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About America’s economic recovery: the good news and the bad

1 May 2012

Summary:  The news media provide a fire hose-like stream of information and analysis about the US economy.  Most of it consists of the consensus viewpoint repeated endlessly.  A consensus opinion suitably optimistic for politicians in Washington and bankers in New York.  Here we look behind the veil.

Contents

  1. Looking at winners and losers
  2. Another perspective:  GDP changes since the recession, by nation
  3. Conclusions, what this means for us
  4. A reminder of what comes next
  5. For more information

(1)  Looking at winners and losers

The period since the 2008 crash has been the most stressful peacetime period since the 1930’s.  To understand these events let’s start with a list the winners and losers.  One way to distinguish the two groups is by their government’s fiscal balance.  Winners strengthen their balance sheet (preparing for the large retirement payouts to come).  Losers borrow and spend frantically to maintain social and economic stability.

More specifically, look at general government cyclically adjusted 2011 overall balances as a percent of potential GDP (the standard metric for international comparisons), from statistical table 3 of the April 2012 IMF Fiscal Monitor.  First, the winners (listed with the largest surplus on top):

  • USA:             -7.2%
  • Singapore: +7.1%
  • Korea:          +2.4%
  • Sweden:       +0.2%
  • Swiss:           +0.2%

This shows the many paths to success.  Singapore, Korea, Sweden, and Switzerland all have different economic and social structures.  And, yes, the USA does not belong in that list.  Let’s put the USA in its proper context, among nations with similar fiscal balances.  Loserville.  Let’s see the nations with the largest 2011 fiscal deficits (with the largest deficit last):

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  • UK:             -6.3%  now in recession, again
  • Hungary:  -6.5%  under extreme political stress
  • Greece:      -6.8%  another default widely expected
  • Spain:         -6.9%  near-25% unemployment, in recession
  • US:              -7.2%
  • Ireland:     -8.0%  no recovery; see Krugman’s note
  • Japan:        -8.1%  no exit visible
  • India:          -9.1%  painful but tolerable due to their 16% nominal GDP growth

Healthy nations do not run sustained 7-8% deficits.  Consider two others nations in the news are further up this list:  Italy and Portugal both have -2.7% deficits.  If they had our deficits, perhaps they’d look more like us.  If we had their deficits, perhaps we’d look more like them.

This reinforces a point made frequently on the FM website during the past three  years:  it is  daft to discuss the US recovery without mentioning its extraordinary level of fiscal and monetary stimulus.  To use a vivid metaphor, patients in the Intensive Care Ward can be “recovering”, but they’re not healthy.  If the others in our company are in dire straits, why is the US a boom story?

(2)  Another perspective:  GDP changes since the crash, by nation

From:  “Why UK GDP continues to lag the G7“, Gavyn Davies, Financial Times, 24 April 2012.  $1.3 trillion in government borrowing helped push the US to third from the top, below Canada (3.6% deficit, boosted by oil and mineral exports) and Germany (-1.2%, benefiting from its rigging of the European Monetary Union).  Graph shows nominal GDP.

(3)  Conclusions, what this means for us

Consider a thought experiment (Gedankenexperiment).  What if the ECB could force spending cuts and tax increases to reduce the US deficit to 2.7% in 2012 or 2013?  Instant recession, probably a severe one.

The US economy is not healthy.  It’s heavily medicated and feeling no pain, wired into a battery of life-support machines (using financial theory and technology not available in the 1930’s).  As a result it has slowly grow since the 2008-2009 crash.  Employment up 1.7% in the past year, real final sales still below 2008 level, real final sales to private domestic purchasers still below 2008 level.  The private sector deleverages by shifting debt to the government’s balance sheet — and to a far lesser extent through default — so the US is not deleveraging in any significant sense.

We can draw some conclusions.

(a)  Our leaders know about our true situation, although they lie about it.  Which is why the deficit was issue #1 in the November 2010 election, immediately followed by bipartisan majorities for another round of fiscal stimulus (spending and tax cuts) …

(b)  These large-scale stimulus programs have side-effects, which at some unknown point in the future will become problematic or even untenable.  But the worst side effects were unexpected, even by those critical of government stimulus programs.

(c)  First, the stimulus stabilized the economy, but in doing so it eliminated the pressure for reform.  We have had the New Deal stimulus without the New Deal reforms (some of which failed, but some setup the great post-war boom).

