The economic framework for austerity is getting even weaker

[First]

Yep, remember $4 trillion debt in 8 years is unpatriotic.

http://www.youtube.com/watch?v=DyLmru6no4U

It is unpatriotic. Bush spent during an economic expansion when he didn't have to or need to and spent on all the wrong things (war). Much of the deficit today has to do with a sagging economy courtesy of his shitty policies (leading to lower tax revenue), taxes that are too low (i.e. even lower tax revenue) and automatic spending increases that were baked into the 09 budget anyway (Medicare, Medicaid, Iraq, welfare, etc.). Sorry but there's nothing any POTUS could have done about those deficits. Bush? Total control, he inherited a surplus and a FAR more tame tech recession.

 

[werepossum]

Yep, remember $4 trillion debt in 8 years is unpatriotic.

http://www.youtube.com/watch?v=DyLmru6no4U

At the time, none of us realized that he believed the $30k per head debt was "indefensible and unpatriotic" because it should really be $300k per head debt.

 

[dawheat]

eskimo - you're wasting your time with this thread if you're hoping for educated, informed debate based on data.

Most people here, including myself, only understand economics within the constraints of our own lives and localities. So people take those understandings and try to apply it to a national scale. If people here were more understanding of their limitations, P&N would be far less interesting.

My only comment - I conceptually understand why austerity during downturns are bad, but the fact that we can't cut spending during booms is what concerns me.

 

[werepossum]

It is unpatriotic. Bush spent during an economic expansion when he didn't have to or need to and spent on all the wrong things (war). Much of the deficit today has to do with a sagging economy courtesy of his shitty policies (leading to lower tax revenue), taxes that are too low (i.e. even lower tax revenue) and automatic spending increases that were baked into the 09 budget anyway (Medicare, Medicaid, Iraq, welfare, etc.). Sorry but there's nothing any POTUS could have done about those deficits. Bush? Total control, he inherited a surplus and a FAR more tame tech recession.

It's worth pointing out yet again that generally speaking Presidents don't spend money, Congress spends money. The President's power is limited to signing or vetoing the whole bill, which Clinton did to force Congress to spend more and neither Bush nor Obama has done to try to force Congress to spend less. Presidents thus deserve only partial blame (or credit) for spending. One could also argue that vetoing bills with a built-in veto-proof margin is a losing proposition - even if one wins, the required political capital means the President can't accomplish other things he wants done.

The only real exceptions to this within my lifetime are the one term (actually part of a term) where Obama had a filibuster-proof majority and a pliant Congress and could get anything he wanted within reason, and Reagan, who had a unique ability to go over the media's heads directly to the American people and build support for what he wanted.

 

[Matt1970]

It is unpatriotic. Bush spent during an economic expansion when he didn't have to or need to and spent on all the wrong things (war). Much of the deficit today has to do with a sagging economy courtesy of his shitty policies (leading to lower tax revenue), taxes that are too low (i.e. even lower tax revenue) and automatic spending increases that were baked into the 09 budget anyway (Medicare, Medicaid, Iraq, welfare, etc.). Sorry but there's nothing any POTUS could have done about those deficits. Bush? Total control, he inherited a surplus and a FAR more tame tech recession.

We weren't expanding. Things have been crap for the last 40 years thanks to trickle down economics according to the left.

You would have a valid point except didn't we just have an article that claimed revenue is back to 2007 levels after adjusting for inflation and population growth? And if the tax rates were so horrible than why were they extended in 2010 and made permanent in 2012?

And if you believe that Bush squandered the surpluses you have to first ignore that the surpluses were only there thanks to I.O.U.s against Social Security and you have to ignore the fact that revenue fell below expenditure well before Bush put any tax/revenue plan into effect.

 

[Genx87]

It is unpatriotic. Bush spent during an economic expansion when he didn't have to or need to and spent on all the wrong things (war). Much of the deficit today has to do with a sagging economy courtesy of his shitty policies (leading to lower tax revenue), taxes that are too low (i.e. even lower tax revenue) and automatic spending increases that were baked into the 09 budget anyway (Medicare, Medicaid, Iraq, welfare, etc.). Sorry but there's nothing any POTUS could have done about those deficits. Bush? Total control, he inherited a surplus and a FAR more tame tech recession.

