Actually, it will probably be several decades. While details of the budget ceiling negotations haven't been released, the initial reports sound pretty awful, with $2.4 trillion of cuts over ten years with $1 trillion in discretionary cuts (that's stuff like NIH and NSF, by the way). It's pretty clear, at this point, that Obama wants massive cuts to happen, in part because he doesn't really understand how the deficits arose:
While I am reporting this, I should note that the President made news regarding his understanding of the origins of the deficit and our slow growth recently when he said:
"For the last decade, we have spent more money than we take in. In the year 2000, the government had a budget surplus. But instead of using it to pay off our debt, the money was spent on trillions of dollars in new tax cuts, while two wars and an expensive prescription drug program were simply added to our nation's credit card. As a result, the deficit was on track to top $1 trillion the year I took office."
This is patently false. In fact, this is scary. Dean Baker tells us:
This is seriously mistaken.
The Congressional Budget Office's projections from January of 2008, the last ones made before it recognized the housing bubble and the implications of its collapse, showed a deficit of just $198 billion for 2009, the year President Obama took office. In other words, the deficit was absolutely not "on track to top $1 trillion."... Obama does not have the most basic understanding of the nature of the budget problems the country faces. He apparently believes that there was a huge deficit on an ongoing basis as a result of the policies in place prior to the downturn. In fact, the deficits were relatively modest. The huge deficits came about entirely as a result of the economic downturn.... This misunderstanding of the origins of the budget deficit could explain President Obama's willingness to make large cuts to core social welfare programs, like Social Security, Medicare, and Medicaid...
...In sum: The President has no idea why the deficit exploded, we are in jeopardy of default, and we will cut spending in into the teeth of a serious growth slowdown. America is rudderless. God help us.
And it's not just President Obama either. This column by pollster Stanley Greenberg has been making the rounds (italics mine):
Finally, progressives have to be serious about reducing the country's long-term deficits, constraining special interest spending and tax breaks and making government accountable to the ordinary citizen. The deficit matters to people and has real meaning and consequences. A government that spends and borrows without the kind of limits that would govern an ordinary family is going to have big troubles. Voters I've studied say things like, if "we keep spending like this, we're going to be bankrupt and there won't be anything for anybody," especially "our children."
This is the real problem: the deficit per se does not have real meaning. People may think that it does, but that makes that statement no more true than creationists claiming that 'Darwinism' is false. Right now, most people still act as if we are on the gold standard (even as many 'progressives' mock goldbug conservatives). We are not. Government creates wealth by spending it into existence: either the government directly pays someone to provide a good or a service, or it gives someone money which he or she can use to purchase goods or services. Government destroys monetary wealth through taxation.
While 'destroys' seems harsh, it can be useful: it can limit inflation, reward certain kinds of behavior (e.g., financial transaction tax, 'sin' taxes), and prevent misallocation of resources. But the key point is this: these two functions are not linked. We don't withhold the pay of the sailors of the Sixth Fleet because the Mad Biologist's income tax check was held up in the mail. Moreover, because we're not on the gold standard, we can't go 'bankrupt': we can print currency whenever we need to. Yes, this could be inflationary if we were resource limited (both human and physical), but with industrial capacity hovering around eighty percent, one out of six Americans un- or underemployed, the only thing that is limiting is currency. Let loose with the money presses! (actually, it all happens electronically, but it's a nice image). Besides, it's not as if our infrastructure is especially sound these days. We would hardly be digging up holes and filling them in again, despite whatever the slavering Uruk-hai of the political right might claim.
What is so incredibly foolish about imposing artificial spending limits--and they are artificial--is that it defeats the major advantage of a fiat currency. We will have needlessly reduced the budget to a zero sum game, especially since we will not be increasing revenues (that is, taxes. AAAIIIEEE!!!). If we spend money on wars, we really won't have the money to spend on schools (right now, the major issue, besides the rampant murderous stupidity of unnecessary wars, is that we are misallocating resources and rewarding war profiteers). If we increase science budgets, we have to cut something else.
As long as we are trapped in this pre-1933 mindset--and importantly, incorrectly so--those who want to rebuild the nation and put people to work will always be dealt a losing hand. The ersatz shibboleth of deficit reduction will always be looming in the background.