(d)  Second, like Japan we’ve wasted the fiscal stimulus.  In the 1930’s we built useful infrastructure (eg, parks, Hoover Dam), which generated long-term social and economic benefits for America.  What do we have to show for the trillions of spending and tax cuts since 2007?  Not much, and little that generates an economic return to help pay down the debt we’ve accumulated.

(e) Third, like Japan we’re in a cycle of stimulus-falling savings-falling inventories-expansion and stimulus reduced-rising savings-rising inventories-slowing gdp.  We may be entering the second phase of the cycle.

(f)  The financial sector has become hooked on monetary stimulus.  Wall Street economists talk about little else than when they’ll get their next fix of quantitative easing, like junkies begging on the street corner.  Nobody any longer even pretends that QE3 will help the economy.

For more about this see:

The next to go?

(4)  A reminder of what comes next

Whoever wins the elections will discover our problems in January 2013.  With luck, we’ll get reforms:  raising taxes, reduced spending, health care reforms.  The alternative is too horrible to contemplate, as events (eg, markets) eventually force drastic change.  For details see:

(5)  For more information

  1. The US economy must go to Defcon 1, 13 November 2008
  2. A certain casualty of the recession: the US Government’s solvency, 25 November 2008
  3. Everything you need to know about government stimulus programs (read this – it’s about your money), 30 January 2009
  4. Government economic stimulus is financial heroin, 28 December 2009
  5. Our government’s finances are broken. How do we compare with our peers?, 8 April 2010
  6. A status report about the US economy (we party so hard we cannot hear the alarms ringing), 27 March 2012
  7. About the March jobs report – a few jobs bought at great cost, 7 April 2012
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32 Comments leave one →
  1. 1 May 2012 1:08 am

    A few things. in (4) you say the government will get to know our problems in Jan, 2012. That is in the past, I believe you mean Jan. 2013.

    Next: MMT (Modern Monetary Theory) has some explanations about government debt and sustainability that you should, in all honesty, try to incorporate. It is not that we will have unsustainable debt, per se. It is that we will have inflation at (likely) unacceptable levels. The so-called debt is simply savings accounts at the Fed. We pay interest on those savings accounts, but we are not compelled to actually continue the farce. It would likely be far better for the country if we started to eliminate T-bills (or at least to cease pretending that we need them in order to spend money–since federal gov’t spending does not require taxes or borrowing).

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    • 1 May 2012 1:58 am

      (1) Typo fixed. Thanks for catching this!

      (2) Modern Monetary Theory (MMT)

      Modern Monetary Theory: that the government can print almost unlimited currency without ill consequences. It is the mirror image of the austerian (not Austrian) obsession with gold and inflation. They are bookends, in a sense. It is evidence of great social stress when such nonsense — fringe economic and political theories — become widely accepted. Afterwards, when the seas are calm again (as they will be, however horrific the storm), people look upon these as symptoms of the madness caused by the stress. But they seem logical at the time.

      For a clear if somewhat long and technical explanation of Modern Monetary Theory, see “Understanding The Modern Monetary System” by Cullen O. Roche (professional money manager). It’s a complex theory.

      Here are two clear explanations of MMT by Paul Krugman:

      1. Deficits and the Printing Press (Somewhat Wonkish)
      2. MMT, Again

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    • 2 May 2012 7:11 am

      MMT certainly does NOT suggest that printing (or more correctly accounting) unlimited money for the government would be okay. Quite the contrary, Keen, Mosler, Pilkington, etc. specifically state that out of control spending will lead to inflation–even hyperinflation–if not controlled. They state that tax revenues are an important part of keeping inflation in check.

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    • 2 May 2012 10:21 am

      Long experience has taught me the futility of attempting to explain these things. Just as in the 1930s, people (non-professionals) adopt economic beliefs for many reasons, but often with little knowledge of their basics. I provided citations, and will provide one more that does two things:

      • In it Keen explains that he is not in the MMT camp, although has some areas of agreement with them (as all the major schools of economics today are in some sense post-Keynesian, and hence overlap).
      • Provides a clear if somewhat technical explanation of Modern Monetary Theory.

      See “Good alternative theory“, Steve Keen, Switzer, 29 September 2009. Scroll down to find a sub-article “The fundamental principles of modern monetary economics” by Bill Mitchell (Prof Economics, U of Newcastle). Mitchell’s opening paragraphs will explain what I said.

