants at the best terms it can get. The money then becomes the provider’s, and government is no longer responsible for it.
Any other policy simply invites government discrimination. “It doesn’t matter how good your resume is, government employers can’t hire you. See, we know that you donate money to Republican candidates/the Catholic Church/whatever. If we were to hire you, that would be tantamount to government money being used for partisan/sectarian purposes. We couldn’t have that, could we?”
Fight governmental discrimination. Require government to make purchases on the basis of bona fide governmental interests – not to suit the discriminatory tastes of whoever happens to hold the purse strings at the moment.
Robert embraces government discrimination against people who provide abortions; I do begrudge him this.
Not exactly.
I do not see any legitimate state interest that is served by specifically funding Planned Parenthood. People need health care. If we insist on having the government fund this, then give people vouchers which they can use as they will. They can spend their voucher at PP for abortions and pap smears, or at Catholic Charities for NFP training and genetic counseling, or at Frank’s Discount Condom Warehouse – whatever they prefer. That avoids the politicization and the preferentialism that is otherwise the inevitable result of having the government pick winners and losers.
But since the government DOES pick winners and losers, rather than simply providing resources to individual people for them to use as they choose, then I choose to have my political preferences win. Things I find objectionable, don’t get funded. This isn’t governmental discrimination, because the government is not funding some neutral purpose out of a disinterested technocratic decision to minmax social services spending; the existing funding for Planned Parenthood exists because previously, liberals won the fight for political power and decided to send some money to the people that they like.
In other words, if I’m “discriminating against Planned Parenthood”, then the previous status quo was “discriminating against Catholic Charities / the Benevolent Politically Neutral Women’s Health Collective / Frank’s House Of Condoms And Uterine Scraping”. It’s not like the government held a blind bid process to decide who could provide reproductive health care services the best and PP won; rather, legislators who like PP squeezed some money into the budget for PP and they were able to make it stick.
Now it isn’t sticking; boo fuckin’ hoo. We won, you lost, suck donkey wangs, liberals. Maybe you’ll win next time and you can give them fifty kazillion dollars.
Or you can steal a march and endorse the neutral model of individual empowerment rather than institutional winner-picking. I suspect that’s a more sustainable strategy than the back-and-forth over who gets to hand out the largesse, but YMMV.
Or, to paraphrase: Yes, exactly. That is, I understand Robert to say that government funding is basically a spoils system and, for better or worse, to the victor goes the spoils.
I’d be interested to hear more about this. I assume the same philosophy governs government-backed student loans, tax exemptions and the mortgage interest deduction?
I’d be curious to know the basis for this claim. Could you elaborate?
It’s my understanding that the federal Department of Health & Human Services’ Office of Family Planning dispenses funds appropriated under Title X of the Public Health Service Act of 1970, 42 U.S.C., § 300, on the basis of grant applications. The bulk of the funds go to state and local health departments. That seems like an odd way to run a spoils system; do you imagine the Obama Administration is trying to get campaign contributions from state and local governments?
Admittedly, if I were opposed to family planning/ contraception, I’d be opposed to Title X, too, regardless of the role of Planned Parenthood. But if my objection was that Planned Parenthood was soaking up lavish government grants, then my obvious strategy would be to get off my ass and file my own grant application in competition with Planned Parenthood. If I can show that I can provide family planning services better and /or cheaper, then I’d expect to win the grant. At a minimum, I’d force Planned Parenthood to submit grants with lower budgets or broader services. Competition – it’s the American way!
Now, maybe Robert is right and merit has nothing to do with the allocation of the grant dollars. And if that’s so, then I have no qualms about condemning this process. But thus far I haven’t seen any evidence to support Robert’s claims.
Alternatively, I’m not opposed to Robert’s proposal to offer a voucher system in lieu of the current system, assuming a voucher system could be designed that would not restrict the services that people currently receive. Not sure how it would work, however. To whom would we distribute vouchers – the entire US population over age 12? In contrast, it’s my understanding that today family planning services are distributed to people who seek them out – a small subset of the US population. Thus a voucher system would seem to be less well targeted, thus more expensive, yet would not actually stop funds from flowing to Planned Parenthood.