There's a second key concept that needs to made clear to people: the balance of accounts. Reducing the deficit requires a decrease in aggregate private wealth. While some of that reduction might be good on its own, some of the reduction will inevitably occur through lowered wages, increased personal debt, and unemployment. Given the dysfunction of our political system, I would argue most of any reduction in private wealth will be visited on those who have the least to lose. We can't cut our way to prosperity.
What is so personally frustrating about our nation's deficit fetish is that this agreement is supposed to last for a decade. And it will take longer to fix all of the harm this agreement will have caused: $100 billion of spending translates into roughly three million jobs. Cutting that spending is essentially increasing future unemployment and driving down future wages. The result will be an entire generation that has lifetime depressed earnings (on average, what you make in your twenties is a good predictor of what you'll make thereafter). Sucks to be you, I guess. And hell, I'll be well into middle age, or even elderly before we right this ship--if that is even possible at that point. Basically, my entire adult life will have consisted of watching a never-ending parade of economic futility and needless suffering due to a failed understanding of basic monetary operations.
We have a lot of educating to do.
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Unfortunately, the M1 money multiplier is below 1 so there is a slight problem with getting more money into the economy: http://research.stlouisfed.org/fred2/series/MULT
I wish your word were more widely read. I've learned a lot about economics by reading your blog. And I've confirmed the basics of what you say (trying to avoid confirmation bias) by speaking with a well respected economics professor on my campus. Thanks for the education.
This is a really, really good post. You totally harshed my mellow on an otherwise lovely morning, but that's not your fault. Trying to hold onto 2008 (or 2004 DNC) Obama .., but it would seem that guy was a TV character not a real person.
Government creates wealth by spending it into existence: either the government directly pays someone to provide a good or a service, or it gives someone money which he or she can use to purchase goods or services. Government destroys monetary wealth through taxation.
Good to see MMT going mainstream. However, the above quote isn't quite correct - you should say "money" rather than "wealth". Money is the medium of exchange, wealth is more like prosperity or one's standard of living. The gov't generally does not create the goods and services that make us "wealthy", however it certainly is the creator of money.
"Besides, it's not as if our infrastructure is especially sound these days. We would hardly be digging up holes and filling them in again, despite whatever the slavering Uruk-hai of the political right might claim. "
YES! THIS! And bonus points for the geekery.
The slavering Uruk-hai are the natural enemy of the ents, thus explaining conservative opposition to the CCC.
"There's a second key concept that needs to made clear to people: the balance of accounts. Reducing the deficit requires a decrease in aggregate private wealth. While some of that reduction might be good on its own, some of the reduction will inevitably occur through lowered wages, increased personal debt, and unemployment. Given the dysfunction of our political system, I would argue most of any reduction in private wealth will be visited on those who have the least to lose. We can't cut our way to prosperity."
This as well. Even if the % reduction were the same, people who have the least to lose tend to suffer more.
Actually, there's lots of interesting work being done at economics and mathematics departments. This work doesn't make it to the basic 1st year textbooks as yet. But if you follow Nobel laureates in economics in the past 2 decades you will find mostly "left-wing" criticism of textbook economics.
To me, Obama was playing politics from the get go. Ala Clinton he's trying to shift center-right so he can put together a narrative that he believes in a "balanced approach" to our budget problems, spending increases and deficits. This along with is balanced warmongering, is aimed to appeal to low information independent voters. We need something like FDR, increased taxes and low stimulus like many economists have been saying, instead we're tightening things up like Hoover did. Unfortunately our country is still living under the ghost of Ronald Reagan, the basic philosophy that taxes are bad, government is wasteful, and everyone with the right opportunities can be the next entrepreneur from his garage if the damn government and red tape just gets out of the way. This mentality exists even after a series of deregulation inspired bubble collapses have happened over the past thirty years, everyone worse than the last. This is not going to change until Reagonomics and the underlying social mentality that goes along with it is thoroughly repudiated, which will be hard to do with 24/7 brainwashing from right wing radio and television. So to me it is as much to do with Obama's political strategy in the face of how the electorate behaves come voting time, as it does with the garden variety low information voter who has been tricked time after time with Madison Avenue slogans to perpetually vote against their own interests (along with possible shenanigans such as key states like Ohio and Florida). Obama may believe some of this stuff, but I'm sure it also has to do with the fact that he has to get reelected to be able to do anything.
I don'r see that there has ever been a lack of "left wing" econoists promising that more government spending was needed - all of them employed by government. Is Obama really a Friedmanite, or Austrian schooler rather than "keynsian"?
