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Let?s Get Fiscal Paul Krugman flexes his Nobel Prize.

techs

Lifer
Sep 26, 2000
28,563
3
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http://www.nytimes.com/2008/10...ml?_r=1&hp&oref=slogin

The Dow is surging! No, it?s plunging! No, it?s surging! No, it?s ...

Nevermind. While the manic-depressive stock market is dominating the headlines, the more important story is the grim news coming in about the real economy. It?s now clear that rescuing the banks is just the beginning: the nonfinancial economy is also in desperate need of help.

And to provide that help, we?re going to have to put some prejudices aside. It?s politically fashionable to rant against government spending and demand fiscal responsibility. But right now, increased government spending is just what the doctor ordered, and concerns about the budget deficit should be put on hold.

Before I get there, let?s talk about the economic situation.

Just this week, we learned that retail sales have fallen off a cliff, and so has industrial production. Unemployment claims are at steep-recession levels, and the Philadelphia Fed?s manufacturing index is falling at the fastest pace in almost 20 years. All signs point to an economic slump that will be nasty, brutish ? and long.

How nasty? The unemployment rate is already above 6 percent (and broader measures of underemployment are in double digits). It?s now virtually certain that the unemployment rate will go above 7 percent, and quite possibly above 8 percent, making this the worst recession in a quarter-century.

And how long? It could be very long indeed.


Think about what happened in the last recession, which followed the bursting of the late-1990s technology bubble. On the surface, the policy response to that recession looks like a success story. Although there were widespread fears that the United States would experience a Japanese-style ?lost decade,? that didn?t happen: the Federal Reserve was able to engineer a recovery from that recession by cutting interest rates.

But the truth is that we were looking Japanese for quite a while: the Fed had a hard time getting traction. Despite repeated interest rate cuts, which eventually brought the federal funds rate down to just 1 percent, the unemployment rate just kept on rising; it was more than two years before the job picture started to improve. And when a convincing recovery finally did come, it was only because Alan Greenspan had managed to replace the technology bubble with a housing bubble.

Now the housing bubble has burst in turn, leaving the financial landscape strewn with wreckage. Even if the ongoing efforts to rescue the banking system and unfreeze the credit markets work ? and while it?s early days yet, the initial results have been disappointing ? it?s hard to see housing making a comeback any time soon. And if there?s another bubble waiting to happen, it?s not obvious. So the Fed will find it even harder to get traction this time.

In other words, there?s not much Ben Bernanke can do for the economy. He can and should cut interest rates even more ? but nobody expects this to do more than provide a slight economic boost.

On the other hand, there?s a lot the federal government can do for the economy. It can provide extended benefits to the unemployed, which will both help distressed families cope and put money in the hands of people likely to spend it. It can provide emergency aid to state and local governments, so that they aren?t forced into steep spending cuts that both degrade public services and destroy jobs. It can buy up mortgages (but not at face value, as John McCain has proposed) and restructure the terms to help families stay in their homes.

And this is also a good time to engage in some serious infrastructure spending, which the country badly needs in any case. The usual argument against public works as economic stimulus is that they take too long: by the time you get around to repairing that bridge and upgrading that rail line, the slump is over and the stimulus isn?t needed. Well, that argument has no force now, since the chances that this slump will be over anytime soon are virtually nil. So let?s get those projects rolling.


Will the next administration do what?s needed to deal with the economic slump? Not if Mr. McCain pulls off an upset. What we need right now is more government spending ? but when Mr. McCain was asked in one of the debates how he would deal with the economic crisis, he answered: ?Well, the first thing we have to do is get spending under control.?

If Barack Obama becomes president, he won?t have the same knee-jerk opposition to spending. But he will face a chorus of inside-the-Beltway types telling him that he has to be responsible, that the big deficits the government will run next year if it does the right thing are unacceptable.


He should ignore that chorus. The responsible thing, right now, is to give the economy the help it needs. Now is not the time to worry about the deficit.



Wow. Someone coming out for MORE government spending? He makes a great point that the knee jerk response is that's crazy.
Then I read the article and realize why he has a Nobel Prize in economics.
And John McCain doesn't understand the economy so well.....
 

miketheidiot

Lifer
Sep 3, 2004
11,062
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now if we had only balanced that budget in 2004 instead of cutting taxes.


oh and public works are infrastructure are great long term investments and entirely worth running a deficit for
 

StageLeft

No Lifer
Sep 29, 2000
70,150
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Originally posted by: miketheidiot
now if we had only balanced that budget in 2004 instead of cutting taxes.


oh and public works are infrastructure are great long term investments and entirely worth running a deficit for
As dixycrat <sp> said in another thread, when times are bad, you may want to increase gov debt to help dampen the blow, and then they're good, you decrease it. All we've been doing for 8 yeasr is blowing it the hell out of the water.
 

bamacre

Lifer
Jul 1, 2004
21,030
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But right now, increased government spending is just what the doctor ordered, and concerns about the budget deficit should be put on hold.
Is this quote from George Bush or Paul Krugman?
 

techs

Lifer
Sep 26, 2000
28,563
3
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Originally posted by: bamacre
But right now, increased government spending is just what the doctor ordered, and concerns about the budget deficit should be put on hold.
Is this quote from George Bush or Paul Krugman?
I know. Scary. But the guy is brilliant and he says what he believes. Contrary to what some people believe he is no partisan hack.

