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Friday, January 4, 2013

Politics / Money / Economy The Only Budget Crisis We Have Is the One Being Manufactured By Republicans

Posted by Goldy on Fri, Jan 4, 2013 at 3:13 PM

In addition to what I wrote yesterday, I'd just like to add that no, I don't think we're facing a debt crisis, and no, I don't think our structural budget deficit is particularly unsustainable. I suppose I could summarize my reasoning for you, but it's Friday afternoon and I'm tired, so I'll just let Paul Krugman do my work for me:

Now, America does have a long-run budget problem, thanks to our aging population and the rising cost of health care. However, the current deficit has nothing to do with that problem, and says nothing at all about the sustainability of our social insurance programs. Instead, it mainly reflects the depressed state of the economy — a depression that would be made even worse by attempts to shrink the deficit rapidly.

So, let’s talk about the numbers.

The first thing we need to ask is what a sustainable budget would look like. The answer is that in a growing economy, budgets don’t have to be balanced to be sustainable. Federal debt was higher at the end of the Clinton years than at the beginning — that is, the deficits of the Clinton administration’s early years outweighed the surpluses at the end. Yet because gross domestic product rose over those eight years, the best measure of our debt position, the ratio of debt to G.D.P., fell dramatically, from 49 to 33 percent.

Right now, given reasonable estimates of likely future growth and inflation, we would have a stable or declining ratio of debt to G.D.P. even if we had a $400 billion deficit. You can argue that we should do better; but if the question is whether current deficits are sustainable, you should take $400 billion off the table right away.

That still leaves $600 billion or so. What’s that about? It’s the depressed economy — full stop.

[...] Putting all this together, it turns out that the trillion-dollar deficit isn’t a sign of unsustainable finances at all. Some of the deficit is in fact sustainable; just about all of the rest would go away if we had an economic recovery.

Fine, sure, scoff at Krugman's analysis. I mean, he only won a Nobel Prize in Economics, so what does he know? And if you'd like to scoff at a more data-driven explanation of his thesis, click through to this detailed explanation from Bloomberg.

Despite all the editorial moralizing, the only budget crisis we have at the moment is the one being manufactured by Republicans with their debt ceiling hostage-taking. And that's hardly an excuse for inflicting hardship on the young, the old, the sick, and the poor.

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@22 Um, the first line of the Krugman block quote is:

Now, America does have a long-run budget problem, thanks to our aging population and the rising cost of health care.

Same as the Bloomberg conclusion. Nobody is denying that.

Posted by Goldy on January 6, 2013 at 7:54 PM

@23 since 2010 the US has been getting negative real interest rates on government debt, we actually save money by borrowing it now rather than later, so the smart thing to do is use this opportunity to reinforce our fragile recovery with spending so that we're in a stronger position to make cuts in a stable economy when interest rates increase.

Source: http://research.stlouisfed.org/fred2/ser…

Posted by bitwise on January 6, 2013 at 1:32 AM

@23 Which is why we needn't be in the business of having an intermediary loan us the money we could print in the first place. (I.e. issuing debt instruments is optional)

Apropros this thread:

http://www.rooseveltinstitute.org/new-ro…

Posted by dirac on January 6, 2013 at 12:41 AM

@23 Which is why we needn't be in the business of having an intermediary loan us the money we could print in the first place. (I.e. issuing debt instruments is optional)

Posted by dirac on January 6, 2013 at 12:30 AM

Just because it's sustainable doesn't mean that we shouldn't work to eliminate the estimated $5 trillion in interest alone that this debt is costing this country.(http://money.cnn.com/2012/03/05/news/eco…)

Posted by prompt on January 5, 2013 at 5:51 PM

The Bloomberg piece sensibly concludes, "None of this is to say that the long-run budget picture is sustainable. In fact, it plainly is not, as the federal government faces a severe challenge of financing the large and growing cost of its health programs. But the U.S.'s budget problem is not as dire as the budget numbers would imply at first glance."

Wish Krug-o-philes could admit at least this much. Cartoon Keynesians are just as imbecile as Supply-Siders.

Posted by Billy Chav on January 5, 2013 at 12:47 PM

The biggest scam is the stupid comment by TeaPartiers (or let's just say Republicans, since they're identical): "The gubmint should only spend what it takes in, just like my family does!" Said by people who are maxed out on mortgages, credit cards, and car payments.

Posted by sarah70 on January 5, 2013 at 12:04 AM

My debt is 3x my income. 300% of income. Why can't america's debt be 100 or 120 % of its income?
Also our debt is a lower % of our total wealth.
It is about that simple. Debt fearmongering is a.scam.

Posted by It is simple on January 4, 2013 at 10:25 PM

Here's the problem - everyone in this country wants the federal budget to be EASY to understand, and it's not. There is math. It's not like a person's budget in their house. You have to have taken more than Econ 101 to understand it fully. Or even Econ 201. It is hard, it is technical, and it is complicated.

That doesn't mean you it's over your head. It's not IF you're willing to sit down and do some serious reading and come to some of your own conclusions.

But there will ALWAYS be people willing to say to us, "no, no, it's not complicated at all. Everything you need to know about the federal budget fits on a 3x5 flashcard."

99% of the demagoguery on this issue can be traced to people who either think the federal budget is as complicated as balancing their checkbook, or wants YOU to believe that stupid shit.

And that is some unbelievably stupid shit.

Posted by nullbull on January 4, 2013 at 9:19 PM

"raised taxes on the poor by two points, a thousan dollar hit on the lowest quintile"

The lowest quintile are making $50,000? Dang, that's pretty good!

