Congress to Obama: "The ATM is Closed"

[iNow]

Do you realize that failure to provide further stimulus WILL result in thousands of public-sector jobs being lost? Do you acknowledge that we will be firing thousands of fire fighters, police officers, and public school teachers without additional spending? Do you realize this directly satisfies the conditions which you yourself have put forth in your definition?

 

Do you know that the senate refused to extend unemployment benefits last week, even though there are 5 people unemployed for every 1 job opening available? Do you realize this will further depress the economy and result in lost revenues for both businesses and government, and will essentially make people suffer in the name of long-term deficit reduction?

 

You're arguing that this is not a sign of austerity? You're arguing that austerity is not a factor in current policy or approach by the US federal government, and state governments alike?

 

 

I can't see any rationale or reason in your argument here. The US congress, in both action and in speech, is very much advocating austerity. I guess we'll just have to agree to disagree. I seriously don't see any merit in your position, and I promise you that I'm not being intentionally obtuse here.

[swansont]

This is semantics, but stimulus money is probably not the same category as funding for public-sector jobs. IIRC the 2009-10 stimulus package had wording in it that it was not to be spent on salary. Stimulus is short-term. I also disagree that failure to spend additional money is austerity; the latter implies a decrease in spending.

[Cap'n Refsmmat]

You're arguing that this is not a sign of austerity?

 

Yes. The decision not to approve the stimulus may be stupid (I have no idea), but it's not austerity.

 

I read The Times and I hear all about austerity measures in the UK. The government has demanded 10-25% spending cuts from almost every department, froze salaries, cut defense programs, and planned to fire thousands of workers.

 

That's not the same as refusing to increase spending. It's a deliberate spending cut.

[iNow]

My argument still is valid even if you remove failure to provide more stimulus from it.

 

 

http://www.nytimes.com/2010/01/26/us/politics/26budget.html

President Obama will call for a three-year freeze in spending on many domestic programs, and for increases no greater than inflation after that, an initiative intended to signal his seriousness about cutting the budget deficit

 

<...>

 

And not all programs will be frozen, the administration officials said; many will be cut well below a freeze or eliminated

 

<...>

 

The administration officials did not identify which programs Mr. Obama would cut or eliminate, but said that information would be in the budget he submits next week. For the coming fiscal year, the reductions would be $10 billion to $15 billion, they said. Last year Mr. Obama proposed to cut a similar amount — $11.5 billion — and Congress approved about three-fifths of that, the officials said.

 

<...>

 

The freeze that Mr. Obama will propose for the fiscal years 2011 through 2013 actually means a cut in real terms, since the affected spending would not keep pace with inflation.

 

 

I'm really not sure how much more data I must share to convince you that my point is valid. We're contracting our economy, no matter how you slice it. I'm just gonna stop now due to exhaustion and exasperation.

[jackson33]

Austerity implies (by definition) "austere" and "ascetic" living conditions, with few frills or benefits. It implies massive spending cuts.[/Quote]

 

CR; While true it's as perceived; The previous governments, Blair/Brown felt otherwise.

 

 

Thread;

Actually, the proper term would be showing "fiscal responsibility", where austerity generally means denial of something for the good of something else, as perceived. Neither party IMO, is showing either and IMO both are playing politics.

 

Raising taxes, would also be questionable as to FR or A, if you question the probable effects of either's meaning. If raising taxes, reduces the purchasing power of the base, in effect the GDP and the tax base itself, nothing positive can actually happen. In my mind, it would take both spending cuts, to conform with what the current expectations of revenues are and reducing (in this case, maintaining the current structure, the Bush cuts) giving some confidence to business, investors and the consuming public.

 

As for stimulating the previous stimulation, that's simply absurd. Any entity, in this case the US Government, with a 2.4T$ income and virtually NO surplus funds to start with, SPENDS in excess of a trillion dollars (Cash for klunkers on to State and Business bailouts, benefit extensions etc) and having appropriated funds for additional trillions (all borrowed) is hardly showing FR.

 

 

 

 

Fiscal Responsibility

There are important reasons that voters value fiscal responsibility in their elected officials. Managing public money is a matter of public trust, and a charge that should not be taken lightly. But what is fiscal responsibility? My definition involves three components: wisely managing resources, preparing for the future, and avoiding debt. [/Quote]

 

http://www.electlisa.org/FiscalResponsibility.htm

 

http://www.merriam-webster.com/dictionary/austere

 

 

Do you realize that failure to provide further stimulus WILL result in thousands of public-sector jobs being lost? Do you acknowledge that we will be firing thousands of fire fighters, police officers, and public school teachers without additional spending? Do you realize this directly satisfies the conditions which you yourself have put forth in your definition?[/Quote]

 

iNow; Not necessarily; While each of your examples are local and State decisions (Federal or folks from other States should not be held responsible), priorities would always be considered. Additionally, if those same folks your mentioning, simply would agree to a 100% freeze on both current and future pay/benefit increases, most those State and local deficits would balance themselves out...

 

Do you know that the senate refused to extend unemployment benefits last week, even though there are 5 people unemployed for every 1 job opening available? Do you realize this will further depress the economy and result in lost revenues for both businesses and government, and will essentially make people suffer in the name of long-term deficit reduction? [/Quote]

 

Do you realize near four in five people employed in the Country are to some business and where most the unemployed have come from. Is it even conceivable in your mind, that the business/economic environment, caused from policy and kept business from hiring.

 

I can't see any rationale or reason in your argument here. The US congress, in both action and in speech, is very much advocating austerity. [/Quote]

 

Do you think the actions leading up to last week, showed any signs of austerity, or where either party seemed willing the BECOME fiscally responsible. Actions speak and re-election/political talk is cheap. By the way, watch the 'War Spending Bill' coming up when Congress convenes and what 'Emergency Spending' is added....

[iNow]

Thread;

Actually, the proper term would be showing "fiscal responsibility", where austerity generally means denial of something for the good of something else, as perceived. Neither party IMO, is showing either and IMO both are playing politics.

<...>

In my mind, it would take both spending cuts

<...>

As for stimulating the previous stimulation, that's simply absurd.

<...>

Additionally, if those same folks your mentioning, simply would agree to a 100% freeze on both current and future pay/benefit increases, most those State and local deficits would balance themselves out...

 

While the point you are making seems intuitive, and appears on it's face to be an accurate depiction, you are actually rather painfully missing the bigger picture.

