There has been growing talk of the need to reign in reckless government spending. Regrettably, this talk is not based in any knowledge of economics or history.. Let me explain why.A Brief History of the DeficitAccording to the Bureau of Public Debt, the US has been running a structural deficit for the last ten years, not just the last year. Here is a chart of the total amount of federal debt outstanding at the end of each federal fiscal year for the last ten years:09/30/2009 $ 11,909,829,003,511.7509/30/2008 $ 10,024,724,896,912.4909/30/2007 $ 9,007,653,372,262.4809/30/2006 $ 8,506,973,899,215.2309/30/2005 $ 7,932,709,661,723.5009/30/2004 $ 7,379,052,696,330.3209/30/2003 $ 6,783,231,062,743.6209/30/2002 $ 6,228,235,965,597.1609/30/2001 $ 5,807,463,412,200.0609/30/2000 $ 5,674,178,209,886.86The reason for this yearly increase of at least $400 billion in net new federal debt/year is simple: the US cut taxes but didn't make a proportionate cut in spending. As a result, total debt outstanding increased.If the austerity movement was really about the increase in federal debt, it would have emerged sometime after 2004-2005 when the US' structural deficit issue started to emerge in the data.A Brief Explanation of GDPGross domestic product is comprised of four elements. Consumer spending (C) + Investment (I) + Exports (exports-imports) + government spending (g). Here is the equation:C+I+X+G = GDP.According to the Congressional Budget Office, government spending has accounted for about 20% of US GDP since 1970.In other words -- government spending is always part of the national economic equation.A Brief History of AusterityOther countries have tried it.
Neil Shearing, economist at Capital Economics in London, said the real lesson from the region was that, “aggressive fiscal consolidation at a time when the private sector is also retrenching is likely to lead to much weaker levels of activity and a surge in unemployment”.
Much like Spain, Ireland and the UK, the Baltic states were badly hit by the bursting of a credit bubble in 2008 that sent their economies into freefall and their budget deficits soaring.
While others cushioned the impact with stimulus spending, the Baltic trio plunged straight into austerity. As a result, they suffered the deepest recessions in the European Union last year, with Latvia’s economy shrinking by 18 per cent.
The region has since stabilised but, for many ordinary people it still feels like a depression. Wages have plummeted while unemployment has rocketed, with more than a fifth of the Latvian labour force out of work.
And yet others have tried it:
Nearly two years ago, an economic collapse forced Ireland to cut public spending and raise taxes, the type of austerity measures that financial markets are now pressing on most advanced industrial nations.
“When our public finance situation blew wide open, the dominant consideration was ensuring that there was international investor confidence in Ireland so we could continue to borrow,” said Alan Barrett, chief economist at the Economic and Social Research Institute of Ireland. “A lot of the argument was, ‘Let’s get this over with quickly.’ ”
Rather than being rewarded for its actions, though, Ireland is being penalized. Its downturn has certainly been sharper than if the government had spent more to keep people working. Lacking stimulus money, the Irish economy shrank 7.1 percent last year and remains in recession.
Joblessness in this country of 4.5 million is above 13 percent, and the ranks of the long-term unemployed — those out of work for a year or more — have more than doubled, to 5.3 percent.
In other words, the policy of austerity is an abject failure.
I'm sorry but this is a completely non-objective post that is not worthy of 538.To make things clear, I'm not some right-wing crazy. I'm middle of the road, considered "conservative" in Europe and "progressive" in the US. I agree that the GOP on this issue are completely nonsensical.However, this does not mean that supporting austerity measures is "stupidity". Most serious economists would accept that fiscal stimulus does indeed boost GDP during its duration - both directly adding to the "G" in GDP and also generating some private sector GDP. However, the bit in doubt (among serious people) is whether this actually has any "rollover" effect when it is withdrawn. My view is that it does not have much: the private sector activity that is based on the govt spending will collapse once the stimulus is withdrawn. Most of the firms in the "multiplier" will not be able to find revenues elsewhere, because their work is often specific to the government contracts. Thus we have a choice of experiencing the pain in those firms now, or experiecing the pain later. The issue is, if we leave it to later, we will also have a mountain of debt. That debt will crowd out private sector investment. Yes, Krugman is right that this does not happen when we are significantly below full employment. But that debt will take decades to reduce, meaning we will still be blighted with it once employment returns, harming future growth.Now I understand there is reasonable debate on this, as it is a complex issue. But you're being as pathetic as the GOP when you just call the other side "stupid" by pretending its more simple than it is.