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    • 2 May 2012 10:51 am

      Thanks for the link, it was very helpful! :D

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    • 2 May 2012 7:24 am

      As to Krugman’s analysis, he fails to recognize that MMT’ers are very much in the same mindset that he is politically. They believe that taxes MUST be used. They believe that to NOT tax would eliminate the currency since it would then have no value. He seems to misunderstand the entire point of MMT. MMT is not saying that governments need not try to balance budgets–quite the contrary. They are saying that a government-issued fiat currency needs to be treated as the monopoly that it is. When times require it, some of the money needs to be taxed out of existence (budget surpluses). At other times the money supply needs to be increased.

      Mr. Krugman also shows a lack of understanding regarding the amount of money that really exists in U.S. dollar denomination. He suggested that there was (prior to 2009) about $800 billion. That may be true for paper currency, but most currency is not in paper–it is in computers. The total dollar value is likely somewhere in the $80 trillion or more range. That does not mean that running huge deficits is good–it’s not! However, as Krugman himself acknowledged, the country can not go fiscally broke (i.e. fail to have enough of its own money), it can, however, destroy the value of that money. Right! That is the point of MMT.

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    • 2 May 2012 10:53 am

      Coutinho,

      Based on your comments, you appear to have little understanding of economics. Certainly not remotely sufficient to be qualified to criticize Krugman, who is a giant in his field. As in any science, that does not mean that all his peers agree with this theories. Sciences by their nature have schools of thought, which contend and so advance over time. I’ll give one example.

      “Mr. Krugman also shows a lack of understanding regarding the amount of money that really exists in U.S. dollar denomination”

      Krugman understands these things quite well, as they are Economics 101 or 201 — which Prof Krugman can teach in his sleep. He referred to the monetary base, which was aprox $800B in 2008 (pre-crash); a broad definition of money (M2) was $7.6T in 2008 (pre-crash). Your total of $80T includes most financial assets, which are very different in nature from “money”, as it is defined. Technical terms have to have agreed-upon meanings, even if somewhat arbitrary, for discourse to be possible. Everybody making up their own definition of basic terms like “money” would make economics into Babel (as in the tower). If you wish to comment about these things, I suggest starting with a good Econ 101 text.

      More broadly, its a wonder of our age that so many people — without any professional training or qualification in hideously complex fields — feel qualified to write such things as “XX shows a lack of understanding” — with XXX being a major expert. It’s equivalent to watching the Super Bowl and saying about a quarterback “What a bum! I could do better.” We see this today in climate science and economics by laypeople on all sides of these debates. Two more references:

      1. The California Task Force on Self-Esteem appears to have succeeded beyond their wildest dreams (see this LA Times article, 5 June 1990).
      2. Exploding the Self-Esteem Myth“, Roy F. Baumeister et al, Scientific American, 20 December 2004 — “Boosting people’s sense of self-worth has become a national preoccupation. Yet surprisingly, researchshows that such efforts are of little value in fostering academic progress or preventing undesirable behavior”

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  2. Thomas Moore permalink
    1 May 2012 2:38 am

    Several features of America’s economy seem drastically different today as opposed to the 1930s. First, America today has very little unused economic capacity compared to the 1930s — for instance, the America of the 1930s had the capacity to become the largest oil producer in the world, but simply couldn’t make use of it because the economy was so depressed. The America of the 1930s had tremendous fallow industrial capacity but once again, couldn’t use it because aggregate demand had fallen so greatly. (I realize that the measurement of America’s output gap is a matter of contention among some economists. Menzies Chinn has some illuminating charts at econbrowser. He finds an output gap of less than 1%, much smaller than during the Great Depression.)

    America today has a much smaller ability to extract natural resources like oil (or iron ore mining capacity, or bauxite, capacity, etc.) today, compared to the America of the 1930s. The low-hanging fruit in America’s natural resources has been tapped: America today has drilled and tapped out all the high-grade easy-to-reach oil, open-pit strip-mined all the high-grade iron near the surface, and so on. This makes a rapid economic recovery today much more difficult than in the 1930s.

    Second, America’s economic growth seems oil-limited today. We appear to have entered a vicious cycle in global capitalism since 2007-8 in which increased economic growth worldwide pushes oil prices up and crude oil reserves drop to razor-thin margins. This generates a huge overshoot in oil prices due to speculation, which then causes a massive global recession. Rinse, wash, repeat. These kind of highly nonlinear oil price shocks appear to be “the new normal” and bode ill for sustainable economic growth at the traditional pre-2000s post-recession growth rates going forward. In short, V-shaped recoveries appear to be a thing of the past for the U.S. economy.