 

 

That bigger picture was laid out quite crisply here today:

 

 

Suppose you slash spending equal to 1 percent of GDP. That looks like a budget saving, right? But if you do it in the face of an economy up against the zero bound, so that the Fed can’t offset the demand effects with lower rates, it’s going to shrink the economy. Let me use a multiplier of 1.4; you can adjust the numbers as you wish.

 

Now, a weaker economy means less revenue. Assume that every dollar up or down in GDP means $0.25 in revenue, which is conservative. Then the fiscal austerity reduces revenue by 0.35 percent of GDP; the true saving is only 0.65 percent.

 

Now, the government has to borrow those funds; let’s say the real interest rate is 3 percent (it’s actually much lower now). Then the long run impact of the austerity on the fiscal position is to reduce real interest payments by 0.0195 percent of GDP.

 

But wait: what if there are long-run negative effects of a deeper slump on the economy? The WSJ piece showed one example: workers driven permanently out of the labor force. There’s also the negative effect of a depressed economy on business investment. There’s the waste of talent because young people have their lifetime careers derailed. And so on. And here’s the thing: if the economy is weaker in the long run, this means less revenue, which offsets any savings from the initial austerity.

 

How big do these negative effects have to be to turn austerity into a net negative for the budget? Not very big. In my example, the real interest payments saved by a 1 percent of GDP austerity move are less than .02 percent of GDP; if the marginal tax effect of GDP is 0.25, that means that a reduction of future GDP by .08 percent is enough to swamp the alleged fiscal benefits. It’s not at all hard to imagine that happening.

 

In short, there’s a very good case to be made that austerity now isn’t just a bad idea because of its impact on the economy and the unemployed; it may well fail even at the task of helping the budget balance.

 

It’s important to realize that I’m not saying that government spending always pays for itself, and that saving money is always counterproductive. These kinds of effects are specific to a liquidity trap situation. But that’s the situation we’re in.

[jackson33]

iNow; It may be Krugman is NOT looking at that big picture and by big I mean a good many variables involved trying to stimulate or in fact slow any economy. My quotes are from your link....

 

Suppose you slash spending equal to 1 percent of GDP. That looks like a budget saving, right?[/Quote]

 

1- Without considering Debt and assuming that 1% is to keep in line with estimated revenues 2010 (2.5T$), then yes it will lead to the best possible result. We're now talking about a deficit, this year of 1.4T$ and that's probably under estimated and there is no estimating what the next 5-10 years will be, with all the new programs and less money in the economy for investment.

 

2- One percent of GDP (15T$2008) is 150B$, meaningless to what the revenues in 2009 were budgeted for or 2.5T$.

 

3- That 1% (150B$) if borrowed and placed at the end of the debt line today 100T$+ (talk about modest) a minimum of what's already obligated and in line for loans in 100 years would eventually cost the tax payers about 19.2T$, assuming the interest stayed around 5-6%* (it won't) and that interest payment is also borrowed (would have to be) and that line still includes some money spent during WWII.

 

* Interest in the world markets in determined by faith and trust to pay back and in accordance to their currency. That is to find anyone to loan you the money, it's going to cost more and more, in interest as ever getting paid back become less and less likely.

 

4- His whole theory is built around a robust economy and a continuing doubling of GDP, every ten years, which it had been doing from around 1986, but will take possible up to 30-40 years to even double to 30T$ (if even that's possible without deflating the dollar.

 

Now, the government has to borrow those funds; let’s say the real interest rate is 3 percent (it’s actually much lower now). Then the long run impact of the austerity on the fiscal position is to reduce real interest payments by 0.0195 percent of GDP.[/Quote]

 

I really don't like the use of the word 'austerity', but again he's picturing a growth rate not imaginable, especially considering the ageing American population over the next 30 years.

 

Even if things pick up to the level of 2008 FY, say in 2014, the already cost of the additional Government, will limit any growth (Obama already trying to warn you) in the free markets, as taxes increase with the expense actually already projected. I doubt, the estimated 2011 FY revenues will be anywhere near the expected, having no idea what that figure is without a budget.

 

I haven't begun to bring in State Problems, which should have already been cut back and will need funding just to pay their share of Federal obligations, the potential problems of the US and it's service based economy creating an ever increasing import problem (not just energy) or even the eventual loss of major industry who could not and will not support a socialist Federal Government and maybe 10 other items, Krugman is NOT accounting for in his projection scenarios, IMO...

 

For the record, I know Krugman was discussing a drop in the economy if austerity is stopped, and only offering a rebuttal to his comments from what can happen, if spending continues. Since you presume to understand him, I'll assume you can understand my argument.

[iNow]

For the record, I know Krugman was discussing a drop in the economy if austerity is stopped

 

No, that is not at all what he was discussing. It was the exact opposite, actually. He was saying if austerity continues, it will have a measurable negative impact and will likely undercut the goals under which it was enacted. People argue for austerity using a motivation of reducing deficit, but when you do the numbers, austerity actually makes the deficit worse (in our current zero bound / liquidity trap position).

 

Also, most of your post was an attack on a number used as an example by Krugman. He basically stated, "To understand the idea, let's use this number," and in response you chose to argue how his number was inappropriate. It was an example, so really, your point is moot. You could use ANY number since it was put forth merely to give people a remedial understanding of the concept.

 

It's as if I told you that you had 3 apples, 2 oranges, and 6 bananas and asked you to tell me how many pieces of fruit you have... Then, in response, you talk about how the weather in New Mexico hasn't been conducive to fruit so the grocery stores have raised their prices and I should start buying from farmers markets. You didn't even begin to address the core of the question or the point.

[jackson33]

iNow; If Congress imposes 'Fiscal Responsibility' back into Government, Krugman, Congress, the Administration and you believe the economy will suffer. It looks to me, Krugman is saying this would be inevitable.

 

As for my post and using one number, it would be as consistent with any other number and as you say, Krugman suggest.

 

Frankly in re-reading my post and understanding the problem with using numbers, it must come off as gibberish. I would suggest however, using GDP to stimulus spending is also pure nonsense or not including the multiple extenuating current circumstances*. If there is/was any single point, forgetting numbers, it was that at some point any spending beyond an income can only result in a down hill economy. I don't know about apples/oranges and bananas or where NM fits in, but if I'm broke with no apparent source to gain the income I had three years ago and from a source that's dried up, borrowing additional funds is not going to help.