But if we can steal a march (hadn’t heard that expression before) and get the voucher system going, I’d be happy to write the promotional materials: “Yes, Red State America, we’ve heard your concerns about that wicked, wicked Planned Parenthood. So we’ve scrapped the old system. Instead, we’re raising your taxes in order to finance a program of mailing condom vouchers to your 12-year –old daughter — all courtesy of your federal government and Robert Hayes!” Who could possibly object?
To whom would we distribute vouchers – the entire US population over age 12?
Why, that almost sounds like… socialized medicine.
At least it would be Constitutional.
I doubt that. Just as conservatives invented a new rationalization for why an individual mandate is unconstitutional — even though a mandate is an idea invented by conservatives and favored by conservatives until quite recently — they would have found a rationalization if a single-payer health care system were passed.
You’re suggesting that conservatives, even though they were clearly willing to move the goalposts when it came to the individual mandate, would not have moved the goalposts to prevent single-payer health care. That doesn’t seem plausible.
A mandate is an idea favored and advanced by a subset of Republicans. Find me an ideological conservative in the sense that we’re talking about here – small government, it’s-shameful-that-we-ignore-the-10th-amendment dyed-in-the-wool conservative – who thinks an individual mandate is a good idea and I will eat my soon-to-be-priceless autographed copy of the self-published Hereville. Mitt Romney is not a conservative, he is a liberal Republican from Massachusetts.
I am not suggesting anything about what Republicans, or conservatives, would or would not do. I am acknowledging that an individual voucher-based Federal health care benefit would (likely) be Constitutional. (I say likely because there are ways that you could torment such a program into unconstitutionality, but I’m assuming we’re talking about a good-faith genuine voucher.)
Seeing as there are only 7 of you…
First of all, I agree that I can’t find a single conservative who thinks — present tense — that the individual mandate is a good idea. But I can name plenty who used to think it was a good idea.
Starting with the policy director of the Heritage Foundation, Stuart Butler, who made up the idea. Ditto for Robert Moffitt, the Heritage Foundation’s senior fellow in domestic and economic policy studies. Is the Heritage Foundation now not conservative, Robert?
Let’s move on to the Congress. Congressional Republicans who used to favor the individual mandate include Orin Hatch, Cliff Stearns, Trent Lott, Bob Dole, Lauch Faircloth, Chuck Grassley, Strom Thurmond, Judd Gregg, and Jessie Helms, among many others. Are you seriously arguing that ALL of those folks were liberal Republicans?
And not long ago, virtually all Republicans seemed to think that a mandate would be constitutional. Once they failed to defeat the Affordable Care Act in Congress, however, they made up a brand-new theory showing that the individual mandate was unconstitutional, and Republican judges rushed to rubber-stamp that theory. There’s no reason to believe that Republicans wouldn’t have acted in exactly the same way if any universal or near-universal health care program passed.
When Heritage made that proposal and when those big-government Republicans were OK with it, the landscape of con law was significantly different.
http://volokh.com/2010/03/29/was-the-individual-mandate-a-republican-idea/
In 1994, conservatives had largely (though not entirely) given up on defending/advancing limitations on commerce clause-based regulation. That changed as the courts started showing a new willingness to consider limiting the commerce clause.
Voiceover: Previously on Why Austerity is Bullshit:
Voiceover: Robert defends his proposal for a family planning/health care voucher system on the grounds that it would be constitutional, without alleging any constitutional defect in the status quo family planning program.
Voiceover: Meanwhile, Amp does not actually challenge the constitutionality of Robert’s proposal, but rather challenges the idea that conservatives would concede the constitutionality of the voucher system. Amp observes that conservatives initially proposed the individual mandate that is a component of the current federal health care law.
Voiceover: In retort, Robert offers a No True Scotsman defense.
We now rejoin the program, already in progress.
No voucher for YOU then.
(….voucher Nazi….)
This cartoon is critical of my position, but I found it very amusing anyway.
http://www.boingboing.net/2011/03/15/tom-the-dancing-bug-40.html
Here’s another reason why austerity is bullshit.
Bermuda is smart, Ireland is slightly dumb, the UK is pretty dumb, we are really dumb.
You cannot tax corporate profits in any meaningful way.
I mean, you CAN, but the tax is paid by the customers or stockholders of that corporation, not by the corporation itself. In the end, all tax is paid by individual people, and trying to get institutions to pay the taxes so that people don’t feel taxed is futile effort.