    It seems to me (and I could be very wrong) that direct analogies twixt America in the 1930s and today are flawed for these reasons.

    There is also the issue of America’s tremendous spending on its military, which was absolutely not the case during the 1930s. No one is exactly sure how much money America spends on the military, since the Pentagon has never successfully completed an audit (politifact rates this claim as “true,” for whatever that’s worth), but some commentators like Chris Hellman at tomdispatch.com have put America’s annual military spending in the 1.1-1.4 trillion dollar range. I don’t know how accurate that number is because I’m not a defense expert. He might be overstating or perhaps even understating the true amount. In any case, whatever the figure, there’s no question that America today spends a tremendous amount of money on its military per annum which could be quickly repurposed for civilian job programs and/or infrastructure development (which I guess amounts to another type of job program) provided the political hurdles could be overcome. There simply wasn’t that kind of money available in the U.S. budget in the 1930s for repurposing to jobs programs and/or infrastructure, so that’s one piece of good news today compared to the Great Depression.

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    • 1 May 2012 3:16 am

      While I agree with your description, I don’t believe any economists are making analogies with the 1930’s of the kind you are disputing. While the circumstances differ, the laws of economics (poorly understood as they are) remain the same.

      Re: energy

      While claims of the US becoming self-sufficient in energy are silly, fracking has changed the picture. Oil and natural gas production are rising.

      Especially US natural gas, which produces about 1/4 of US energy. Production is zooming — at a record high — and prices are near their 12 year lows (see EIA). This has reduced the demand for coal, which will extend the life of our reserves.

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  3. 1 May 2012 3:08 am

    [quote]Whoever wins the elections will discover our problems in January 2013. With luck, we’ll get reforms: raising taxes, reduced spending, health care reforms. [/quote]

    Higher taxes and reduced government spending? Sounds a lot like what’s happening in southern Europe with very mixed results. How is this your ‘whatever you call it’ not another austerity program?

    I won’t totally knock austerity. Under normal circumstances, when the world economy is functioning well it works fine. That’s why it seems like such a logical and attractive option to some. You reduce your costs, your economy becomes more competitive and you can export out of the hole. The problem is when everyone runs an austerity program at the same time, the whole world’s economy goes to the stone age.

    [quote]Second, like Japan we’ve wasted the fiscal stimulus. [/quote]

    This is the nature of the thing. That government stimulus is a form a central planned economy– and in the USA it’s worse because it’s all directed by a highly irrational political process. I think maybe fascism has an advantage here, that if it makes sense to build the pipeline, then the leader just does it. But for us, once everything has been vetted by politics only the useless solar energy companies remain. This is why communism failed — that centrally planned economies always make bad bets and eventually rot away.

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  4. Thomas Moore permalink
    1 May 2012 3:33 am

    Cathryn Mataga claims that our waste of the 2008 fiscal stimulus “This is the nature of the thing. That government stimulus is a form a central planned economy– and in the USA it’s worse because it’s all directed by a highly irrational political process.”

    If that’s so, how does she explain the fact that fiscal stimulus successfully lifted America out of a deep recession after 1932? Between 1932 and 1934, the “central planned economy” fiscal stimulus passed by the New Deal congress changed America’s rate of GDP growth from -15% to + 11%. That’s an eye-popping 26% change in the rate of GDP growth.

    Cathryn’s argument seems a re-hash of the Milton Friedman extreme monetarist claim that big fiscal stimulus can never effectively rescue any modern industrial economy from a deep recession. As Brad DeLong has pointed out, reality simply disproves this extreme monetarist ideology.

    In a larger context, Cathryn’s claim that any form of fiscal stimulus is “central planning” would lead us to some very peculiar conclusions. Since we are apparently meant to conclude that “central planning” is bad (and presumably Soviet in origin), then logically we ought to do away with all forms of central planning in a dynamic free-market capitalist economy like ours. This would require the abolition of a central bank like the Federal Reserve, which of course engages in “central planning” to control the rate of creation of new money and regulate the exuberance of business cycles by manipulating the prime rate. But we have excellent case studies of what happens without a central bank in America: the Panic of 1873, the Panic of 1893, and the great Panic of 1907. The economic disruptions caused in 1907 were so extreme that congress found itself forced to create the Federal Reserve system to avoid another situation in which a single businessman had to step in to save the national economy. How does Cathryn explain the wild boom-and-bust wings prior to the creation of the Federal Reserve system, compared with the much milder business cycles post-1948, if economic central planning as represented by a central bank is such a bad thing?