 

*

130T$ in unbudgeted and unfunded obligations of the Federal alone, not including the States.

 

The ageing society. An estimated 20-30 M people going on the Medicare Rolls today or the new retirees in the next 20-30 years, euthanasia/rationing or not.

 

The increased cost of borrowing (unavoidable), in either case. If the economy picks up Interest Rates (for Americans) will to sky rocket, if it drops or stabilizes the artificial rates for foreigners will go up and very soon. This a no win catch 22....

 

An ever increasing 'Trade Balance', which contrary to political rhetoric, will increase as Crude increases in price, with or with out a recovery, with one will double.

 

The current loss of manufacturing jobs, whether from productivity (automation) or moving to less costly places around the world, is going to continue....

 

Inevitable tax increases, State and Federal which can only stall or reverse any chance for a meaningful recovery and I mean on all tax brackets, not just the rich.

 

All this and more (Cap and Trade, Card Check or Union influence, just a couple), must be considered IMO, when discussing current stimulus spending and is not being figured in...

[iNow]

iNow; If Congress imposes 'Fiscal Responsibility' back into Government, Krugman, Congress, the Administration and you believe the economy will suffer. It looks to me, Krugman is saying this would be inevitable.

 

Ok. It's time for you to now give us all a precise definition of what YOU mean by 'fiscal respopnsibility.'

 

Nobody here or elsewhere is dumb enough to disagree that we must be responsible.

 

The point, Jackson, is that your comment is wholly irrelevant to the discussion.

The point of the argument, Jackson, is that it's fiscally irresponsible to cut back right now while we are caught in a liquidity trap and pushed against the zero bound with interest rates already.

The point, Jackson, is that it's MOST fiscally responsible right now to stimulate the economy.

The point is that my position is supported by the numbers.

The point is that over and over again history has demonstrated my position accurate and yours fallacious.

 

Now, how about you precisely define what YOU mean by 'fiscally responsible' and we can go from there. I agree whole heartedly that we must be fiscally responsible, and I'd like to review what reaswoning you are using which makes you think that your position is.

[john5746]

Debt is a Cancer

 

I think we have to do both. We need to spend where it is useful, but cut waste. Benefits need to be cut, as well as trying to rebuild countries, for starters.

[jackson33]

Nobody here or elsewhere is dumb enough to disagree that we must be responsible...The point, Jackson, is that your comment is wholly irrelevant to the discussion. [/Quote]

 

iNow, don't go back that "irrelevance" stuff, you have been doing a good job in expressing the Progressive/Liberal attitudes toward Federal Stimulation and control of an economy. John Keynes, would be proud of you.

 

If we "must be responsible" and we do all agree here, when did over spending become something responsible.

 

The point of the argument, Jackson, is that it's fiscally irresponsible to cut back right now while we are caught in a liquidity trap and pushed against the zero bound with interest rates

already. [/Quote]

 

Yes, that is YOUR point and I disagree. There are tens of trillions of dollars setting idol by both business and the investor in the US, fearing only the Federal Government intervention into the 'Capitalist System'. Start that engine, give some confidence and any missing liquidity will be taken care of. Guessing; Alone there may be 5 Million families or retiring couple, over the next 12 months, would but a retirement home, a second home or investment property and I have no idea how many people, many out of work today with some savings and thinking of it now, would start some small business and more importantly those already in business will wish to grow, all above and beyond the current rates.

 

The point, Jackson, is that it's MOST fiscally responsible right now to stimulate the economy. [/Quote]

 

Pure unadulterated nonsense, in my opinion. That in my mind is saying every person or business that ever filed bankruptcy or failed, did so because they were fiscally responsible or those that have succeeded were irresponsible. Budgeting or control of finances are vital to any success and why most Corporation have CFO's in the first place.

 

One thing here iNow, have you considered the pork in the 2009 Budget, the 2009 Stimulus or most all the 1.4T$ deficits of 2009 or the underestimated 1.5T$ estimated 2010 has been effective in stimulating anything, including my interpretation of there purpose -State Bailouts- has in fact worked? (Bailouts from 2008 to date nearing 5T$).

 

http://www.usdebtclock.org/#

 

The point is that my position is supported by the numbers... The point is that over and over again history has demonstrated my position accurate and yours fallacious. [/Quote]

 

No, your taking/twisting results, created from other than the cause for an increased economy. We have gone over this 100 times on many threads. Review the 1920, the 1946, the 1983, the 1994 or 2003/4 recoveries and show me any MAJOR stimulus involvement. If I'm correct and the electorate agrees, this one will be revived in November 2010. What happens in the lame duck Congress or in the next Congress can influence the speed of recovery and I can only hope there is someone out there that can accept a one term presidency to implement the needed actions.

 

 

It's time for you to now give us all a precise definition of what YOU mean by 'fiscal

responsibility.[/Quote]

 

Now, how about you precisely define what YOU mean by 'fiscally responsible' and we can go from there. I agree whole heartedly that we must be fiscally responsible, and I'd like to review

what reasoning you are using which makes you think that your position is.[/Quote]

 

You probably recall my 'reverse tax post', think in a 'Skeptic' Thread, where States collect and paid all Federal Income/Payroll Taxes owed by the percentage of the districts populations. One of the reasons for this, is the wide variances in all State and local taxes. If you want to argue the point, I believe under the Constitution and the 16th amendment, the people and the State are indistinguishable (the same) to the Federal and would be found Constitutional. Additionally States that are doing well economically have historically held to lower rates with in their State. Since States (for the most part) are forced to be fiscally responsible, this would automatically solve the problem.

 

Since this will never happen; Whether it be the Federal or State Government, a business or an individual, being financially responsible is simply being held to an agreed to budget, which normally is subject to projected income(s). Any emergency, I don't care if it's a war or domestic issue, is handled at the time of financing with additional taxes, cutting some other program or limited debt. Managing Funds available, consideration of the future and avoiding debt always important factors.

[iNow]

iNow, don't go back that "irrelevance" stuff, you have been doing a good job in expressing the Progressive/Liberal attitudes toward Federal Stimulation and control of an economy. John Keynes, would be proud of you.

Fair enough.

 

 

Yes, that is YOUR point and I disagree. There are tens of trillions of dollars setting idol by both business and the investor in the US, fearing only the Federal Government intervention into the 'Capitalist System'. Start that engine, give some confidence and any missing liquidity will be taken care of.