 

bamacre

Lifer
Jul 1, 2004
21,030
1
61
Originally posted by: techs
Originally posted by: bamacre
But right now, increased government spending is just what the doctor ordered, and concerns about the budget deficit should be put on hold.
Is this quote from George Bush or Paul Krugman?
I know. Scary. But the guy is brilliant and he says what he believes. Contrary to what some people believe he is no partisan hack.
And when other countries refuse to take on our debt, where will the money come from?
 

winnar111

Banned
Mar 10, 2008
2,847
0
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Originally posted by: miketheidiot
now if we had only balanced that budget in 2004 instead of cutting taxes.
Who said that raising tax rates would have raised tax revenues?
 

bamacre

Lifer
Jul 1, 2004
21,030
1
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And let's say, hypothetically, that we increase the size and spending of government, and in maybe 5 years, the economy is doing better and stable. Does anyone with half a brain think the schmucks in DC will then reduce the size and spending of government?
 

winnar111

Banned
Mar 10, 2008
2,847
0
0
Oh, and these guys are preparing to backpedal:

Barack Obama: Ways to Decrease the Deficit: ?If we don?t get a hold of our healthcare costs over the private and government sector, I do not think we can solve our structural deficit problem.?

John Kerry, 2004:

http://www.cnn.com/2004/ALLPOL...S/04/07/election.main/

Kerry said a growing federal debt will result in higher interest rates that will "dry up investment" and scare off overseas investors.

"We can't restore fiscal responsibility unless we have a president willing to bring our divided parties together, and ready to be straight with the public about what we can and can't afford," the four-term senator from Massachusetts told a Georgetown University audience.
 

Mursilis

Diamond Member
Mar 11, 2001
7,756
11
81
Originally posted by: Stoneburner
deficit spending during recessive periods are classic keynesian solutions.
Except that, with our gov't, the deficit spending doesn't end when the recessive period does.
 

43st

Diamond Member
Nov 7, 2001
3,197
0
0
The classic terminology is big verse small government... more accurately it should be effective verse ineffective government. Note that spending is always present, no matter the party in Washington. The difference is whether that spending is effective or not. When you govern with corruption and ineptness you are not effectively accomplishing anything for the people. It's then no wonder you campaign on smaller government.. :p
 

Dr. Zaus

Lifer
Oct 16, 2008
11,770
347
126
Originally posted by: bamacre
Originally posted by: techs
Originally posted by: bamacre
But right now, increased government spending is just what the doctor ordered, and concerns about the budget deficit should be put on hold.
Is this quote from George Bush or Paul Krugman?
I know. Scary. But the guy is brilliant and he says what he believes. Contrary to what some people believe he is no partisan hack.
And when other countries refuse to take on our debt, where will the money come from?
The money comes from issuing bonds and other countries will not refuse to take on our debt, but the interest rate that they demand for taking on said debt changes all the time. That said, in times of economic trouble people still look to the USA for stability.
 

First

Lifer
Jun 3, 2002
10,518
271
136
Originally posted by: DixyCrat
Originally posted by: bamacre
Originally posted by: techs
Originally posted by: bamacre
But right now, increased government spending is just what the doctor ordered, and concerns about the budget deficit should be put on hold.
Is this quote from George Bush or Paul Krugman?
I know. Scary. But the guy is brilliant and he says what he believes. Contrary to what some people believe he is no partisan hack.
And when other countries refuse to take on our debt, where will the money come from?
The money comes from issuing bonds and other countries will not refuse to take on our debt, but the interest rate that they demand for taking on said debt changes all the time. That said, in times of economic trouble people still look to the USA for stability.
Yup, and this is the bottom line.
 

miketheidiot

Lifer
Sep 3, 2004
11,062
1
0
Originally posted by: winnar111
Originally posted by: miketheidiot
now if we had only balanced that budget in 2004 instead of cutting taxes.
Who said that raising tax rates would have raised tax revenues?
well cutting taxes decreased revenues, so i would expect the opposite to be true.
 

Stoneburner

Diamond Member
May 29, 2003
3,491
0
76
Originally posted by: Mursilis
Originally posted by: Stoneburner
deficit spending during recessive periods are classic keynesian solutions.
Except that, with our gov't, the deficit spending doesn't end when the recessive period does.
FDR tried and it backfired :)
 

winnar111

Banned
Mar 10, 2008
2,847
0
0
Originally posted by: miketheidiot
Originally posted by: winnar111
Originally posted by: miketheidiot
now if we had only balanced that budget in 2004 instead of cutting taxes.
Who said that raising tax rates would have raised tax revenues?
well cutting taxes decreased revenues, so i would expect the opposite to be true.
http://www.taxpolicycenter.org...layafact.cfm?Docid=205

In 2006-2007, we collected more tax revenue than the post WWII average despite 'low' rates, and just as much as we did during Clinton's first term.
 

ElFenix

Elite Member
Super Moderator
Mar 20, 2000
101,424
5,497
126
and in the late 90s we were collecting a larger percentage according to that table.
 

winnar111

Banned
Mar 10, 2008
2,847
0
0
Originally posted by: ElFenix
and in the late 90s we were collecting a larger percentage according to that table.
True, but Obama isn't planning on rolling back tax rates on everyone to late 90s rates. He still wants to maintain most of the Bush level tax rates.
 

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