@SocratesOf course it's worthy. Nate points out intellectual dishonesty all the time. Why can't we bring ourselves to point out intellectual dishonesty when people talk about the economy?Look at the numbers.
It' quite a stretch to draw a causal relationship from a few examples. And opinions about the baltics are mixed, with some saying that they've managed an impressive rebound.I tend to think that increasing government might stabilize the economy in the short term (if done right) but increases fragility and volatility. A bit like a non-professional driver trying to stabilize a swerving car, overdoing it a few times until the car flips.
You've completely left out any discussion of monetary policy, which is disappointing.The whole reason fiscal stimulus is necessary is because monetary policy isn't working. Otherwise, there would be no need for fiscal stimulus.People on the right make statements like "canada cut and grew" or "sweden cut and grew", and the evidence will back them up. The problem is that they ignore the monetary factors at play. In both cases, the countries could offset austerity by cutting interest rates - something that's not possible in the US or the UK.As with ANY macroeconomic policy, there is a tradeoff. More government spending increases growth and employment but increases the deficit. Additionally, there is a risk that government spending will not increase productivity commensurately, which carries the risk of inflation and stagnation in the long run.
ambassoon,Pointing out intellectual dishonesty is fine - and you can choose specific Republicans who have been blatantly dishonest on this. But to wipe out a whole side of the argument based on the contradictions of some (or even most) of them is wrong.The numbers so far only tell you part of the story, as they are only showing the short term. As mentioned in my previous note, even serious fiscal hawks accept we will have more pain now by cutting it - which is what the numbers are showing. The debate is whether the trade off is worth it in the longer term. Bonddad's post is like saying "The people who think they should rack up the credit card bill now are right - look they're having wonderful holidays when savers are having to stay at home. Case closed."538 has improved a lot from expanding its contributors beyond Nate. But unfortunately they are mostly firmly centre-left, which is causing group think. I sympathise with their position, because most people on the right seem completely crazy and inconsistent right now, but there are a few of us rational conservatives left.
I don't know a Republican who hasn't been dishonest about this. Just the other day, you had Kyl saying how discretionary spending had to be paid for, but tax cuts don't.What Bonddad is pointing out, is that modern conservatives only yell about debt when they aren't in office. But this time, cutting spending will ruin the country. It was practically Great Depression redux after Roosevelt cut spending at the end of the 30's. Let's not listen to people who only care about deficits when it suits them politically, especially now, when it's so crucial to recovery.
Sorry, Hale, this just is NOT as balanced a report as it should be. One or two anecdotal examples seem to be more like premises to support a prior conclusion. Go back and get more data covering a wider scenario to make this stronger.On the subject, MANAGED debt, as ANY corporate finance officer, or family checkbook balancer, IS MOST CERTAINLY a positive thing. Austerity for austerity's sake IS counterproductive. But the debt load OVER TIME must be reduced when SHORT-TERM necessity requires a spike.This seems to be something the GOP mantra from the Reagan years onward has forgotten in the sound bite (Not to mention the Law of Diminishing Returns).The TERRIBLE spike in US debt from the Depression and WWII to WELL OVER 100% of GDP, WAS MANAGED. Higher marginal tax rates and fewer write-offs against the corporate rate brought that debt down to about 30% of GDP in just over 30 years.But, beginning with the Reagan tax cuts and the one trick pony of GOP "policy", that debt has soared in the past 30 years up to it's present levels.Now we have little maneuvering room because, in good times, we failed to MANAGE debt. And the GOP mantra IS STILL THE SAME!This in spite of the historical lesson of the post WW II 70 years.Soundbites are easy, making them work regardless the situation is MUCH more difficult, regardless what the "austerity" crowd tells you.