Here, you assume that businesses are not spending due to fear. You suggest that they are holding on to cash because they are so deeply and profoundly worried that the rules might change, so they are simply sitting quietly until they know more.

 

Sure, that's part of it. I agree that this is a factor, and that CFOs and other financial kings are looking for certainty in the markets so they can make some better decisions. However, where we do disagree is that you posit this as the core reason for businesses hoarding cash. I'm pretty sure I'm not misrepresenting you. Is this a fair assessment of your position?

 

If so, I merely need to point out to you that right now businesses are suffering from excess capacity... They have more tools and more buildings and more inventory than they have demand. The demand is low because people are still unemployed and low on cash, and also because smaller businesses cannot successfully get approved for loans. They have all of this extra cash because they are not currently spending on capacity. They have no need to increase inventory and hire workers. They have no need to spend that cash because they already have too much on the books... between their surplus of machines, surplus of materials, surplus of infrastructure and buildings, surplus of inventory, and DEFICIT of demand.

 

Again... I don't disagree that the markets always crave certainty. I don't disagree that the wheelers and dealers making the spending decisions would like to see something more concrete come out of Washington before they make any further investment decisions. Where I DO disagree is that this even begins to account for the surplus cash being held right now by businesses. As I elucidated above, that surplus in cash is a result in excess capacity. Again... The numbers reinforce my point. One simply needs to look at them honestly.

 

 

Pure unadulterated nonsense, in my opinion.

I'm sorry... but you don't get to give me a hard time for accurately telling you that your response to me was completely irrelevant to my point and then in that same post tell me that something is pure unadulterated nonsense. How about you walk the walk, preacher man?

 

 

That in my mind is saying every person or business that ever filed bankruptcy or failed, did so because they were fiscally responsible or those that have succeeded were irresponsible. Budgeting or control of finances are vital to any success and why most Corporation have CFO's in the first place.

No, that is not what I'm saying at all. I'm not sure it's possible that you could have misrepresented my actual point any more profoundly.

 

The point is that the economy is still not growing in the way we need it to in order to recover. The point is that in normal conditions the Fed could lower interest rates to encourage spending and investment, but that interest rates are already near the zero bound so the logic proposed when you discuss decreases in spending and increases in austerity does not apply in the current situation.

 

In the current situation, unemployment is still quite high (in some measures growing, but certainly not decreasing in the manner needed to recover from the millions lost last year), and that is a self-cascading process whereby those unemployed people are not spending as much money, and that lower amount of spending causes other businesses to fail and for more unemployed people to enter the system. The idea is that we must stimulate now, despite it's impact on future deficit, for the only hope we have at paying off the future deficit is to get as many people working immediately as possible.

 

In sum, this is about investment, not deficit or spending. You are missing the forest for the trees.

Deficit is not good. Debt is not good. We agree on that.

 

My point is that your proposals actually make deficit worse and debt worse, and that while it's counter-intuitive we must spend now to make those better later.

 

 

As much as some people here like to claim that economics is a bunch of woo, that's simply not the case. We have a long robust history of trial and error which shows the ideas I am here now supporting to be accurate. We have a long robust history of trial and error which shows the ideas which you are here now espousing to be misguided.

 

 

 

 

http://www.nytimes.com/2010/07/02/opinion/02krugman.html?_r=1

 

I and others have watched, with amazement and horror, the emergence of a consensus in policy circles in favor of immediate fiscal austerity. That is, somehow it has become conventional wisdom that now is the time to slash spending, despite the fact that the world’s major economies remain deeply depressed.

 

This conventional wisdom isn’t based on either evidence or careful analysis. Instead, it rests on what we might charitably call sheer speculation, and less charitably call figments of the policy elite’s imagination — specifically, on belief in what I’ve come to think of as the invisible bond vigilante and the confidence fairy.

 

Bond vigilantes are investors who pull the plug on governments they perceive as unable or unwilling to pay their debts. Now there’s no question that countries can suffer crises of confidence (see Greece, debt of). But what the advocates of austerity claim is that (a) the bond vigilantes are about to attack America, and (B ) spending anything more on stimulus will set them off.

 

What reason do we have to believe that any of this is true? Yes, America has long-run budget problems, but what we do on stimulus over the next couple of years has almost no bearing on our ability to deal with these long-run problems. As Douglas Elmendorf, the director of the Congressional Budget Office, recently put it, “There is no intrinsic contradiction between providing additional fiscal stimulus today, while the unemployment rate is high and many factories and offices are underused, and imposing fiscal restraint several years from now, when output and employment will probably be close to their potential.”

 

Nonetheless, every few months we’re told that the bond vigilantes have arrived, and we must impose austerity now now now to appease them. Three months ago, a slight uptick in long-term interest rates was greeted with near hysteria: “Debt Fears Send Rates Up,” was the headline at The Wall Street Journal, although there was no actual evidence of such fears, and Alan Greenspan pronounced the rise a “canary in the mine.”

 

Since then, long-term rates have plunged again. Far from fleeing U.S. government debt, investors evidently see it as their safest bet in a stumbling economy. Yet the advocates of austerity still assure us that bond vigilantes will attack any day now if we don’t slash spending immediately.

 

But don’t worry: spending cuts may hurt, but the confidence fairy will take away the pain. “The idea that austerity measures could trigger stagnation is incorrect,” declared Jean-Claude Trichet, the president of the European Central Bank, in a recent interview. Why? Because “confidence-inspiring policies will foster and not hamper economic recovery.”

 

What’s the evidence for the belief that fiscal contraction is actually expansionary, because it improves confidence? (By the way, this is precisely the doctrine expounded by Herbert Hoover in 1932.) Well, there have been historical cases of spending cuts and tax increases followed by economic growth. But as far as I can tell, every one of those examples proves, on closer examination, to be a case in which the negative effects of austerity were offset by other factors, factors not likely to be relevant today. For example, Ireland’s era of austerity-with-growth in the 1980s depended on a drastic move from trade deficit to trade surplus, which isn’t a strategy everyone can pursue at the same time.

 

And current examples of austerity are anything but encouraging. Ireland has been a good soldier in this crisis, grimly implementing savage spending cuts. Its reward has been a Depression-level slump — and financial markets continue to treat it as a serious default risk. Other good soldiers, like Latvia and Estonia, have done even worse — and all three nations have, believe it or not, had worse slumps in output and employment than Iceland, which was forced by the sheer scale of its financial crisis to adopt less orthodox policies.