    But Cathryn’s logic requires us to go even further. Clearly, long-range planning by large corporations also represents a form of “central planning.” So large corporations should abandon long-term strategies, like Microsoft’s development of Windows, IBM’s creation o fthe System 360 comptuer architecture during the 1960s, Apple’s creation of iTunes, and so on. This would eliminate most of the dynamism and almost all of the growth in America’s economy over the past 60 years.

    To put it bluntly, dismissing fiscal stimulus by the fed as “central planning” that is inevitably “doomed to fail” seems like the kind of crackpot assertion we encounter on fringe websites like Lyndon LaRouche’s group, or the denizens of ZeroHedge who advocate abandonment of so-called “fiat currency” and return to the gold standard as a solution to all our economic ills.

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    • 1 May 2012 4:14 am

      Moore,

      A nicely done analysis!

      In fact, the US was built to a a large extent by central planning, by two centuries of large-scale infrastructure projects. The transcontinental railroad, the great infrastructure projects of the 1930s (eg, Hoover Dam), the interstate highway system, the internet (to some extent).

      For more about the myth of golden days without government interference was demolished by Charles Beard in his classic “The Myth of Rugged Individualism“, Harpers Monthly, December 1931.

      Like

    • 1 May 2012 4:55 am

      “But Cathryn’s logic requires us to go even further. Clearly, long-range planning by large corporations also represents a form of ‘central planning.’”

      Hey, I’m with you, really. Central planning is not completely without merits. There are other examples. Stalin did create a kind of economic miracle. He took a country that was mud roads and farms, and made it into a major industrial nation, of rails and factories. A few things did go badly, here and there, like with the collective agriculture, but, you know, who is to complain over minor details?

      Fiscal stimulus does have a purpose of stimulating demand. It can stimulate the economy in this way, and for this, whether the funding has any useful purpose doesn’t matter. If money goes to people marching around Afghanistan and shooting at random Muslims, eventually some of that money makes its way back to some company somewhere — and stimulates a whole chain of employment.

      “What do we have to show for the trillions of spending and tax cuts since 2007? Not much, and little that generates an economic return to help pay down the debt we’ve accumulated.”

      This is what I agree with, and it is largely the case with Japan too. Japan is the poster child for useless fiscal stimulus projects — lots of bullet trains and roads and bridges all over the place, but none of it really resulting in much economic development. Maybe there’s some kind of fiscal stimulus that builds projects in a sensible well-directed manner that help growth, but with the countries that have tried this recently the results are mixed. I think, because it is difficult to make useful economic development in a top down manner and because the political process gets in the way. Also in countries where the land and people are already highly developed, it’s difficult to find new growth.

      If you’re going to make the case for fiscal stimulus you have to acknowledge the problems and find ways to fix what was wrong in these cases. If you make these kind of guilt by association attacks, well, whatever.

      “To put it bluntly, dismissing fiscal stimulus by the fed as “central planning” that is inevitably “doomed to fail” seems like the kind of crackpot assertion we encounter on fringe websites like Lyndon LaRouche’s group”

      Are we allowed to criticize fiscal stimulus? Must we accept blindly the goodness of this in spite of the obvious mixed results? I think not — only the fringe groups criticize such things.

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    • 1 May 2012 5:34 am

      “Are we allowed to criticize fiscal stimulus? Must we accept blindly the goodness of this in spite of the obvious mixed results?”

      There were no “mixed results” from the stimulus programs, even though they was poorly designed (largely due to political considerations, esp. the Republican’s obsession with tax cuts). They stabilized the economy and provided slow growth — at a cost (nothing in life is free). If you think stimuslus programs are magic, like the Blue Fairy waving her wand, then you have grounds for disappointment. If you believed politicians claims that stimulus programs are magic, then I feel sorry for you.

      For details see these posts, which look good even 3 years later:

      The 2008-09 crash was roughly of the same magnitude as that which caused the Great Depression. The difference is that this time the initial policy response was better.

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    • 1 May 2012 6:34 am

      “Second, like Japan we’ve wasted the fiscal stimulus. In the 1930′s we built useful infrastructure (eg, parks, Hoover Dam), which generated long-term social and economic benefits for America. What do we have to show for the trillions of spending and tax cuts since 2007? Not much, and little that generates an economic return to help pay down the debt we’ve accumulated.”

      Short term it’s all positive, but long term it’s mixed. If we goose up short term demand with stimulus, but the spending doesn’t lay the ground for any long term growth then when all the spending ends, the employment can only be maintained by piling on even more debt.