Analogy: pass a tax on good grades. If you get a 4.0 average, you have to pay $10000. A 3.0 average, $5000, etc. You will very quickly get a situation where even the brightest people are pulling D- averages. Oh, they might still be learning as much – they’ll just be hiding it. Which is what corporations do with their profits – rather than put the profit on the books, and have it available for straightforward capital investment, they’ll hide it somewhere, or they’ll distribute it to stockholders.
We have corporate taxes because it’s politically expedient to stick it to the corporations. The corporations just sigh and if they’re multinational, play stupid games like the double sandwiches and pay nothing – but have to leave a bunch of their operating capital in frickin’ Bermuda, at least temporarily. If they’re domestic, they suffer relative to their foreign competition, or hire clever accountants. If we cut the rate to zero, and made a nominal increase to the individual income tax to make up the expected revenue loss (it isn’t much), we’d end up with a much healthier business climate and more revenue collection, since most individuals don’t engage in the kinds of games that big companies can.
European countries understand this, albeit reluctantly (because it is so foreign to liberal economic sentiment – but not liberal economic analysis). Obama understands it. Geithner understands it. They suggest cutting rates rather than zeroing them (because what is truly important is the relative rate between countries) but the economically optimum rate is zero.
Please, let us not forget our good friend and South Carolina Senator Jim DeMint:
I know he’d be hurt to be overlooked – even though he now wants Romney to admit that RomenyCare was “a colossal mistake.”
Oh, and careless me! I completely forgot to mention dear Rick Santorum, Republican Senator from Pennsylvania and, according to the Catholic News Agency, “a strong conservative.” After Massachusetts adopted RomneyCare, Santorum proudly endorsed Mitt Romney for President, calling him a man who would “stand up for the conservative principles that we hold dear.”
Of course, where Romney is concerned, Santorum is just one more strong conservative who was for him before he was against him. Today, Santorum says RomneyCare is “a failure” and touted himself as a “consistent conservative.”
Perhaps it’s too much to ask that politicians be consistent and principled. But is it too much to ask that they refrain from bragging that they are consistent and principled – at least while they’re in the very act of duplicity?
Another addition to the roster of big-government conservatives (although he’s a libertarian, not a republican): Reason Magazine’s Ronald Bailey.
Well, Bailey was also suggesting that we zero out Medicaid and Medicare and eliminate the tax break for employer-provided care and a few other things, as part of a package to radically privatize the health care system. His mandate was essentially that there would be no backstop; if you went uninsured, we’d let you die.
But you have convinced me: many, many Republicans who should have known better did indeed have no problem with an individual mandate when it was their idea, and are being political hypocrites now.
Not me, though. I would have been opposed to it then and am opposed to it now.
Another group of ignorant dumbasses warning about the bond market (in the context of warning about our debt).
http://www.politico.com/news/stories/0311/51864.html
Rob, the bond debate started with you saying that it’s not correct that “we can still get a very good interest rate on our bonds.”
Nothing in that link supports your point.
They do say that the bond market could someday collapse, but that’s not the same thing.
I’ll see your libertarian, and raise you:
Friedrich Hayek, The Road to Serfdom
I didn’t say that. I said: “We do NOT have “plenty of buyers” for our bonds; we are being forced to recourse to the Federal Reserve buying our bonds with whistled-up money, which is an enormous red flag.”
In the 4th quarter of 2010, the Federal Reserve accounted for 70% of bond sales. Foreign buyers accounted for the other 30%. Domestic purchases? Basically zero.
(http://www.nationalreview.com/articles/262688/running-exits-jim-lacey)
The original point of my comments here was that we cannot continue deficit funding; Ben’s assertion was that we can keep on borrowing for stimulative purposes and didn’t have to worry about consequences. But we DO have to worry about consequences.
They didn’t say that the bond markets could someday collapse; a bond market collapse is never good, but markets collapse and then recover. They said:
“These deficits will take a toll on private investment and economic growth. At some point, bond markets are likely to turn on the United States — leading to a crisis that could dwarf 2008.” (My bold.)
And when/if that happens, what are we going to do? Borrow our way out of the problem?
Austerity isn’t bullshit, austerity is our only hope.