What do you consider a reasonable deficit as a % of GDP during good economic times and bad?

 

[First]

We weren't expanding. Things have been crap for the last 40 years thanks to trickle down economics according to the left.

We were expanding immediately after the 00 tech bubble far more rapidly than right after the 08 financial bubble. The scenarios aren't even close to comparable, as I'm sure you know.

You would have a valid point except didn't we just have an article that claimed revenue is back to 2007 levels after adjusting for inflation and population growth? And if the tax rates were so horrible than why were they extended in 2010 and made permanent in 2012?

I'm not sure what you're going on about re: 2007 levels. But yes, Obama is partially at fault for making those tax rates permanent, absolutely. That's a consequence of too much centrism on his part, actually. If he were more of a leftist he'd have helped solve the budget deficit substantially more over the past couple years. But he has to work with an intransigent Congress, of course.

And if you believe that Bush squandered the surpluses you have to first ignore that the surpluses were only there thanks to I.O.U.s against Social Security and you have to ignore the fact that revenue fell below expenditure well before Bush put any tax/revenue plan into effect.

Well I'm not sure if you realize this, but even if you ignore SS entirely, the budget deficit was a pittance compared to what it was in 2009. It was nothing substantial and Bush had every opportunity to simply keep tax rates the same and not go to war in Iraq. That's several trillion dollars of increased revenue/saved money.

Nothing any POTUS can do when they inherit a budget like the one in 2009. Nothing but nibble at the edges.

 

[First]

It's worth pointing out yet again that generally speaking Presidents don't spend money, Congress spends money. The President's power is limited to signing or vetoing the whole bill, which Clinton did to force Congress to spend more and neither Bush nor Obama has done to try to force Congress to spend less. Presidents thus deserve only partial blame (or credit) for spending. One could also argue that vetoing bills with a built-in veto-proof margin is a losing proposition - even if one wins, the required political capital means the President can't accomplish other things he wants done.

The only real exceptions to this within my lifetime are the one term (actually part of a term) where Obama had a filibuster-proof majority and a pliant Congress and could get anything he wanted within reason, and Reagan, who had a unique ability to go over the media's heads directly to the American people and build support for what he wanted.

Of course a POTUS only deserves partial blame. Ultimately they sign bills and, as a result, ultimately they are responsible for all the laws of the land. If they really objected to something, they can veto it, and very few Congresses in the last few decades could have agreed to override a veto. I can think of a couple off the top of my head on social issues in the 90's.

What do you consider a reasonable deficit as a % of GDP during good economic times and bad?

There is no magic number.

 

[nehalem256]

It is unpatriotic. Bush spent during an economic expansion when he didn't have to or need to and spent on all the wrong things (war). Much of the deficit today has to do with a sagging economy courtesy of his shitty policies (leading to lower tax revenue), taxes that are too low (i.e. even lower tax revenue) and automatic spending increases that were baked into the 09 budget anyway (Medicare, Medicaid, Iraq, welfare, etc.). Sorry but there's nothing any POTUS could have done about those deficits. Bush? Total control, he inherited a surplus and a FAR more tame tech recession.

Economic expansion? Did you forget about the Dotcom crash recession?

Or as was pointed out earlier:

3. The United States has also experienced six periods of depression. The depressions began in 1819, 1837, 1857, 1873, 1893, and 1929. (Do you see any pattern? Take a look at the dates listed above.) With the exception of the Clinton surpluses, every significant reduction of the outstanding debt has been followed by a depression, and every depression has been preceded by significant debt reduction. The Clinton surplus was followed by the Bush recession, a speculative euphoria, and then the collapse in which we now find ourselves. The jury is still out on whether we might manage to work this up to yet another great depression. While we cannot rule out coincidences, seven surpluses followed by six and a half depressions (with some possibility for making it the perfect seven) should raise some eyebrows. And, by the way, our less serious downturns have almost always been preceded by reductions of federal budget deficits. I don't know of any case of a national depression caused by a household budget surplus.

The only President to avoid a depression after a budget surplus was Bush. Given the hand he was dealt is seems the Bush should be regarded as a veritable genius when it comes to the economy

 

[Genx87]

Of course a POTUS only deserves partial blame. Ultimately they sign bills and, as a result, ultimately they are responsible for all the laws of the land. If they really objected to something, they can veto it, and very few Congresses in the last few decades could have agreed to override a veto. I can think of a couple off the top of my head on social issues in the 90's.