      “”With luck, we’ll get reforms: raising taxes, reduced spending, health care reforms.The alternative is too horrible to contemplate, as events (eg, markets) eventually force drastic change. “”

      I’m just not sure what you’re arguing for. What you describe here is not stimulus. It’s austerity. Stimulus means lower taxes and higher spending, austerity is higher taxes and lower spending. Japan tried exactly what you suggest here, I need to check the charts, but about half-way through the lost decade, and what happened was that the deficits got even worse. I think it’s likely that the USA is going to get the same results, but we’ll see.

      Ultimately the thing that really matters is real long term growth. Obama had a vision of a ‘green economy’ but he hasn’t really been able to get traction on it — I think because the US manufacturing base has eroded to the point where it’s difficult for this country to compete with China, and a few tragic lapses in technological vision.. Should we build the pipeline to Canada or bullet trains or rockets to Mars? I think this is the problem with the stimulus right now, is that we don’t have a real vision of what kind of jobs Americans should be doing, so the spending just fritters away randomly. At least Stalin knew where he was going.

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    • 1 May 2012 1:24 pm

      (1) “If we goose up short term demand with stimulus, but the spending doesn’t lay the ground for any long term growth then when all the spending ends, the employment can only be maintained by piling on even more debt. ”

      You do not understand the role of stimulus packages. That’s understandable, as the news media and politicians don’t accurately explain them.

      As I explained when calling for large scale action on 3 October 2008 (The last opportunity for effective action before disaster strikes), when all this was controversial, stimulus programs are just first aid. First aid differs from sustained treatment. CPR, transfusions, powerful meds — they keep the patient stable, creating the opportunity for long-term cures.

      Think of the New Deal. There was large-scale fiscal and monetary stimulus, but also major reforms. It’s the reforms that laid the foundation for our post-war prosperity. They work together, neither substituting for the other. We had the stimulus, but no reforms. That’s ugly, because such reforms probably become possible only during a crisis.

      (2)
      “What you describe here is not stimulus. It’s austerity.”

      It’s not binary. Economic and social policy are not two dimensional. We need to restructure, with elements of austerity and expansion.

      • Our tax system is broken. An engine of inequality, while generating insufficient income to run the nation. Despite the rantings of the GOP, household taxes are at long-term lows in terms of GDP and incomes. The system cannot long continue.
      • Our public infrastructure is rotting, decaying to 2nd world status — while our rivals build 21st century nations. Fixing that will take money.
      • Many of our public services are both starving and dysfunctional (quite a combo), such as health care (whose cost destroys the lives of thousands each year) and education (creating a 21st century class structure in America, wasting our primary resource).

      (3) “Ultimately the thing that really matters is real long term growth”
      While correct, IMO its a bit too grand of a formula. Think of the basic public goods: solvency, fairness, equality, education, health care, national defense. We can provide all of them, if we think clearly and rationally. Unfortunately a large part of our ruling elites actively and effectively work to prevent us from doing so.

      (4) “Obama had a vision of a ‘green economy’”
      Don’t get too hung up on those campaign themes. While commendable, that’s a multi-generational project.

      (5) “I think because …”
      Because our intellectual confusion makes such long-term planning impossible for us. If our forefathers thought like us, we’d still be building the transcontinental railroad.

      (6) “is that we don’t have a real vision of what kind of jobs Americans should be doing”

      That’s crazy-level central planning, proven doomed to fail. The government should work to provide effective social services (eg, education), infrastructure, foreign affairs (eg, open trade). The level of grandness you describe has a long history of failure.

      Like

    • Aesop permalink
      1 May 2012 2:59 pm

      I thoroughly enjoyed this post until I got to the comments section. Mr. Moors ridiculous ad-hominem attack, and FMs subsequent harumph, is just another example of the pedantic priggishness that makes the thoughtful analysis so hard to swallow.

      It is far more likely that Cathryn and FM are both partially correct. With contradictions like these:

      1. “I don’t believe any economists are making analogies with the 1930′s of the kind you are disputing. ” – FM 3:16
      2. “In fact, the US was built to a a large extent by central planning, by two centuries of large-scale infrastructure projects. The transcontinental railroad, the great infrastructure projects of the 1930s (eg, Hoover Dam), the interstate highway system, the internet (to some extent).” – FM 4:14
      3. “The 2008-09 crash was roughly of the same magnitude as that which caused the Great Depression. ” – FM 5:34

      It would seem you agree?