Posted by Reader01 on January 4, 2013 at 7:43 PM

I'm glad we've got Alan Grayson back in the House. Already he's making the rounds and cutting through the bullshit on this issue.

Posted by Knat on January 4, 2013 at 6:34 PM

Now, America does have a long-run budget problem, thanks to our aging population and the rising cost of health care.

Posted by Paul Krugman on January 4, 2013 at 5:50 PM

gawd you really are a fucking retard.

Posted by radishes have more brains on January 4, 2013 at 5:49 PM

reminder that winning a nobel prize in economics isn't a reliable indicator of validity. they gave one to milton friedman, after all.

Posted by DeaconBlues

on January 4, 2013 at 5:30 PM

Some points: Not too long ago it was determined that Krugman was the most accurate of the Sunday pundits. The best way to predict accuracy of the pundits was this - the more left of center the more accurate, the more right of center the less accurate at prediction.

My feeling is that right of center and far-right economists have stopped accepting data that contradicts their beliefs. Until this changes their influence will be primarily as propagandists and supporting the status of dog-eat-dog financiers. (dog-eat-dog is actually big dog-eats-little dogs)

The biggest stumbling point of most right-of-center folks is a belief that money is a "thing" - solid and of fixed size. Money is a promise. You can exchange it for goods or services. It's linked to how productive a corporation, individual, or society is.

When people get scared of "the debt" it's because they believe it's eating away at a solid thing. When you consider "the debt" to be like a loan, something that greases the wheels of progress, it's suddenly more important to keep it the right size, not a fixed size.

If you have too much debt relative to GDP the flow becomes overheated. Too little debt and the economy goes cold.

It's like saying you can't afford more blankets when you've got the flu, because you're not working and not making money.

Posted by Dan B on January 4, 2013 at 5:17 PM

God this thread is so full of shit. This is a bipartisan game. Who created the debt commission in the middle of a depression? Your Own Personal Jesus. Who loves Reagan more than Republicans? Your Own Personal Jesus. At no point in time did the Democrats NOT have leverage. If the government shut down the Republicans would be more unpopular. The administration has the authority and obligation to pay Congress' debts. Platinum coins, 14th Amendment, etc. I have little faith Obama will use them because the game is to squeeze the lower class. So yeah, we're in the transpartisan era. It's just not going to be good for anybody in the lower class. If I'm wrong and this President and Dem party get spine or grow a heart, then yay, but given their awful track record thus far I'm not holding my breath.

Posted by dirac on January 4, 2013 at 5:17 PM

9 geez, Cheney said it. Take it easy.

Posted by MikeB on January 4, 2013 at 4:36 PM

The Republican strategy is now (at least) 40 years old, since it's now the birthday of Lewis Powell's memorandum to the US Chamber of Commerce.
http://www.greenpeace.org/usa/en/news-an…

Posted by sarah70 on January 4, 2013 at 4:33 PM

@7 I never said that deficits don't matter. Jesus. Read the piece. The budget is sustainable as long as long as the debt to GDP ratio is stable or declining. Is that really too hard a concept to wrap your mind around?

Posted by Goldy on January 4, 2013 at 4:13 PM

I've said it before, and I'll say it again: Nobody who idolizes Ronald Reagan and seeks to emulate his policies should be taken seriously when they engage in hand-wringing about deficits.

It's not as if "Starving the Beast" is some big secret -- Republicans have acknowledged for decades that running up deficits and then using those deficits as pretext to gut social spending is a strategy that they have consciously and assiduously pursued.

Posted by Proteus on January 4, 2013 at 4:08 PM

So then we can cut taxes on everyone, because, hey, deficits don't matter! Right?

Posted by You_Gotta_Be_Kidding_Me on January 4, 2013 at 4:02 PM

@1 Krugman exposed the housing bubble AND Dotcom busts long before they happened. And all the Wall Street apologists and wingnuts said he was crazy.

He's been right 9 times out of ten. So. Fuck yeah. I'll listen to him before I'd listen to you.

Posted by tkc on January 4, 2013 at 3:50 PM

The economy would be doing much better if Republicans stopped their foolishness. But they won't stop because their real goal is to damage this president's record of success.

Posted by Pope Peabrain on January 4, 2013 at 3:45 PM

I would change one thing in goldy's report. the only crisis is the one we have that's manufactured by the republicans and then seconded by the democrats. it's not like we have a democratic party espousing krugmanism or keynesianisn we have a democratic party that just now
--raised taxes on the poor by two points, a thousan dollar hit on the lowest quintile, while
--protecting MOST upper half families from a income tax hike. people like me, making $300K who could EASILY AFFORD A TAX HIKE.

and then saying sure in the futrue we will fix "entitlement programs" adopting another republican meme. obama already proposed a chained CPI, my god that's a ten percent cut in social security in a few years. a ten percent cut. we no longer have a true democratic party, they've mostly joined with the gop, my god the obama team just adopted 98% of the Bush Tax Cut program and the view that we're taxed too much most of us need tax relief etc. this isn't the republican's fault, of course they're for the rich and small government, it's the democrats fault, they don't fight worth a damn.

Posted by obama more gopthan krugman on January 4, 2013 at 3:42 PM

@1 Refute it. Refute Krugman. Refute the arguments in the Bloomberg link. Refute everything Dean Baker has written on the subject. Show me the math that explains why this thesis is wrong. Show me the fucking math!

Posted by Goldy on January 4, 2013 at 3:37 PM

He said work, not thinking.

Look, just cut all the Red State military and Big Ag funding and we'll be right as rain.

And put all tax exemptions up for a vote of the People. 2/3 majority to pass.

Posted by Will in Seattle