There is no magic number.

Certainly you must have a general idea. Otherwise how can you make claims about it being too much or too little.

 

[nehalem256]

Certainly you must have a general idea. Otherwise how can you make claims about it being too much or too little.

If it didn't work it was too little.

If a conservative throws out a really big number its too much.

:sneaky:

 

[Matt1970]

We were expanding immediately after the 00 tech bubble far more rapidly than right after the 08 financial bubble. The scenarios aren't even close to comparable, as I'm sure you know.



I'm not sure what you're going on about re: 2007 levels. But yes, Obama is partially at fault for making those tax rates permanent, absolutely. That's a consequence of too much centrism on his part, actually. If he were more of a leftist he'd have helped solve the budget deficit substantially more over the past couple years. But he has to work with an intransigent Congress, of course.



Well I'm not sure if you realize this, but even if you ignore SS entirely, the budget deficit was a pittance compared to what it was in 2009. It was nothing substantial and Bush had every opportunity to simply keep tax rates the same and not go to war in Iraq. That's several trillion dollars of increased revenue/saved money.

Nothing any POTUS can do when they inherit a budget like the one in 2009. Nothing but nibble at the edges.

You don't give any credit to the quick recovery of the dot-com crash to the tax cuts? The economists at the time did, but then again they are wrong quite often. Anyways, Bush is gone. We have had over 4 years to change any policies he put in place. And there is nothing like the 2009 budget except maybe the 2010 budget which expanded mandatory and discretionary spending by 15%.

 

[Doc Savage Fan]

I can't tell if you read the charts carefully or not here. What is the aggregate negative GDP from those Baltic nation's austerity measures, and the aggregate positive GDP after the recovery? Did you notice the sum you get? Please tell me you noticed it, and please let me know if you consider the aggregate end result (i.e. massively negative GDP growth when combining the downturn and recovery) as acceptable.

Of course I noticed it. But please keep in mind that most every country in the world suffered negative GDP growth as a result of the financial crisis. Germany faired fairly well and this is what their chart looks like:

To frame this by aggregating negative GDP growth during this period is a dishonest measure of the long-term effectiveness of their austerity programs in my opinion. Current GDP trends and the external debt to GDP ratio metric are much better indicators. Germany isn't doing so great in either area.

 

[First]

Certainly you must have a general idea. Otherwise how can you make claims about it being too much or too little.

There is no too much or too little that is predicated on a number, as the OP quite successfully pointed out with regard to the R-R Maryland-Harvard study. It's clear 90% isn't a magic number, that's one of the main points of this thread.

The "general" idea, fiscally, is to spend on programs that meet the ultimate goal of improving the quality of living of Americans; examples include Medicare and SS, which are popular among the public by super majorities. Another goal is to plan for demographic shifts that may put a burden on the budget, like the current baby boom bubble. Adjust those entitlements downward (e.g. chained CPI) or find another way to fund those programs without killing the economy (e.g. much higher taxes on the rich, much fewer loopholes, and probably incrementally higher taxes on the middle class over a longer period of time).

So like I said, no magic number.

You don't give any credit to the quick recovery of the dot-com crash to the tax cuts? The economists at the time did, but then again they are wrong quite often.

Huh? What credible study attributed the tech bubble recovery to tax cuts?

Anyways, Bush is gone. We have had over 4 years to change any policies he put in place.

Right, 4 years; now what part of the 2009 budget deficit was Obama's fault again? Or for that matter the 2010, 2011 and 2012 budgets? See where I'm going?

And there is nothing like the 2009 budget except maybe the 2010 budget which expanded mandatory and discretionary spending by 15%.

Huh? Clarify this statement thanks.

 

[fskimospy]

Of course it isn't dishonest, it shows the results of their policies. What IS dishonest isbacting as if growth from an incredibly depressed point is something to be proud of.

Often one good measure is looking at how long it takes to get back to pre crisis GDP. Austerity has some really ugly results for this.