The Poster is correct that the fiscal austerity movement is purely a political ploy. Recent comments by GOP leadership makes it clear that once in power, the GOP will immediately forget their temporary concern about the debt to concentrate on the one issue they really care about, cutting taxes for the rich and corporations. As fiscal policy, piling up government debt in order to transfer wealth to the already wealthy is madness, since most of that money won't be spent and therefore won't stimulate the economy. Its the policy followed by Bush, with disastrous results, but cutting taxes on the wealthy is the only fiscal tool in the GOP kit.
ambassoon,This isn't just a political matter though - it's also an economic one. And there are plenty of serious economists who aren't trying to get elected in November who advocate fiscal retrenchment.This is also an international debate - as is clear from the evidence cited here - and there are plenty of consistent politicians who are not up for election who support such a policy. Right now a Liberal-Conservative coalition in the UK is doing the same thing. Boondad is also comparing Ireland and Latvia, countries that cut during the recession's downward spiral, to a crowd of people that are arguing for cuts once the recession is over. And the "but you'll tip us back in" argument is fallacious too - no economic forecaster now thinks the UK will tip back in after their austerity budget. If you want a "let's not listen to people" view to reinforce liberal ideas you can go to the Daily Kos. I come to 538 for something more thoughtful.
A rather black-and-white post, really. Of course it helps to reduce the deficit if you cut on government spending too - and I'm sure there are a few items on list that could use a good squeezeWhat's the ROI on Iraq and Afghanistan for instance?You need to stimulate a bit, cut a bit, subsidise a bit here, penalise a bit there, lower some thresholds, raise others - economics is a multi-headed beast of which each head has its function
Contrary to Socrates commentThis post is well put and too the point - Attacking the main talking points of the Party of NO - I am tired of the lack of historical context with in the political debate.... Republicans get there cake and then turn around and claim that democrats must go on a diet.Shhh the nerve - if you have the guts to lie - what are the historical debt loads of the US in relationship to GDP over the last hundred years - anyone? Storytelling
My view on this is that we are mostly having a monetary problem, and that fiscal stimulus or non-stimulus is therefore less effective. Primarily I am looking at industrial capacity utilization, and we're currently at 74.1%, whereas the historic norm is somewhere above 80%. Similarly, the high unemployment rate means that we're underutilizing our human resources. Why aren't we putting our industrial resources to good use and produce what we can? Because no consumer or business or government has the money to pay for the goods. The fed has already pumped vast amount of liquidity into the system, but it isn't getting through to consumers or business, because the banks are running a racket: borrowing short term near 0% interest from the fed, and investing in long-term treasuries at around 4%. Not only is that a bubble that is likely to bust, but it keeps much-needed liquidity out of the hands of those who would put it to productive use. What can be done about it? We need to flatten the yield curve by bringing long-term rates down to reduce the incentive for parking money in 30-year treasuries. This can be done by reducing their supply by bringing the national debt down or by the Fed buying them on the open market. The former is next to impossible - even if we save us kaputt to the point of eliminating the federal deficit overnight, the old debt that needs to be refinanced regularly remains. The Fed, on the other hand, can buy those bonds without much penalty. Even though it is technically printing money, that will not cause inflation because the supply of goods will increase at virtually no additional marginal cost because of capacity underutilization, and thus prices won't go up. And if that risk becomes real because the economy has returned to normal, it's quite possible to restrict money supply by, for instance, selling those bonds again or by increasing reserve requirements for the banks. So why aren't we doing this?Is the Fed afraid of the bond vigilates? If so, Bernanke needs to grow a spine.
Socrates,It's one thing to argue a point by example, and quite another to argue a point by philosophy. Bonddad is pointing out how modern conservative philosophy is arguing for lower deficits at the expense of the recovery.I don't see why some think that removing government spending from the equation would help the economy. In a consumer economy, if the consumer stops spending, the government has to pick up the slack until the consumer can start spending again. The austerity movement is being fueled by dishonest politics, and it's more than fair to point that out.
