Yeah. I agree. But I think Papageno’s point is that in theory it doesn’t HAVE to be done, and thus the panic over it is political and not practical. It’s fear-mongering. He’s brought this up in multiple threads, so I think that’s the context.
Agreed. Unfortunately, Washington is in control, and Washington will always be dominated by the need to make the other guys look bad over solving problems. When there was essentially a balanced budge under Clinton, then things exploded during Bush, liberals were proclaiming from the rooftop how terrible that was for the nation and conservatives were silent. Things are bad to worse under Obama, and the tables are turned. Without going into the “whys” of where we are, who will tear their hair out and wear sackcloth and proclaim the woes of the situation is pretty predictable, as is their actions.
(yeah, I’m in cynic mode today, bad headaches make me even more cynical than usual, which is pretty cynical.)
There’s probably a value in reducing the size of the national debt relative to the size of the economy and thus tax revenues, for the reason you state, JeffL (if we ever get rid of the notion that if income tax revenues rise at all, that increment should immediately be returned “to the [most prosperous] people”). The best way to achieve that is by fomenting growth (in Bush Jr.'s immortal words, “make the pie higher”), and austerity is going to do the opposite of that, particularly in a situation where the federal government is providing a good chunk of whatever effective aggregate demand there is, and even that leaves close to 10% of the would-be working population sitting on their hands, and probably another 10% wishing they could be working more hours.
Above some level, public debt begins to slow down economic growth. Current range – if I remember things right – where these effects begin to show is somewhere between 70 and 90% of GDP. This is a necessary reason to pay down the deficit, but it is not sufficient one given current economic conditions.
With current economic weakness visible in American economy and the utterly ridiculous rate of unemployment, our current objective should be to improve and expand our social welfare net and provide support for the nascent recovery. Our maintenance of trend levels of growth after falling so far on employment measures is utterly disgraceful, and something that needs to be remedied before we can talk about debt issues that really only come into play in the medium-long term with the aging of the Boomers.
Teiman, the debates earlier this year and late last year over American debt had to do with the lack of a credible plan for medium term debt reduction. Short term expansion of debt is viewed as necessary among damn near all economists and analysts, and anyone saying different is pushing political objectives to the fore rather than economic ones. So, folks looking to win the next election rather than folks interested in improving the standard of living.
That’s because Friedman wasn’t a moron. He was against legal encumbrances to consenting adults engaging in commercial endeavors that are broadly beneficial to society, not a fluid and functional workforce. So, not against a welfare system as such (yes he preferred neg income tax to welfare system, no those are not necessarily contradictory goals) but against legally established monopoly on delivering the mail. Significant difference not respected by modern Republicans. Great way to maintain the workforce is to give everyone a small income they can draw on for survival. Classical Liberalism, in essence.
Look at right now. Food stamps are skyrocketing in cost, and the economically illiterate see that as a bad thing. It’s not. Every fucking penny is being spent asap because poor people need to eat to survive. That’s instant stimulus of local economic conditions, because it’s used to pay cashiers and management, pay suppliers, pay white collar workers etc etc. Those folks buy stuff too. Great!
Unemployment payments aren’t as effective as a stimulus measure, but from the perspective of keeping people “in the workforce” and minimizing potentially deleterious shifts in consumption and standard of living that would disrupt eventual rejoining of society as a productive and responsible adult are arguably a more important part of government spending than food stamps.
Big infrastructure projects take way longer to get into motion. More of the money goes to people who won’t use it immediately.
Yeah. Higher unemployment costs SHOULD happen in a recession. That’s the system at work; that’s how it is supposed to work. You don’t LOWER those benefits right when you need them most. It’s silly. Drop some F22s (or whatever expensive plane we don’t need right now). But don’t drop sustenance welfare.
Oh, and raise taxes already!
“Washington” does that because that’s what people vote for combined with that’s how the institutions are set up.
When there was essentially a balanced budge under Clinton, then things exploded during Bush, liberals were proclaiming from the rooftop how terrible that was for the nation and conservatives were silent. Things are bad to worse under Obama, and the tables are turned. Without going into the “whys” of where we are, who will tear their hair out and wear sackcloth and proclaim the woes of the situation is pretty predictable, as is their actions.
Yeah, what was with liberals running big deficits in WW2, also?!??!
Where is good old Keynes when you need him, his stuff worked before. Goverment creates jobs instead of bailouts…everyone is happy.
Too bad the unemployed don’t have Armani-suit-wearing lobbyists to cajole members of Congress like the defense contractors do.
And as to raising taxes, OK, but only on those whose consumer spending won’t be dampened by said tax increases, at least for now.
You mean Paul, sometimes economist, Krugman doesn’t agree. It ain’t the end of the world if say the price of oil gets quoted in RMB, or Real but it sure would make life more expensive for American. US interest rates are among the lowest in the work (Japan being the notable exception.) This isn’t because the US has the best balance sheet or growth prospect, but the liquidity of US debt and perceived safety keeps them low. Interestingly Krugman cite Australia, but neglects to mention that interest rates on their 10 year bonds is 200 basis points (2%) higher than the US. That is an extra $300 billion/year interest payments on the debt, and several times that for consumers, because so many interest rates are pegged to the treasury rates. Listening to the S&P rating guy on Charlie Rose Friday he said that cut in the US debt rating (a first step for losing reserve currency status) would cost the US 25 to 50 basis points. So if paying a few hundred billion more in interest cost say 1/3 to foreign investor, much of the rest to evil rich people in the US is a minor effect, than I agree with Paul. If that strikes you as real money you may disagree with him.