 

So the next time you hear serious-sounding people explaining the need for fiscal austerity, try to parse their argument. Almost surely, you’ll discover that what sounds like hardheaded realism actually rests on a foundation of fantasy, on the belief that invisible vigilantes will punish us if we’re bad and the confidence fairy will reward us if we’re good. And real-world policy — policy that will blight the lives of millions of working families — is being built on that foundation.

[pioneer]

One way to help the cause is create a temporary tax, on all those who are paid by the tax payers. There are no need for layoffs. It is all a numbers game which raises money that also reduces the cost of doing business.

 

I would also tax campaign moneys, treating it like a business with the same rates applied to businesses. Obama raised nearly a $billion which would have been taxed at the rate of business with the same revenues.

[iNow]

I think we have to do both. We need to spend where it is useful, but cut waste.

I think this is fair. There may be some who dislike you even having made the suggestion that government should spend anything whatsoever, but I find that argument myopic and misguided, whereas your point seems rather reasonable, simple, and accurate.

 

 

Benefits need to be cut, as well as trying to rebuild countries, for starters.

I tend to agree with the second (even though so many of those who currently espouse austerity rather vocally and forcefully would not), but can you clarify the first? What types of benefits do you think should be cut? It's tough to figure out what you're saying without some specifics on what constitutes "benefits" and in what ways you think they should be cut. I'd then try to work with you on the numbers to see if the cuts being described scale appropriately... Basically, does the benefit of cutting them outweigh the cost.

 

Cheers.

[jackson33]

However, where we do disagree is that you posit this as the core reason for businesses hoarding cash. I'm pretty sure I'm not misrepresenting you. Is this a fair assessment of your position?[/Quote]

 

Yes, you get my point and I'll go a little further, some maybe to your liking;

 

Employers today are holding off any expenses, as cost of an employee in 2011 is going to be higher and deductible in the event of increased taxes. Additionally they will be taking profits (many are optional as when to claim the profit), before years end or investing in areas where profits can be taken over longer periods.

 

It's distasteful to use this analogy and I'm not implying any foul play, but George Steinbrenner in dying this years saved his estate around 55B$, which would have been the tax in 2011, if he had died then. The Yankees are said worth 100+B$ and I have no idea what all else may be involved. I'm sure there are lines forming in front of 'Estate Planners', all intending to form trust funds of some sort, or making other plans to avoid this tax and/or the many others that are planned to be reinstated.

 

If so, I merely need to point out to you that right now businesses are suffering from excess capacity...[/Quote]

 

No question here, when talking the Corporate Structure, but what's missing are the entrepreneurs (wishing to start a business), small and intermediate business that could grow with investment and are reluctant to start up or grow there business.

 

I'm sorry... but you don't get to give me a hard time for accurately telling you that your response to me was completely irrelevant to my point and then in that same post tell me that something is pure unadulterated nonsense. How about you walk the walk, preacher man?[/Quote]

 

Good point, but that is our disagreement, the approach to recovery. Maybe I should have said, "as Ms. Romer, Timothy Geithner, Krugman and you".....leading to your next comment;

 

My point is that your proposals actually make deficit worse and debt worse, and that while it's counter-intuitive we must spend now to make those better later.[/Quote]

 

It boils down to which policy would HAVE worked best. I can't say I have the answers today (a year or 18 months ago, maybe another story) and can only stress the importance of restraining or shutting off further spending, really for any reason. I'll go back into number in the last paragraph*.

 

As much as some people here like to claim that economics is a bunch of woo, that's simply not the case. We have a long robust history of trial and error which shows the ideas I am here now supporting to be accurate. We have a long robust history of trial and error which shows the ideas which you are here now espousing to be misguided.[/Quote]

 

As a Nation, it has not been all that long, would say 120 years of anything near a 'Controlled Economy', then primarily to nothing involving Congressional Regulation which has been getting worse for Capitalism and the actual issue, many don't appreciate or desire. Then what we have had, obviously can be spun into what ever political scenario desired and our discussion.

 

*

Republican Alan Simpson and Democrat Erskine Bowles told a meeting of the National Governors Association that everything needs to be considered - including curtailing popular tax breaks, such as the home mortgage deduction, and instituting a financial trigger mechanism for gaining Medicare coverage.....

 

Bowles said if the U.S. makes no changes it will be spending $2 trillion by 2020 just for interest on the national debt.[/Quote]

 

http://www.fresnobee.com/2010/07/11/2002838/debt-leaders-paint-gloomy-picture.html

 

I'll leave the potential rise in interest cost alone but I don't feel Bowles figured in and using the 2010 Budget (sorry 2011 which starts in two months) has not been offered, the figures are becoming clear....

 

Mandatory Spending (obligations) in 2010 was 2.2T$ of which 164B$was Interest on the Debt and 1.45T$ for Health/SS Programs, increasingly each year will need to increase. To accommodate an increase of 10+ times the interest by 2020, estimates on deficit spending would need be nearly the same and I don't think Bowles had Military spending in mind. Never the less, lets just triple the Mandatory Spending to 3.6T$, add in the 2T$ Interest for 5.6T$ and just triple the cost of Government (Discretionary Spending 2010, 1.4T$), for whatever reasons are(keep in mind this is from the 2010 Budget) and we should have a 2020 Budget for 10T$ rounded off from 9.8T$, for the record begins in October 2019.

 

To support a 10T$ Budget and stay within the lines of acceptable taxation, with out influencing the economy (that 18% figure) your going to need a near 50T$ GDP, an increase of 35T$ over the estimated 2010 GDP of near 15T$.

 

I understand nobody has any idea what I'm talking about, but these are unsustainable figures, even if reduced by half (1T$ 2020 interest, baseline) and there is no stopping that figure 1T$ base hitting in 2011 or early 2012 (my opinion).

 

http://en.wikipedia.org/wiki/2010_United_States_federal_budget

[iNow]

Yes, you get my point

Good. I appreciate the confirmation. I thought I was reading you correctly.

 

 

Employers today are holding off any expenses, as cost of an employee in 2011 is going to be higher and deductible in the event of increased taxes.