      I would also point out that much of the U.S. growth that completely altered our economy happened after WW2 when the economy more than dooubled from 1940-1960 and from then we added a huge surplus in population fueling a consumer economy. Yet, I have not seen an accurate level of ‘blame’ given to the consumers who woefully spend savings on shiny plastic.

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    • 1 May 2012 3:39 pm

      Aesop,

      (1) “pedantic ”

      I plead guilty, your honor. However in a world of sloppy thinking and tribalism, are a few pedants a problem?

      (2) Contradictions

      Please explain. I don’t see any contradiction in the quotes you list.

      Like

  5. 1 May 2012 3:09 pm

    This one is the better Post: “President Romney will prove an effective President, reshaping America for his key supporters

    And this comment: “With luck, we’ll get reforms: raising taxes, reduced spending, health care reforms. The alternative is too horrible to contemplate, as events (eg, markets) eventually force drastic change.” Now we are down to “Luck”?

    I will offer a “Fat Chance” and like FM says sorta…we are looking at New Country, same name. location but unrecognizable

    Watch what happens (by the Cops) today, May Day 2012.

    Breton

    Like

    • 1 May 2012 3:42 pm

      Breton,

      (1) Please explain why “this one (forecast of Romney win) is the better Post.”

      (2) “Now we are down to “Luck”?”

      Yes. Sad, but it is what it is.

      Like

  6. 1 May 2012 11:20 pm

    Ireland is forecast to have a small amount of growth this year between .5 and .7, not much buts its something.

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    • 2 May 2012 12:55 am

      Ah, forecasts. If only there were reliable as the dawn. Unfortunately most forecasts for the PIIGS have been over-optimistic.

      Like

  7. Thomas Moore permalink
    2 May 2012 4:43 am

    Central banks have been regulating business cycles in all the developed countries for a hundred years. For Ms. Mataga to describe this absolutely standard feature of all today’s industrial economies as “central planning” which by its nature is bound to fail illustrates as superbly the bizarre right-wing mindset today as the assertion that my statement of these well-known facts is a “ridiculous ad-hominem attack.”

    One of the peculiar features of today’s politics is that people on the far right now spew buzzwords designed to deter thought and ring alarm bells in the conservative hindbrain, rather than engaging in serious discussion about policy. Such buzzwords include stock phrases like “cultural marxism,” “entitlement society,” “central planning,” “fiat currency,” “global terrorist threat,” and “liberal fascism.” The left also spews such stock phrases — for example, “china syndrome,” “frankenfoods,” “American cultural imperialism,” “white entitlement,” and “artificial food additives.” But the left doesn’t have as well-organized aor as well-financed propaganda operation as the right does today with talk radio and Fox News, so liberal buzzwords are not as widely known and used as the conservative stock phrases.

    In both cases, the intention seems to be to eliminate actual rational debate in favor of pressing peoples’ buttons with red-meat slogans which, as Orwell remarked, “consist in gumming together long strips of words which have already been set in order by someone else, and making the results presentable by sheer humbug.” [George Orwell, "Politics and the English Language"]

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    • 2 May 2012 4:58 am

      Great point! Here’s another example — Paul Krugman debates Ron Paul: Transcript here.

      Krugman’s summary:

      I debated, sort of, Ron Paul on Bloomberg Video here. I thought we might have a discussion of why the runaway inflation he and his allies keep predicting keeps not happening. But no, he insisted (if I understood him correctly) that currency debasement and price controls destroyed the Roman Empire. I responded that I am not a defender of the economic policies of the Emperor Diocletian.

      Actually, though, appeals to what supposedly happened somewhere in the distant past are quite common on the goldbug side of economics. And it’s kind of telling. I mean, history is essential to economic analysis. You really do want to know, say, about the failure of Argentina’s convertibility law, of the effects of Chancellor Brüning’s dedication to the gold standard, and many other episodes.

      Somehow, though, people like Ron Paul don’t like to talk about events of the past century, for which we have reasonably good data; they like to talk about events in the dim mists of history, where we don’t really know what happened. And I think that’s no accident. Partly it’s the attempt of the autodidact to show off his esoteric knowledge; but it’s also the fact that because we don’t really know what happened — what really did go down during the Diocletian era? — you can project what you think should have happened onto the sketchy record, then claim vindication for whatever you want to believe.

      It’s funny, in a way — except that this sort of thinking dominates one of our two main political parties.