The problem with economics as a "science" is that in real sciences when a theoty doesn't work it gets replaced by something that does. I
In economics that would mean adopting the policies of the world's fastest growing economies - small government, low tax, low regulation.
Complaining about lack of a "left wing economics" is like complaining that physics isn't as good a scince as astrology because only the latter tells the client what they want to hear.
Wow.
Neil Craig is amazingly stupid!
Neil Craig -
IIRC, the fastest growing economies at the present time are places like Germany and China. Neither of which would exactly qualify as 'Small government/Low tax/Low regulation'.
This is indeed the problem with economics as a science, namely that people tend to choose theories first according to their political beliefs and then find some 'facts' to suit. Although the hard-right (as represented by yourself) now tend to find themselves in the position of having to make up facts.
Personally, I think that the reason that there is no 'sciencee of economics' is that the practical results of such a science, in terms of policy, would be very harmful to a large set of vested interests - the financial sector, large corporations, very wealthy individuals and the rest. Hence economics is dominated by top-down models that can easily be tuned to the preferences of the modeller. A real science would start with an accurate description of the behaviour of individual economic actors (not 'rational utility maximisers') and work up.
Andrew bracketing Germany as one of the world's fastest growing economies shows an astounding degree of ignorance. It has averaged 1% annually for over a decade while the world average is 5% and China topping 10%.
I suppose the fact that people feel able to pontificate on econimics from such a basis shows how far from a scientific discipline economics is. Nobody would be so foolish as to pontificate on gravity on "scienceblogs" on the basis that gravity makes things fall upwards. Even the global warming
alarmists are rarely stuoid enough to claim more snow is a sign of warming.
Wow aka Ema Nutcase is an amazingly ignorant Nazi whore
And UK over the same criteria?
101 Germany 3.504
117 United States 2.834
147 United Kingdom 1.251
http://en.wikipedia.org/wiki/List_of_countries_by_real_GDP_growth_rate_…
What countries did you have in mind aside from China? Surely you're not drawing a trendline through one point, right? A few notes:
1) We're just shy of 5% now (worldwide), but that's not typical.
2) Andew's point that China is not exactly a low tax/low regulation country still stands.
3) China's currency games are catching up with it. We'll see how long their real growth rate stays high.
4) China is a poor country that is in the process of industrializing.
Point 4 is the key point. Find a modern, industrialized country that is experiencing fast growth and then compare policies. If your solution to our problems is, "If we just read our Hayek, we'll finally have our industrial revolution and grow quickly from an agrarian economy to a manufacturing one," I'm afraid you've missed the boat by several generations.
I'm still not sure what "left-wing economics" would look like. Frankly, I'd settle for some middle of the road, undergraduate econ 101 economics. What we have now is a bizarre mishmash of stuff people half understand that they pulled off of misses.org and claims about monetary policy that would make Milton Friedman roll over in his grave.
We have Paul Ryan claiming that raising the federal funds rate would "push money into the economy." We have the GOP in general believing that tax cuts raise revenue while simultaneously believing that the only way to cut government is to "starve the beast" by cutting taxes and reducing revenue. We have people claiming that government borrowing always crowds out private investment dollar for dollar.
I don't care about "left wing" economics. I would settle for our leaders having a coherent model of how things work.
Wow.
Neil Craig is amazingly stupid.
It seems even Wow is incapable of reading his own link or he would have seen Chi8na's growth tate is 10.3%, which, even students of the "science of economics" should recofnise is cinsiderably higher than that of Ger5many.
Frog you would also have benefited fr5om teading the link.
1- It is typical, which is quite surprising since we are allefed to be in a "world recession" and one would at least expect slower growth in a "r5ecession. In fact it is only a recession of Luddite tuled western economies.
2- No it doesn't.
3- It has been 10% gor 30 years, during which ptedictions of the end of the Chinese boom have been continuous. Pethaps you would care to predict a date.
4- As I said you should have checked the link and seen Yaiwan 10.8% & Sinfapore 14.4%. In fact history shows that richer countries tend to grow faster than poorer ones.
Wow aka Ema continues to show what a "left wing economics" would consist of. It would consist of obscene lying Nazi whores like hinself.
It seems that n3 can't even spell his name.
This is not a surprise.
He also doesn't let any inconvenient posts get in the way of his dogma. See, for example, his avoidance of Troublesome Frog's explanation of developing countries.
PS China is communist, whiney, so I guess if we all changed to communism, we too would have 10% growth!