I'd like to see some evidence of this (precisely that this is the reason employers are holding off on "any expenses." I see it as a false and hollow assertion. As I conceded above, uncertainly plays a role in how they decide to spend money, but I think it's completely unrealistic of you to assert that no money is being spent due to this uncertainty. Businesses will make a decision given the information at hand. That information is sometimes more substantial and sometimes more uncertain. I understand you think this uncertainty is preventing any money from being spent, but I find that to be somewhat baseless and welcome support in its favor. To assert that all spending has stopped due to uncertainty is IMO a fantasy and little more, as there is ALWAYS uncertainty and yet spending continues.

 

 

It's distasteful to use this analogy and I'm not implying any foul play, but George Steinbrenner in dying this years saved his estate around 55B$, which would have been the tax in 2011, if he had died then. The Yankees are said worth 100+B$ and I have no idea what all else may be involved.

Yeah... You lost me there. Relevance?

 

 

 

No question here, when talking the Corporate Structure, but what's missing are the entrepreneurs (wishing to start a business), small and intermediate business that could grow with investment and are reluctant to start up or grow there business.

Again, is there any evidence in support of this assertion? You see, I ask because everything I've encountered suggests that there are a MULTITUDE of small businesses and entrepreneurs trying to get started (despite the boogey man of uncertainty)... They just cannot get approved for loans due to the lack of available credit in the banking industry. Even those with outstanding credit cannot currently secure a loan because banks are unwilling to accept unnecessary risk.

 

Your argument is that the businesses aren't even trying to start up because they don't know what Congress is doing? I say, that just doesn't hold water.

 

Look... Here's some data in support of my point. Do you have any in support of yours, or are you limiting yourself to unsupported assertions again?

 

 

http://eon.businesswire.com/portal/site/eon/permalink/?ndmViewId=news_view&newsId=20100610006608&newsLang=en

 

Bank loans have also become more difficult to acquire during the second quarter of 2010, with 39% of small businesses and 23% of middle market companies reporting being denied when applying for additional bank loans. This represents increases of 16% and 7%, respectively, in the denial rate when compared to the first quarter of 2010.

 

The change in the denial rates correlates with the type of loan businesses were seeking. Small businesses (45%) applied for unsecured short-term loans while middle market companies applied for secured short-term loans (60%). When comparing the denial rates for these loans, twice as many companies applying for unsecured loans reported being denied than those applying for secured loans.

 

Finding it difficult to obtain additional credit, small businesses may develop a perception of a tighter credit market and turn to other sources of financing. In fact, 62% of small businesses reported using personal savings and/or credit cards to finance their business.

 

 

When you get right down to brass tacks, you have to ask yourself... What makes more sense? The idea that "big government" and the lack of certainty is preventing people from even trying to start small businesses, or the idea that people truly ARE trying, but are being rejected for the needed loan to satisfy the up-front investments required... that they ARE trying and simply don't have the resources to fund a new business with personal savings and/or credit cards?

 

Again, I'm not saying that the uncertainty is not a factor to be considered.

I'm saying that it's not the primary factor... not even close... The numbers simply don't support that assertion.

 

 

It boils down to which policy would HAVE worked best. I can't say I have the answers today (a year or 18 months ago, maybe another story) and can only stress the importance of restraining or shutting off further spending, really for any reason.

And this is precisely where I think your argument breaks down. You want to cut spending for the sake of cutting spending. You have no numbers to support your argument, and you are ignoring the numbers in support of mine.

 

To be fair, I acknowledge that it's counter-intuitive. People are probably asking themselves, "Of course we should cut spending. We can't spend money we don't have. We must cut spending... as you say... for "any" reason."

 

However, we've tried that already. Thanks for the suggestion there, Mr. Hoover, but we've already ventured down that path... And so has Japan and countless other nations. It turns out that when you are in the situation we are in today, cutting spending makes problems worse, not better. It turns out, that calls for austerity when stuck in a liquidity trap and pushed against the zero bound with interest rates exacerbate problems.

 

 

What I'm struggling with mostly, Jackson, is how you can sit there with a straight face and argue for "fiscal responsibility" when the responsible thing is to avoid cut-backs until we're no longer in the slump. Again, I don't disagree that we need to keep focus on long term deficits. My point, though, is that the time to try fixing them is not while in the position we're in now. It's like deciding to do take 3 pints of blood for a donation on a patient who just got out of surgery for an amputation 10 minutes ago... Then arguing about how good it is to donate blood and that this is why we should do it... You need to wait until the patient has healed a little bit before drawing blood for that donation or you are going to do measurable and irreversible harm. Capiche?

[Pangloss]

I think it's ironic that during the Clinton administration Democrats believed that their policies had a direct impact on business spending, but during the Obama administration the feeling is that businessmen ignore politics.

 

What I'm struggling with mostly' date=' Jackson, is how you can sit there with a straight face and argue for "fiscal responsibility" when the responsible thing is to avoid cut-backs until we're no longer in the slump.

[/quote']

 

The problem is that Democrats will never find a time when there is a sufficient letup in human suffering that justifies cutting spending. Not that I'm saying Republicans are any better at this, but I think it's misplaced faith to think that Democrats are just doing what's best for the country.

 

And Jackson, ParanoiA and I aren't the only ones who think so -- the latest polls show the majority of Americans think it's the wrong direction. (Though I suppose American public opinion has never really mattered to dedicated progressives outside of elections -- they don't think we're qualified to have a say. Too bad for them.)

 

But unfortunately for the administration, it's not just the public who thinks this. Erskine Bowles was appointed co-head of President Obama's commission to study the deficit problem, and he said this the other day:

 

"We can't grow our way out of this' date='" Bowles said. "We could have decades of double-digit growth and not grow our way out of this enormous debt problem. We can't tax our way out. . . . The reality is we've got to do exactly what you all do every day as governors. We've got to cut spending or increase revenues or do some combination of that."

[/quote']

 

On top of that, add every single head of state in the G-20, and all of the economic advice that they're being fed.

 

But I guess they're all just "Mister Hoovers", eh?

[iNow]

No, but to repeat my central point yet again... Cutting spending in a liquidity trap and while pushed against the zero bound DECREASES revenues at a higher order of magnitude than the gain achieved by the cuts themselves.

[Pangloss]

Fair enough, I respect your opinion.

[ParanoiA]

No, but to repeat my central point yet again... Cutting spending in a liquidity trap and while pushed against the zero bound DECREASES revenues at a higher order of magnitude than the gain achieved by the cuts themselves.