No, I mean I’m completely unaware of any studies or economists plausibly claiming reserve currency has a significant impact on anything since the US went off the gold standard/Bretton Woods collapsed. Bretton let the us pull some impressive shit:
Throughout the 1960s, the Bretton Woods system had permitted the US to finance approximately 70 percent of its cumulative balance of payments deficits via dual processes of gold demonetization and liability financing. The liability financing enabled the US to undertake heavy overseas military expenditures and “foreign commitments, and to retain substantial flexibility in domestic economic policy” (Gowa, 1983, p. 63).
…but that’s all gone now.
How would economist make this study? Businessman are claimingit makes a big difference.
"Billionaire real-estate magnate Sam Zell, meanwhile, warns that Americans should brace for a “disastrous” 25 percent decline in the standard of living if the U.S. dollar’s reign as the global reserve currency ever ends.
I’ve heard Zell talk , the guy is no dummy. It is possible maybe even probable that he is exaggerating. Gross in the same article is quoted as saying it is an advantage that we are abusing.
Krugman can claim it is minor because to him a 25 basis point (which is the difference between US and say Frances interest rates) or 50 basis points like S&P says we see with a downgrade is “minor”.
So are you saying that US interest rate would be completely unaffected by a switch to the Yuan/RMB as the reserve currency, or do you just think
[LEFT]who cares if your mortgage, car,student loan etc goes up by 1/2%?
[/LEFT]
“Rich real estate guy” isn’t exactly a position of authority on international trade theory; neither is Gross. Have they actually presented arguments about how it’s supposed to work?
Krugman’s estimate of net impact was like a one-time drop of 0.1% in GDP. It’d be annoying, but the stuff you hear thrown around like “25% drop in standard of living” is ludicrous.
Easy - less govt spending means you can lower taxes and lowering taxes is seen as a sort of perpetual money making machine. If you lower taxes, people buy more, businesses produce more and get more revenues (also increasing tax revenue), businesses hire more workers (more tax revenue!) and shower their workers with bonuses and raises (more tax revenue!). All the increased production and spending in the private sector juuuuust cancels out lost tax revenue so the govt is still in the black. Start the cycle over again with another tax cut! Pretty soon everyone is living like rockstars with their own private jets and space stations. The only people standing in the way of this are liberals. It’s also important to believe that you derive absolutely no benefit from the government just in case govt starts going into the red after massive, unsustainable tax cuts.
Actually, as I pointed out, that piece by Krugman doesn’t even suggest what Jason said. It’s merely Krugman repeating something that someone else said, saying that not being the world’s reserve currency doesn’t mean you can’t create currency.
Even Krugman, at least there, isn’t saying that being the world’s reserve currency is of minor importance.
I explained the impact of a .25% increase in interest rates (the low end of S&P estimates).
Next, Gross co-partner Dr. Mohamed A. El-Erian has PHd in international economics from Oxford is that authoritative enough for you. PIMCO manages a trillion dollars worth bonds, I am pretty confident that he has a hell of lot more knowledge about how this stuff actually works in real life, that Krugman’s back of the envelope calculation for some talk.
I get that you love Krugman and I know he has Nobel prize, but he is pretty much the only guy out there saying. “The US dollar being replaced as a reserve currency no big deal a .1% drop in GDP.” Of course with our anemic growth rate even .1% is not so minor.
Does El-Erain agree with a 25% cut in living standards?
I am pretty confident that he has a hell of lot more knowledge about how this stuff actually works in real life…
With the appeal-to-manages-money comes the possibility that’s they’re just talking their own book. Take your pick.
I get that you love Krugman and I know he has Nobel prize…
I’m quoting because he has an explanation with a logical series of events and straightforward calculations as to the impact. Every other argument I’ve seen is hand-waving “this will happen” with no explanation of why or where the numbers come from. Really, a 25% cut in US living standards?
Did someone suggest a 25% drop in the US standard of living?
Sam Zell down below.
Strollen, looking at the article closer, though, Gross doesn’t even say anything about reserve currency; he’s talking about debt flows. They’re not the same thing. What’s their estimates of the reserve currency loss impact?
Simply put, 50% of Americans don’t have that religion. OK, something like 98.7% of Americans dislike taxes. Yet, they do love their government social security and other government programs. And if the idea of returning tax rates on the richest 1% of the country to Clinton rates were to come before a popular vote, it would pass.
However, keep in mind that Americans have only 3 options when it comes to voting on the national level: vote Democrat, vote Republican, or waste your vote (Either by voting 3rd party or by not voting). And then there are few national votes in the US, and never votes dealing . Every 2 years Congress is re-elected, and every 4 years a president is elected.
What Republicans do is bundle their unpopular opinions on taxes, which is very popular to the people who do a lot of the funding, with other issues. Some times these issues are social issues, other times they are economic issues. A republican does not say a tax on the wealthy is a tax on all of us, he says Obama wants to raise all our taxes. Or, better yet blame Obama for the economy, and people tend to vote that direction regardless.
Also, realize that candidates for Congress are not chosen to run from the top, but in a popular vote called a primary which traditionally has very low turn out and depending on the state is limited to registered members of the party in question. Hence, the candidates that get elected through the primaries are elected by the most passionate elements of that party. But the regular voters are still left with the 3 options, Dems, Repubs, or waste your vote.