@Socrates,However, this does not mean that supporting austerity measures is "stupidity". Most serious economists would accept that fiscal stimulus does indeed boost GDP during its duration - both directly adding to the "G" in GDP and also generating some private sector GDP. However, the bit in doubt (among serious people) is whether this actually has any "rollover" effect when it is withdrawn. Nope, it's not a problem. The way this works, if the stimulus is large enough, is the following:1. Government spends until inflation starts to creep above-target.2. Central bank raises interest rates to keep inflation down.3. Government pulls back spending.4. Central bank lowers interest rates again to compensate.There isn't a serious problem with allocation because redistribution of such allocation is a normal feature of any economy.
Uh oh. Evidence. Here comes the truthiness patrol.In fairness, though, much of this really is conclusory restatement of basic Keynes. I say "much of" because there ARE examples in here, concrete examples that tend to support the general assertion that strict austerity measures in times of recession are unwise. It's not much, but it IS there. The last post about double-dips, now THERE was some evidence.Also, to the point Socrates is making: he has certainly isolated the issue. The proper question is whether near term stabilization is worth long term debt. To answer it, each must be properly valued. The question has never been whether people are entitled to unemployment or whether tax cuts for the rich are stimulative enough. The MOST important question is how much is near term stability worth, and what must we spend to get it?Of course, I disagree with the end result Socrates reaches. For all of your railing against "non-objective" "unworthiness", you make the same sort of conclusory, borderline partisan, pseudo-scientific assertions that Hale is guilty of above."Private sector activity that is based on the govt collapse once stimulus is withdrawn." There is a very good argument to be made that this is not the case if you do the stimulus properly. In short, deficit spending on investment (infrastructure, education, etc.) adds value long term, and so it creates productivity long after the cash itself dries up. If it sounds like I'm saying that countercyclical spending is more effective than countercyclical tax cuts, that's because that's what I'm saying, though tax cuts absolutely have a place in this."If we leave [the pain] to later, we will also have a mountain of debt." Ah, but we will now be suffering the pain and debt only where the burst bubbles and regulatory disasters have been properly dealt with. And, on top of that, you've got smarter kids driving on safer roads.My beef with the austerity crowd is that the austerity calculus ignores all of these benefits and focuses laser-like on debt, as if an interest payment is the worst thing in the world. Interest is just another cost, and it has to be weighed as such against the cost of presently wasted capacity and the present unavailability of capital. Also, there's the opportunity cost of forgoing all of the investments I talked about above. No, the austerity scheme is too narrow-sighted for my taste.
Thank you, Bonddad for your completely objective post. @Socrates: stick it.
Oh, I missed line from the "Death of Socrates."Stick it in your ear! A little hemlock, I mean.
I have to agree with Socrates in that this post is terribly simplistic and isn't up to the quality I've come to expect out of 538 analysis.Trying to use the GDP formula out of Macoecon 101 as a trump card ignores the complexity of recovery economics: many economists with no political agenda and with far more impressive economic credentials than this author recognize that increased government spending does not come without its costs. Shockingly, this article makes absolutely no mention of the debt crisis in Eurozone countries. When world markets look at a country like Italy and start to wonder whether its credit rating is sustainable, it forces other first world governments to pay attention.Even more incredulous is the author's fourth point. He draws a direct causal link between government stimulus and the rebounding of the Chinese economy, ignoring the preexisting growth potential that China had. Many developing countries (Brazil, India, the Philippines, Uganda, Tanzania, etc) have all maintained growth rates above 6% without the same level of stimulus spending as the Chinese. Overall, very disappointing post. Regardless of political creed, it doesn't take much to recognize a half-done piece.