 

See, I realize that's your take on this, and that Krugman has impressed you enough to take a position on it. But I, and most americans I suspect, cannot.

 

Here's an example. This is a Forbes article written a year ago, How Stimulating is Stimulus?

 

In some cases, higher spending can raise GDP for a short period of time if tax increases are delayed, but the greater the delay, the greater the long-run decline in employment and output that ultimately swamps the temporary gain. These findings are summarized in a new paper by Harald Uhlig of the University of Chicago, who writes that "the analysis here may lead one to conclude that the long-term consequences of massive expansions in government stimulus come at substantial costs."

 

And by some measure, that prediction appears to have happened. GDP went up the 2nd, 3rd and 4th quarters of 2009, including the first quarter of 2010, and unemployment has steadily increased over that time as well.

 

Here's the paper referenced in the Forbes article.

 

While the figure indicates that tax cuts rather than spending increases

eventually are more potent for increasing output – which is in line with the

empirical evidence cited above, but in contrast to the ranking in Romer-

Bernstein (2009) – the figure appears to agree with Romer-Bernstein (2009)

that fiscal multipliers above unity can reasonably expected for the horizon

considered by these authors.

 

I shall argue, however, that this figure is quite misleading. The initially

output-stimulating effect of e.g. of a government spending increase, also

visible in the short-run dynamics shown in figure 3 comes at a large cost in

output reduction further down the road. Figure 4 shows the impulse response,

drawn out until 2100, to exhibit the long-run response: output will

eventually drop by nearly a percent,turning negative in about 2025. Furthermore,

consumption is always negative and crowded out by government

spending, in line with Ramey (2007).

 

Don't mistake this for anything close to a proper analysis or rebutall to Krugman by yours truly, as we all know, or should know by now that economics is my achilles heel. However, do take this as further supporting evidence that we, the people, have no particular reason to hang our hat on any particular economist. Unlike Global Warming, we really don't actually have a consensus here - well not for Krugman anyway.

 

I'm not even saying he's wrong, because honestly I don't know. I do know, however, that I could care less how emphatic the virtual room full of economic geniuses are about their theories when they mostly run counter to each other and it's our money at stake and generations of debt repayment.

 

Essentially, I've got a back yard full of drenched plumbers and busted pipes, leaks shooting up in the air while Krugman is insisting I let them tear up my front yard too and if I don't agree then I'm a dumbass.

 

Play those games with your money. Leave the rest of us out of it.

[Pangloss]

I don't think the line is going to be held at unemployment extension, by the way. That seems almost certain to ultimately pass next week, given the politics. CNN is running an informal poll right now in which they ask their viewers if they'd rather see their neighbors' babies die or pay off our Chinese debt masters, so you can imagine the response. (Okay, okay, they ask if you'd rather extend unemployment insurance or reduce the national debt, which is a false dichotomy (false opposites).)

 

Which I think gives some indication of how Democrats will have to pose all social legislation from this point forward. They're not going to get squat for a while unless they can pose the alternative as a assault on starving children.

[john5746]

 

 

I tend to agree with the second (even though so many of those who currently espouse austerity rather vocally and forcefully would not), but can you clarify the first? What types of benefits do you think should be cut? It's tough to figure out what you're saying without some specifics on what constitutes "benefits" and in what ways you think they should be cut. I'd then try to work with you on the numbers to see if the cuts being described scale appropriately... Basically, does the benefit of cutting them outweigh the cost.

 

 

I don't really have a specific plan in mind, but I think it is obvious that Social Security needs to be revamped and in regards to Unemployment Benefits, I think the system needs to be changed. Maybe extensions would only be given to those who take some employment, ANY employment, especially those in the higher brackets who are avoiding lower paying jobs.

[jackson33]

I'd like to see some evidence of this (precisely that this is the reason employers are holding off on "any expenses." I see it as a false and hollow assertion.[/Quote]

 

July 15 the 2010;

Nonfinancial companies are sitting on $1.8 trillion in cash, roughly one-quarter more than at the beginning of the recession. And as several major firms report impressive earnings this week, the money continues to flow into firms' coffers....

 

A survey last month of more than 1,000 chief financial officers by Duke University and CFO magazine showed that nearly 60 percent of those executives don't expect to bring their employment back to pre-recession levels until 2012 or later -- even though they're projecting a 12 percent rise in earnings and a 9 percent boost in capital spending over the next year...... [/Quote]

 

http://community.thenest.com/cs/ks/forums/39755162/ShowThread.aspx

 

Other indicators of withheld investment/funding are American Investment in T-Bonds now at record levels and Corporate IPO's which are at records lows.

 

iNow; It's a two tier answer and different business is handling in their own way.

 

Any investment in labor today, is known or felt going to increase in cost next year. While most all the mentioned business or start ups have the funds, those unanswered questioned prevent the investment.

 

Then taxes are going to increase, no question there. It's estimated half or more the employed and/or laid off have come from small business and most all small business still files under the Individual Income Tax (opposed to Corporate) or both. They and I did or would if business today, will always buy or not buy or invest according to my next years projection of taxes and environment (regulation/tax law).

 

Publicly listed Corporation, all file quarterly reports (for Government, stock holders) listing Cash/Liquid Investment on hand and are currently running very high.

 

Yeah... You lost me there. Relevance? [/Quote]

 

While all new tax laws affect an end result for the next year, Steinbrenner's Estate is no different, whatever operations involved have averted a 55T$ tax bite.

 

Again, is there any evidence in support of this assertion? You see, I ask because everything I've encountered suggests that there are a MULTITUDE of small businesses and entrepreneurs trying to get started (despite the boogey man of uncertainty)... They just cannot get approved for loans due to the lack of available credit in the banking industry. Even those with outstanding credit cannot currently secure a loan because banks are unwilling to accept unnecessary risk.[/Quote]

 

Business investment for both the small and large are going to be dependant on some financing, finance (a business itself) just part of being, going into or expanding business. The Banks are no less cautious in today's climate, as those in or wanting to go into business. However no banks has ever lent money with out collateral and the value of all collateral is down. Stocks/Homes/Industrial Property have always been the prime source and in some location this value may be down 50%, disregarding the probable equity values of the property.

 

Again, I'm not saying that the uncertainty is not a factor to be considered.