From your politico article:
Austerity now has nothing, absolutely nothing, to do with the long-run budget deficit. The long run budget deficit has to do with projected growth in Medicare spending. The AHA represents a first step towards this. That you would cite an article about the long-run deficit problem as support of your position is astounding.
From your latest article:
Okay, so when that article is proven wrong in 3 months, will you admit that you are wrong, or will you find new articles claiming that everything is going to fall apart in October?
Austerity is bullshit.
Austerity now has nothing, absolutely nothing, to do with the long-run budget deficit.
Cutting our baseline expenditures has literally zero connection to our long-run financial position. Check.
The long run budget deficit has to do with projected growth in Medicare spending. The AHA represents a first step towards this.
Medicare spending is certainly a major part of the looming crisis. AHA is a dead letter one way or the other, however, so I wouldn’t count on that first step leading anywhere.
Okay, so when that article is proven wrong in 3 months, will you admit that you are wrong
It can’t be proven wrong in three months, because at least part of its case is longer term. “Come June, the Fed will be in a bind of its own making. If it stops pumping money into the system, interest rates will increase, and not just on Treasury bonds. Mortgage rates will rise and business credit will become more costly. The recovery could be strangled in its infancy. If it keeps on buying bonds, however, it risks never being able to wean the markets off the equivalent of monetary crack. Worse, the flood of dollars will continue to drive down the value of the dollar, raise commodity prices, and propel global inflation.”
The first part (no more bond sales = increased interest rate) will take a bit longer than June but at least will be close. The moral-hazard risk side of the equation is much longer term.
More on that whole individual-mandate-for-health-insurance thing:
In Winning the Future: A 21st Century Contract with America (2005), under a section titled, “Your 21st Century Health Rights,” Newt Gingrich wrote:
And in Real Change: From the World That Fails to the World That Works (2008), Gingrich wrote: “Finally, we should insist that everyone above a certain level buy coverage (or, if they are opposed to insurance, post a bond). Meanwhile, we should provide tax credits or subsidize private insurance for the poor.” [Page 276]
That was then.
This is now.
“As liberals acknowledge, Obama stole his despicable right-wing ideas on health care from Newt Gingrich.”
Weren’t the Clinton years, generally regarded by the left (for totally non-political reasons!) as having been fairly successful, if not a minor golden age, an example of austerity? Higher taxes? Check. Restraint in spending? Check! Deficit reduction? Check!
What’s interesting about the Clinton years is that they were the only time in modern American history when federal spending did not increase in real per-capita terms, and actually went down quite a bit in terms of %GDP. Democrats liked to point out how well the economy did in the ’90s because Clinton was a Democrat, but it was arguably a pretty big told-you-so for advocates of limited government.
Also, while I get the Keynesian argument for stimulus, the bottom line for me is that I don’t trust you guys to keep it short-term. If the stimulus works, and the economy recovers, then the left isn’t going to say, “Good thing that’s over, now let’s get cutting!” The new story will be that, having been blessed with such prosperity, we can afford to spread the wealth around, so spending goes up again. And I think that the long-term damage of having perpetually high and ever-increasing government spending outweighs any temporary good that might be done by stimulus.
Regarding the mandate, I don’t get the attacks on the mandate specifically. Sure, it’s unconstitutional, but the whole mess is unconstitutional, along with most stuff the federal government already does. And it’s the only thing preventing the other provisions from rendering private health insurance economically nonviable. Is the idea that once the Supreme Court shoots down the mandate, the government will do the responsible thing and scrap all the popular provisions, too? How often does counting on the government to do the unpopular but responsible thing work out?
Brandon Berg,
That’s funny, I forgot that the worst recession since the great depression occurred under the Clinton administration. I also forgot that 2 years after the end of the great Clinton recession, unemployment was still hovering around 9%.
No wait, it isn’t me who forgot anything, it is you who forgot to actually read or understand this thread and what the argument concerning austerity versus expansionary deficit spending was (Robert seems to have also forgotten this when he talks about the current deficit in relation to baseline spending).
The question of what baseline spending levels should be, and whether they should be adequately paid for, isn’t actually relevant to this thread, and you’ve made your opinions clear on other threads where they were possibly relevant. If the question of stimulus versus austerity in the recovery from a severe recession isn’t interesting to you, maybe you should not comment on this thread.