@Socrates:"The issue is, if we leave it to later, we will also have a mountain of debt. That debt will crowd out private sector investment."Existing debt does not crowd out private sector investment. Only new borrowing does. Provided that monetary policy is rational, what matters crowding out is how much the nation is able to produce without stressing its resources and causing inflation. Existing debt does not use up any resources; only new purchases do. So increasing the debt today will not crowd out future investment.In fact, increasing debt is more likely to increase future investment, because future debt service payments will use up government revenues and make it harder for the government to spend more in the future, thus leaving more resources available for private investment.
@Socrates.I'm sorry, but those "serious economists" you like to refer to have already been spectacularly wrong as is regularly being pointed out by Paul Krugman and Brad Delong and others.Those "serious economists" predicted that Stimulus would lead to "runaway inflation, and that federal borrowing would lead to very high interest rates..."Your "serious economists" were already wrong before, spectacularly, so why believe they are right now?
@SocBecause of the low interest rates that the government can currently borrow at, the money for stimulus now is but a blip on the long-term debt.From Economist Brad Delong: 2. Whether we spend an extra $100 billion more (or less) this year on anti-recession measures is unimportant--is less than rounding error--in the long-term budget context.Let's do the math:Spend $1 billion today. Use the Treasury to borrow the money for 10 years at 3.20%. Expected inflation at 2 1/2% means that the real interest charges on the borrowing are only $7 million a year. And in 25 years the real American economy will be twice it's current size, and so the burden of raising taxes to actually pay off the debt will be half as big as it is today.
@Socrates:"The issue is, if we leave it to later, we will also have a mountain of debt. That debt will crowd out private sector investment."That argument has already been dispelled in the 1930s and after. In the 1930s it was called the Treasury View, nowadays Brad Delong calls it Fama's Fallacy.The US had a HUGE MOUNTAIN of Debt in the 1940s and 50s, reaching 120% of GDP. It hasn't "crowded out" ONE nickel of private sector investment.
ambassoon,If there was a post contrasting GOP deficit-cutting arguments, while documenting their tax cuttings, while also showing that the US is on the left hand side of the Laffer curve (which it is), then I wouldn't have any problem with it. As mentioned, the GOP have been horribly dishonest in this matter.This, however, is not the argument in the post. Boondad's argument today goes "This evidence comprehensive shows austerity measures do not work, therefore anyone advocating is merely going for political gains." This I take issue with.Jason,A fine theory: but you could do the same by maintaining expansionary monetary policy without racking up the government's stock of debt, and the long term crowding out of investment. Our economy is no longer in a downwards spiral, so why can't we just accept growth around 1% rather than around 2% in the short term, so we can have better investment and growth in the longer term?LK,I have a lot more sympathy with this argument, although it's not what is happening. Very little government spending is capital investment. There is also the issue that private capital investment could be squeezed out in the longer term. But yes, it's a nuanced issue. I agree that my post was not evidence based, but I was not trying to prove my case about fiscal spending - merely to show it was a more complex argument than Boondad was suggesting. Andy,Actually, yes it does. Existing debt mops up savings that could be going into corporate bonds. Thus crowding out.
A flatly political post, ignoring all countervailing evidence. One example, Canada had a very successful austerity program in the 1990s. It's current relatively strong position is built on its deficit slashing. And how about failed stimulus efforts - the most notorious being the decades long spending spree in Japan?Secondly, what's this claim that the structural deficits only became clear in the data in 2004-5? Hasn't this guy heard of Social Security and Medicare, which have been in structural deficit basically since they were designed (by the Democrats).Third, while I think it is perfectly fair to criticize Bush's fiscal record, the question is what Obama is going to do about it - not who is to blame. If Obama intends to extent the vast majority of the Bush tax cuts, because he made an expedient campaign promise to that effect, then he now has to answer for that. If he decides to continue the war if Afghanastan, then it is his war spending. If he wants to spend a trillion on stimulus and a trillion (in a decade) on Obamacare, and make huge increases in discretionary spending, then those are his decisions.There are some fair points in this post - but they are all on one side of the story, packaged with simplistic indignation. The fact is this: the deficit is a huge problem. Whoever is to blame, if Obama can't offer solutions, he will fail as a President.