I'm saying that it's not the primary factor... not even close... The numbers simply don't support that assertion.[/Quote]

 

I'm sorry, the only thing this tells me is you must have never been in business, it's all about uncertainty and that uncertainty has not been this high in a couple generations. In today's news, their expecting over 1 MILLION homes to be foreclosed on THIS YEAR (normal year 100k, nationwide). This is the 6th or 7th year of this Housing bubble nonsense and you can get a 4-5% Home Loan, FIXED for 30/40 years. What other explanation could there be, than confidence (some sense or certainty) in the future?

 

And this is precisely where I think your argument breaks down. You want to cut spending for the sake of cutting spending. You have no numbers to support your argument, and you are ignoring the numbers in support of mine.[/Quote]

 

With out going back over 20-30 previous post, covering this argument, no I think most ALL the spending including TARP has been COUNTER PRODUCTIVE. Lets take 99 weeks of unemployment checks; Do you think all the 17 Million folks out of work or have never had one (130,000 new jobs are required each month just to cover new entries into the work force) are wondering around the streets looking for a job. I'd bet every person receiving a weekly check for -X- number of dollars in cash and/or benefits, has refused countless offers for less pay and/or those benefits (some receiving under the table), that without the billions in 'Jobs Bills' would have been happy to receive.

 

 

What I'm struggling with mostly, Jackson, is how you can sit there with a straight face and argue for "fiscal responsibility" when the responsible thing is to avoid cut-backs until we're no longer in the slump.[/Quote]

 

No, but to repeat my central point yet again... Cutting spending in a liquidity trap and while pushed against the zero bound DECREASES revenues at a higher order of magnitude than the gain achieved by the cuts themselves. [/Quote]

 

If anything Government Spending is creating that "liquidity trap", planning to seal it with added taxes in 2011. Liquidity, the sum worth/value over the amount paid and/or owed. Each dollar taken from the owners of the US economy (the value) decreases that equity. Any perceived bubble, in my mind is years down the road when there is no place to turn for value/wealth.

 

If correct and Policy is creating the "slump", how does increased spending solve the problem, it can't. What is needed is the slashing of Federal Programs and Spending, restrict regulation of business and reverse a good share. What are we doing, increasing regulation and social programs.

 

Financial Reform, that has now passed, means the Executive Branch can take over a good many Business, seen to be in trouble (by non elected bureaucrats) and anything failing or failed can be bailed out or not, without Congressional approval. Fanny and Freddie, Dodd and Frank, the authors of the legislation, possibly responsible for this entire debacle....Somebody in charge, if their is a person, better get a grip on reality, realizing their may have been nothing but a Housing Bubble Burst to begin with and if handled differently, a very short "slump". IMO, 95% of all that's happened should and could have been avoided.

[iNow]

July 15 the 2010;

A survey last month of more than 1,000 chief financial officers by Duke University and CFO magazine showed that nearly 60 percent of those executives don't expect to bring their employment back to pre-recession levels until 2012 or later -- even though they're projecting a 12 percent rise in earnings and a 9 percent boost in capital spending over the next year......

 

Sorry, Jackson. I asked for evidence in support of your assertion that there is no spending due to uncertainty. Your link states only that executives aren't expecting to bring employment back to pre-recession levels until roughly 2012.

 

I'm not sure why you think what you shared addresses my request. It does not.

 

 

 

Business investment for both the small and large are going to be dependant on some financing, finance (a business itself) just part of being, going into or expanding business. The Banks are no less cautious in today's climate, as those in or wanting to go into business.

Okay, I don't disagree, but you've again seemed to have missed the point by responding with this irrelevant comment. My point was that the more likely scenario is that small businesses are struggling to start up due to lack of financing (which you seem to have just agreed with), not that they are struggling to start up due to uncertainty in legislation.

 

I'm not sure why you think what you shared addresses my point. It does not.

 

 

I'm sorry, the only thing this tells me is you must have never been in business, it's all about uncertainty and that uncertainty has not been this high in a couple generations.

Two things.

First, how about you avoid speculating about my history, and avoid making personal comments about me in some vain attempt to support your hollow points.

Second, how about you finally (as I've now requested like four times) support your repeated assertion that uncertainty is the primary driver causing cash stores in businesses to build.

 

As I've said before, I concede that uncertainty plays a role in which decisions get made. Where I am directly challenging you is on your proposal that uncertainty is what is causing the excess of cash to be held by businesses. The more reasonable explanation for high stores of cash is due to the excess capacity in the system... There is no need for further investment in new tools, factories, people, whatever... because demand is so low.

 

Again... I agree that uncertainty plays a role. I disagree that it is the primary driver causing businesses to hoard cash.

You are welcome to continue asserting the contrary, but it would sure be nice if you offered a link or two which actually supports that point. You have not yet done this... not even close.

 

 

What other explanation could there be, than confidence (some sense or certainty) in the future?

First, I will call out your use of the logical fallacy of an appeal to incredulity.

Second, I will refer back to like my last 10 posts... The other explanation is the excess in capacity and low demand.

 

 

With out going back over 20-30 previous post, covering this argument...

I'm still waiting for you to make an argument in support of your case. Thus far, you've offered little more than unsupported assertion.

 

 

 

If anything Government Spending is creating that "liquidity trap",

Please clarify your point. This doesn't make any sense.

 

 

If correct and Policy is creating the "slump", how does increased spending solve the problem, it can't.

That's just it though... You're not correct, ergo your conclusion is based on a flawed premise and is also false.

 

 

I'm not optimistic that we'll come to agreement. I just hope that people see which side of the argument is logical, supported with numbers, and based on empirical evidence from history... and which resorts to personal attacks on people like Barney Frank and completely irrelevant comments about Fannie and Freddie.

 

 

 

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I think it is obvious that Social Security needs to be revamped and in regards to Unemployment Benefits, I think the system needs to be changed.

I think you are quite correct. I fully support both of those in spirit. Where the challenge comes is when we discuss the HOW to do each.

 

Maybe extensions would only be given to those who take some employment, ANY employment, especially those in the higher brackets who are avoiding lower paying jobs.

Perhaps fair, but likely a drop in the bucket. Making executives mow the lawn of their neighbor in order to collect benefits is good theater, but I'm not sure really addresses the magnitude of the issue before us.

 

We all agree there are many changes needed. Now, we just have to use data and accurate representations of the situation we're in to make those changes and move forward.

 

Anyway... I sort of hoped that someone else would reply to your comment before me. I am starting to feel like the lone debater in here.