Also, no, the Left does not regard the Clinton years as any sort of golden age. The right wingers in the conservative side of the mainstream of the Democratic party may, but the Left most definitely does not.
Robert,
We aren’t discussing baseline spending cuts, we are discussing the need for expansionary spending rather than austerity during the recovery from a recession. The temporary spike in deficit spending that the US is going through is not related to baseline spending and baseline revenue (I love how changing revenue doesn’t exist as an option in your reality, it is quite fascinating), it is related to the recession producing a drop in revenue and creating a need for increased expansionary spending. Both of those conditions will resolve themselves. Baseline spending cuts are a separate issue that don’t have to do with this discussion about austerity and the need for expansionary spending in the recovery from a recession.
You need to get over the partisan hatred of the idea that spending has to get cut, Charles, and you need to stop making assumptions about what my policy would be.
We can raise taxes, probably will need to, modestly anyway. The time to do that isn’t while the recession rages (and probably renews for a second exciting season), but it will definitely be part of any realistic austerity program going forward. We’re at what, 17 or 18% of GDP right now, something like that? We can probably stand to go to 20% or whatever the historical average has been, without drastic economic effect. But we’ll be raising the taxes to cut our debt and get our books balanced, not so that we can engage in more genius progressive economic giveaways like high-speed rail (or, to be fair, genius conservative economic giveaways like tax cuts for billionaires).
Yes, we’re talking about Keynesianism. I understand that. I’m a weak Keynesian myself. My basic point was, and remains, that our constant annual overruns have poisoned the basic financial structures that Keynesian solutions take for granted, explicitly or implicitly. Things will “resolve themselves” if the system isn’t overwhelmed by the magnitude of the inputs. Keynes assumed a relatively modest level of stimulus spending, from a basically solvent government, in a basically functional fiscal regime. We don’t have any of those three elements. Keynes never opined that a huge stimulus from a broke (and crucially, perceived-to-be-broke) government in a flailing fiscal regime would produce positive results; he assumed people would have some degree of sense, and would recognize that he was talking about relatively modest increments in basically functional economies.
Keynes argues that if you drop a sprinkle of gasoline on a burning campfire, you’ll get a flareup of the fire and boil your noodles a little faster. He’s right. But if you dump 10000 gallons of gasoline on a campfire that already has gone out, you don’t get a flareup; you get a sodden gassy swamp. The more you borrow in order to spend, the lower your future multipliers get. Our multipliers have been dipping for sixty years. They may be less than one; some European central banks and economists think their multipliers are sub-1, which is why they’ve switched to austerity instead of fiscal stimulus. There’s a school of thought that the recent stimulus will end up negatively impacting net GDP; The administration’s estimates of a multiplier around 1.6 were hopelessly optimistic, and absurdly so when it came to the impact in future quarters. Orthodox theory is that multipliers diminish over time; the recent stimulus’ projections assumed they would continue, even INCREASE, into the indefinite future – which is simply crazy. (Paper link here – this paper is cited all over the place.)
In the longer term, Keynes also argues that you have to follow a countercyclical economic program. You borrow and spend in a recession, you pay back in good times. That’s a workable strategery – for angels, or disciplined fiscal states where one Keynesian gets to make all the central banking decisions. We don’t have either one of those, and we’ve been consistently applying half of Keynes’ formulation.
As with most economic theories, applying half of it doesn’t get you to the promised land.
I specified I’d accept spending cuts post recovery (some 60+ comments ago). You specified a proposed austerity program that included no tax increases, and argued for doing it ASAP. But I shouldn’t assume you meant it, and you feel free to claim that I am opposed to spending cuts.
But let’s talk about austerity versus expansionary spending.
The paper you link, Cogan et al, models a permanent spending increase, but the stimulus is not a permanent spending increase. Romer et al also model a permanent increase, but their model is a simpler model where treating the temporary increase as permanent has no effect – Romer et al therefore becomes less reliable as time goes on (as relative permanence presumably starts to matter) if the temporary spending increase were maintained, but Cogan et al is applying a non-applicable, more complex model where permanence is important, so it is inaccurate immediately. Here is Krugman on why this matters: Riccardian equivalence for permanent spending is radically different from Riccardian equivalence for temporary spending.