PS The very title of the post warns us how one sided it will be. "Stupidity and hypocrisy"? Come on. David Cameron and Angela Merkel are stupid hypocrites? Paul Ryan and a host of economists? Grow up "Boon".Even "austerity" is, in my view, misleading. Austerity refers, historically, to periods (such as the 1940s and 50s, post War, in the UK, or perhaps Greece today) of savage budget cuts and even measures such as food rationing. We, and most European countries, have a LOT of fat to cut, and a lot of long term structural steps that we could undertake (raising retirement age, increase ceiling on SS taxes, reforming farm subsidies, etc.). "Austerity" is a scare word, designed to avoid difficult but doable choices.
Hale:Do you really believe these whiny WH talking points you just posted?1) Cutting government spending as a percentage of GDP does not slow down economic growth because government spending is always a transfer of money and not a creation of wealth. Nor has federal spending been fixed at 20% GDP since 1970. See drop in federal spending as a percentage of GDP from around 22% in 1982 to around 18% in 2000 (a drop of nearly 22%) while the economy surged. There is also the post WWII example where government spending halved going into the 50s.2) Sharply increased government borrowing and spending does not stimulate economic growth and reduce unemployment appreciably. See the New Deal, Japan's lost decade and now the substandard growth and high unemployment under Obama's nearly 3 trillion deficit spending spree. Your China comparison is ridiculous given that its GDP growth was already above 8% and its "stimulus" deficit was only around 2.5% of GDP, below the US average for decades.3) The new found attention to (not love of) cutting spending by the GOP establishment is in reaction to an enormous libertarian conservative popular rebellion, similar to but larger than the Perot rebellion in the early 90s. Welcome to the Tea Party.
Now that is a comically bad 'article.' Nate for sure should be embarrassed this appears on his site.
Agree that this post continues to deteriorate 538's track record as an objective or centrist site. I've noticed this increasingly over the months. Nothing wrong with taking a position, but asserting positions as indisputable facts (or implying that any other position is not somehow rational or evidence-based) is not what one used to find here. Things change.
How nice to be able to ignore econimic logic and declare any effort to cut spending as politically motivated. Nevermind that history shows that the desire to spend is what is politically motivated because that buys votes.The argument of austerity versus spending is misplaced nonetheless. If the objective is to help get the economy going, then policy should be to do things that result in growth, not dog-paddling in place.Marginal tax rate cuts have a perfect record in modern times for stimulating growth, which is the only thing that can obviate the need for continuously more welfare spending. Those who argue that those kinds of cuts do not immediately put money in people's pockets who are stretched are correct. No one is arguing to stop unemployment benefits, food stanps, etc. But if we do nothing but those, we will continue to get more of those the need them, not fewer.
@SocretesNow for the discussion. Why, exactly, do we think that budget deficits are a bad thing?The textbook answer identifies two reasons — two ways in which budget deficits now make us worse off in the future. They are:(1) The fiscal burden: deficits now mean higher debt later, which will have to be serviced, and that means higher taxes and/or less spending on other, presumably desirable things(2) Crowding out: when it runs deficits, the government competes with the private sector for funds, so deficits crowd out private investment, which reduces potential growthAll this makes sense under normal conditions. But right now we’re not living under normal conditions. We’re in a situation in which the economy is deeply depressed, and monetary policy — the usual line of defense against recession — is hard up against the zero-interest-rate bound. This weakens argument (1) — and it actually reverses argument (2).On argument (1): it’s still true that an increase in government spending raises future debt. But not one for one: because higher spending raises GDP, it leads to higher revenue, which offsets a significant fraction of the initial outlay. A back-of-the-envelope calculation suggests something like a 40 percent offset is plausible, so fiscal stimulus only costs 60 percent of what it costs.But the really dramatic difference is for argument (2). Under the kind of conditions we’re now facing, the main determinant of business investment is the state of the economy, as evidenced by the plunge in investment shown in the figure.This, in turn, means that anything that improves the state of the economy, including fiscal stimulus, leads to more investment, and hence raises the economy’s future potential.That is, under current conditions deficit spending doesn’t lead to crowding out — it leads to crowding in. In fact, you could argue that the worst thing we can do for future generations is NOT to run sufficiently large deficits right now.Things won’t always work this way. Eventually we’ll emerge from the liquidity trap, and the normal rules of economic prudence will reassert themselves. But we are not there, or anywhere close to there, right now.http://krugman.blogs.nytimes.com/2009/09/28/crowding-in/
GRRREEEAAATTTT POST!