I never took you for a commie before.
"his avoidance of Troublesome Frog's explanation of developing countries"
That would be Frog's #4 answered in my #4.
I never5 took you for somebody capable of loking beyond labels Wow. Clearly I was right, again.
China a regulated economy?
Puh-leese. They don't even control the quality of food sold to their own population. And their pollution controls are practically nil. Enforcement of contracts is lax (read about the problems of AMSC with Sinovel and problems with Sino-forest). Can one believe their official growth stats, at all?
"They don't even control the quality of food sold to their own population."
Neither does the USA.
GM inclusions, HFCS, and so forth.
@Wow
In China, it's on a different level.
Opposing GM is not about "quality of food" it is about opposing progress. If that were not so the ecofascists would not be vandalising experiments to test its safety.
No, it's about stopping a pointless and dangerous take-over of farming by corporations.
And I note that you still didn't take on (therefore agree with) the HFCS point.
Roman, in China, it's not your country. Therefore you believe what makes you feel better, not what's true.
@Wow
Roman, in China, it's not your country."
Neither is the US.
So how do you know it's on a different level in China?
After all, the "democratic" west doesn't really like communism. It's always better to believe the worst of others because it makes you feel better by comparison.
But maybe I'm doing you a disservice. Maybe you DO have evidence.
Wow has, in his previous stalking on other threads, pr5oven that there are no circumstancers under whichbn he will respect facts. He will tell absolutely any lie and neverv answers points, depending purely on ad homs.
Those qwho behave like that only prove their case depends on nothing better.
It is obvious he is doing the same here.
Whiner has popped up in many places and received a severe smackdown everywhere because he's, frankly, a lunatic.
He is a master bater.
A fine example of what Wpw brings to any argument. Unfortunately obscenity as a substitute for intellct seems endemic to "scienceblogs"
Have you not stopped wanking at the keyboard yet, whiney?
You can't even get three letters right when two of them are the same one!
@Wow
Just for the record: I did respond to your request for evidence, but my post is being held in the limbo (prob. because of a large number of links in it).
I note nobody now disputes that Germany, held up as an example of how to achieve economic success, is actually doing extraordinarily badly.
Nor does Wow dispute the assertion from Wow that banning GM is nothing to do with the "quality of food" claim he made but is entirely about "stopping corporations" as he later admitted.
I hardly have to point out that Wow is wholly and completely dishonest when he does it himself.
I dispute it.
Germany disputes it.
Comparing it to, for example, the USA disputes it.
I also dispute the claim you make about GM. That I haven't disputed it before is because you've only just made the assertion.
"I note nobody now disputes that Germany, held up as an example of how to achieve economic success, is actually doing extraordinarily badly."
That's ludicrous.
Wow now disputes Wow's claim made in dispute of Wow's earlier claim.
Pretzels are logical by comparison.
Ludicrous the Roman if you had checked this thread before spouting you would have seen it established that the very best year of growth Germany has had in the last 20 years is only 70% of the global average for that year. In many of those years it was zero or less.
I dispute YOUR claims. That you can't read is merely the fault of all that wanking you're doing.
Wow now Wow now disputes Wow's claim made in dispute of Wow's earlier claim.
And since he uses the plural he also disputes that Germany's groeth rate of 3.5% is less than the average of 5%.
So how much do you claim 1 + 1 is moron?
No, I dispute YOUR claim:
"31
I note nobody now disputes that Germany, held up as an example of how to achieve economic success, is actually doing extraordinarily badly."
That was: "Posted by: Neil Craig | August 11, 2011 6:33 AM"
From #31
"Nor does Wow dispute the assertion from Wow that banning GM is nothing to do with the "quality of food" claim he made but is entirely about "stopping corporations" as he later admitted.
I hardly have to point out that Wow is wholly and completely dishonest when he does it himself."
Now 2 disagreements with himself on.
Nope, that post was yours in #31.
You made that statement that Germany was doing extraordinarily badly.
But you can't read for shit, can you.
Anybody here can see you are lying about not having claimed to be opposed to GM without being against free enterprise and subsequently because you are against it.
If you have some evidence that Germany's growth rate well under the world average is a sign of an econmy doing well over the world average I would be very happy to see it.
I've looked at the reviews of Yves Smith's book, and the overwhelmingly positive reviews are filled with red flags, for anyone familiar with propaganda.
Why is Mike taking Smith's word on economic issues?