Additionally, Cogan et al assume that nominal rates will not be pegged to zero after 2010 (more on why this matters a lot later). Here we are in 2011, with nominal rates still pegged to zero, and no signals from the Fed that it is set to increase. Cogan et al fails the empirical test.
For an explanation of why the assumption that a 0 nominal rate ends in 2010 matters, I’ll turn to Christiano et al’s model of what happens to multipliers when the nominal rate is pegged to zero (slightly higher citation numbers than Cogan, actually): the super short summary is actually in the title and the abstract: “When is the Government Spending Multiplier Large?: When the zero bound on nominal interest rates is binding.” (I’ve never seen an abstract that concise before). This is using the same class of model as Cogan et al (freshwater new Keynesian with Riccardian equivalence), but it is specifically looking at the territory where nominal interest rates are forced to zero, a condition Cogan did not look at. As the abstract says, when nominal interest rates are forced to zero, the multiplier gets huge.
Brad DeLong suggests that we are actually somewhere in between the conditions Cogan et al assume and the conditions Christiano et al describe, but Christiano find multipliers up to 4 and Romer finds a multiplier of ~1.6, so Romer indeed falls somewhere between Christiano and Cogan.
So I’ll see your dueling models, and raise you an empirical study from the Spanish Central Bank: slides for an empirical study of the effects of expansionary spending. Super short summary: don’t do it if you are financially strained (defined as deficit greater than 7% of GDP- a condition definitely not met by the US at the start of the stimulus spending) , definitely do it if you are responding to a financial crisis (a condition the US was definitely in at the start of the stimulus).
So that would be a reasonable argument against Amp’s claim that we need a new stimulus (it’s too late, we already screwed up the stimulus when it would have mattered, now we’d be doing a stimulus when we are in a fiscal strain (deficit greater than 7% of GDP) and no longer in financial crisis), but it isn’t an argument for ending the stimulus early. And it is only a weak argument against Amp, as it wasn’t looking at the effect of a mid-recovery stimulus during an extremely anemic recovery.
Lastly, nothing here except the empirical study from the Central Bank of Spain actually has anything to do with what you claimed your paper was relevant to: stimulus under conditions of financial strain. Do you claim that Cogan et al does have specific relevance to the fact that we are running a relatively large deficit relative to GDP right now? How so? I’m not seeing it, either reading the paper or reading any of the econo-bloggers responding to it (pro- or anti-), but I could well be missing something.
Carefully parsing the context in which you brought it up, I see that you never actually said that it was relevant to your larger claim that the current deficit is why the multiplier is less than 1, you only implied it by context, while saying “There’s a school of thought that the recent stimulus will end up negatively impacting net GDP; [etc.].” Yes, many orthodox freshwater economists deny the possibility of effective stimulus spending, although Christiano et al rebuts that from a freshwater perspective in the current context. And you have signed on to not being a freshwater opponent of stimulus multiple times on this thread above (you’ve repeatedly said that Keynesian stimulus makes sense if you aren’t already running large deficits, which Cogan et al would reject), so you don’t actually claim to agree with the paper you cite, you merely mention that there are people who think this. That they support your argument, and that you support their argument, is implied by context, but not stated and not actually true.
Well, that’s enough of this for me.
[note: I know much less econ than I do climate modeling, and Robert’s arguments are not nonsense, so I’m at or over the edge of my competence interpreting these papers. If someone with a better background in econ wishes to correct my interpretation of these three referenced works, I’d be interested to read it.]
Robert’s arguments are not nonsense
High praise.
I also am at the redline of my competence, so if some econ genius does want to come in and argue further about these interpretations, please use baby words.
Just fyi, I didn’t mention taxes in my original one-sentence austerity plan because (a) we can’t do that now and (b) I knew you’d agree with most tax increases anyway so why argue the point. But so you know, I think we should:
a) cut defense spending by $300 billion
b) cut social entitlement spending by $300 billion
c) cut discretionary spending by $300 billion
d) when the current recession, and the recession that a-b-c will indubitably cause, begin to ease, raise taxes semi-progressively; small increases at the bottom, modest increases at the middle, modestly large increases at the top, with a target of getting revenues to ~105% of expenditures, and beginning a buyback of our debt.