      Follow-up question ricocheting around the Internet: “What is the FED doing to help the Emperor Diocletian escape the zero lower bound?

      Where do you stand on this?

      Like

  8. 2 May 2012 5:36 am

    FM asks:

    (1) Please explain why “this one (forecast of Romney win) is the better Post.”

    Better Post? To me…short, sweet, to the point and for a prediction it is closer to history and relies less on “Luck”.

    FM offered: “no matter how the candidates prance and gibber, once in office they take the difficult measures necessary to execute the will of our ruling elites: to produce economic stability, low taxes for the rich, less regulation (eg, Obama’s JOBS bill; see below), eroded civil liberties, a stronger and slowly combining police-intelligence-military complex.”

    Matters of the Economy are terribly conflagrated (and attempted solutions so frontier-like) to allow very little room for predictions. In my view, anyway.

    Some quite good stuff here.

    Breton

    Like

  9. 2 May 2012 7:46 am

    One more thing about my posts above–I happen to agree with FM about our ruling elites. Meanwhile, I also happen to believe that neither party actually understands the nature of money. If they did, we might actually be in worse shape (since they would have the possibility of abusing the fiat currency portion, thus causing hyperinflation). It would be nice, however, for SOMEBODY to acknowledge that paying off the debt means lowering the private sector savings rate. There is no other way to do that. In a weak economy, reducing the private sector savings by removing money from circulation may be the wrong thing to do…

    Like

  10. rkka permalink
    2 May 2012 10:10 am

    Cathryn,

    “Stalin did create a kind of economic miracle. He took a country that was mud roads and farms, and made it into a major industrial nation, of rails and factories. A few things did go badly, here and there, like with the collective agriculture, but, you know, who is to complain over minor details”

    Don’t insult our intelligence. This Soviet industrialization came at a vast human cost.

    It prevented the success of “Generalplan Ost”

    If Adolph had gotten his way, there now would be no Poles in Poland, or Ukrainians in Ukraine.

    The fact that these peoples still live in their lands is due precisely to Stalin’s determination to endow the USSR with the industrial sinews of war such as no Tsar had ever dreamed, and do it in a decade.

    Like

    • 2 May 2012 3:02 pm

      rkka,

      That’s a powerful point, and often forgotten by Americans. The Soviet Union’s achievement — and that of its peoples — during WWII shows what can be accomplished through determination an collective action. Deeds almost beyond imagination.

      As you note, these results were paid for not just in sweat and suffering, but in blood as well.

      Thanks for the comment!

      Like

  11. 2 May 2012 3:45 pm

    May Day : “The Tinder-Box Society“, Robert Reich, 1 May 2012

    Breton

    Like

  12. 2 May 2012 6:32 pm

    Steve Keen and Michael Hudson are not exactly twins separated at birth, however; they both advocate government mandated debt restructuring. In Hudson’s case, he points out that reducing debts to a level that can be handled by the debtor is simply common sense. He also points out that the “German Economic Miracle” after WWII coincided with the imposition of debt cancellation by the occupying forces after the war. The thinking was that the debts were largely owed to the guilty (Nazis) and God forbid they be rewarded in any way. He claims there was a direct link between this policy and the ensuing “miracle”

    Keen on the other hand is a math modeller. He concludes that total debt is the bulk contribution of our problems because debt service is crushing aggregate demand. Like any good engineer, he concludes that the shortest distance between two points being a straight line, we need to simply cancel the debt. Jubilee is his term to describe policy measures directed toward debt reduction by government fiat.

    In this context, the current political paralysis can be viewed as a combination of strategy executed by our financial elites to suppress serious analysis of this option as they know full and well what such a policy will do to them, along with a cognitive pigheadedness on the part of mainstream post Keynesians like Krugman who claim that debt cannot play a role in macro economic behavior other than through minor linkages like the patience of various actors. Speaking as a capitalist, I’d be happy to see a star ship arrive, open its doors, and announce that heretofore all debts on earth are null and void on pain of death. Unfortunately, I think that’s what it’ll take.

    Like

Trackbacks

  1. O PATO ALGEMADO – XXIII – Edição especial dedicada à Economia – por Sérgio Madeira | A Viagem dos Argonautas
  2. OUTRA MANEIRA MAIS RECONFORTANTE, MENOS ASSUSTADORA, DE OLHAR PARA O PROBLEMA DA DÍVIDA PÚBLICA, por FABIUS MAXIMUS | A Viagem dos Argonautas

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