"There has been growing talk of the need to reign in reckless government spending. Regrettably, this talk is not based in any knowledge of economics or history."Someone has finally come out in favor of "reckless government spending." Nate, this is the second post in a row from Bonddad that makes no sense at all. This site is deteriorating faster than Obama's popularity.
Well nothing says objectivity like putting "stupidity and hypocrisy" in the headline.Newsflash: Not everyone to the right of you is one monolithic movement. The people who are most strongly supportive of a so-called austerity movement (which would still have spending at GDP percentage that would shock anyone before 2000 or so) have been talking about this since 2005 and well before. Which is why you have something like Porkbusters, which Trent Lott said in 2006 he was "damn tired of." The Citizens Against Government Waste and the Club for Growth didn't open up shop yesterday. There's always been a vocal group on the right who've opposed runaway government spending and debt. They just haven't been (and still aren't) the leadership, who've gotten to where they are by sticking their snouts in the trough.The funniest part about this, though, is the suggestion that nothing has changed about the structure of the debt. The yearly increase is at least $400 billion in each of those years, but it doubled in 2008 and doubled again in 2009 after years of relatively steady increases. It ranged from $400B to $600B from 2001 to 2007, then jumped to a trillion in 2008 and $1.9 trillion in 2009. I'm afraid to ask where it'll be come Sept. 30. Yeah, I can't imagine why people might be getting more concerned.If this is politics done right, I'd hate to see it done wrong.
Agreed that this post is unworthy of 538. In his simple-minded country comparisons, the author pretends that nothing matters other than the single policy measure (eg. since liberalization China would have grown under ANY policy measure). He also conveniently leaves out any mention of Greece and Spain.
@Socrates,A fine theory: but you could do the same by maintaining expansionary monetary policy without racking up the government's stock of debt, and the long term crowding out of investment. Our economy is no longer in a downwards spiral, so why can't we just accept growth around 1% rather than around 2% in the short term, so we can have better investment and growth in the longer term?Well, yes, in principle expansionary monetary policy should do the trick. However, the question is how to do this in a liquidity trap. Normal monetary policy consists of just adjusting the interest rate at which the Fed loans money to banks. But with that interest rate at essentially 0%, there is essentially nothing more the Fed can do within normal monetary policy.Any actions taken, then have to be very out of the ordinary. The problem right now is that the Fed isn't even attempting to take any such extraordinary measures in order to get around the 0% limitation (to get how hard it is to convince a central bank to do this, bear in mind that Japan's central bank has dealt with 15 years of deflation, and is still reluctant to do what is necessary). Congress can easily get around this by enabling some emergency spending, though there are other options of course.But what is not a reasonable option, as this post correctly points out, is austerity. Now, fiscal austerity during normal times is a good thing. But it also isn't a panacea (before the economic crisis, Spain had a balanced budget, for instance).Oh, and by the way, I should mention that the Eurozone problems are more issues to do with the Euro than too much debt spending.
I clicked on the comment section to say "how was this ridiculously simplistic analysis ever allowed to be posted?" but I guess others beat me to the punch.This post is something that an Economics 101 student would write and get a "C" for writing. Ridiculously biased and unbalanced.
Oh, and I forgot something else:1% growth (as far as the US is concerned) would be slower than population growth, and so would actually be a reduction in the economy, as far as peoples' lives are concerned. So no, accepting 1% growth is not an acceptable option.
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