 

[First]

Of course I noticed it. But please keep in mind that most every country in the world suffered negative GDP growth as a result of the financial crisis. Germany faired fairly well and this is what their chart looks like:

Looking at your GDP numbers just for Latvia, we notice a 32.5% net negative result from immediate austerity over the same number of quarters, your (apparent) preferred policy institution. Looking at Germany, they clearly come out with a net positive growth rate with far less austerity measures taken than those Baltic countries. So I'm unclear as to how you believe these GDP numbers support your point. Do Spain's GDP numbers and 25% unemployment support your argument for austerity too?

To frame this by aggregating negative GDP growth during this period is a dishonest measure of the long-term effectiveness of their austerity programs in my opinion.

Please explain why. I'm not sure you understand that negative GDP growth in the teens is horrible and unpredendented for modern economies. To call aggregation of actual results and actual growth dishonest, strikes me as an extremely odd statement.

Current GDP trends and the external debt to GDP ratio metric are much better indicators. Germany isn't doing so great in either area.

Why? I see no explanation for your position.

On the other hand, I find it quite straight forward that when GDP, employment and wages all continue to rise after a (very) short negative few quarters (as in the U.S. in late 2008/2009), whereas the Baltic nations are STILL suffering from net negative growth since austerity was implemented, well I think the numbers are quite self-evident. Their cause is also straight forward, because it's uncontroversial that drastically reduced government spending has massively negative implications in the short-term (at the very least), an agreed-upon notion even among conservative economists. The controversy is over the length of the effects. While the opposite is not at all true for the reverse with regards to austerity (because, frankly, austerity in a downturn just never works better than the alternative of spending more temporarily).

 

[Doc Savage Fan]

Looking at your GDP numbers just for Latvia, we notice a 32.5% net negative result from immediate austerity over the same number of quarters, your (apparent) preferred policy institution. Looking at Germany, they clearly come out with a net positive growth rate with far less austerity measures taken than those Baltic countries. So I'm unclear as to how you believe these GDP numbers support your point. Do Spain's GDP numbers and 25% unemployment support your argument for austerity too?

Germany looks like they're heading for recession and Latvia is one of the fastest growing economies in Europe. Look at current GDP trends and External Debt-to-GDP trends for both Germany and Latvia. If Latvia chose the borrow additional money to stimulate their economy instead of going with the limited austerity route, what evidence do you have that would support a better outcome than what actually happened? Are there any other countries that you would point to as a success story for deficit spending stimulus policies?

Please explain why. I'm not sure you understand that negative GDP growth in the teens is horrible and unpredendented for modern economies. To call aggregation of actual results and actual growth dishonest, strikes me as an extremely odd statement.

Long-term results and trends determine the success of an economic policy. Bottomline, Latvia is a success story and has much reason for optimism going forward. Yes, they were hit hard by the crisis...but it's impossible to tell how much of that hit was due austerity measures vs. other factors unrelated to austerity such as external debt liabilities.

On the other hand, I find it quite straight forward that when GDP, employment and wages all continue to rise after a (very) short negative few quarters (as in the U.S. in late 2008/2009), whereas the Baltic nations are STILL suffering from net negative growth since austerity was implemented, well I think the numbers are quite self-evident. Their cause is also straight forward, because it's uncontroversial that drastically reduced government spending has massively negative implications in the short-term (at the very least), an agreed-upon notion even among conservative economists. The controversy is over the length of the effects. While the opposite is not at all true for the reverse with regards to austerity (because, frankly, austerity in a downturn just never works better than the alternative of spending more temporarily).

The Baltic nations GDP growth has been very healthly and stable for the past 2 years. Latvia now has the fastest growing economy in Europe (or close to it)...do you really want to take the position that their austerity measures over the past 5 years were a failure?

 

[fskimospy]

Long-term results and trends determine the success of an economic policy. Bottomline, Latvia is a success story and has much reason for optimism going forward. Yes, they were hit hard by the crisis...but it's impossible to tell how much of that hit was due austerity measures vs. other factors unrelated to austerity such as external debt liabilities.

Why is that impossible to tell and why is that not incredibly important? Your 'healthy trajectory' has them reaching their pre-crisis GDP by somewhere around 2018. Yes, a decade later. As a counter-example the US has already exceeded its pre-crisis GDP.

Additionally, part of their severe recession came from a super high current account deficit... which has started to return. (ie: your optimism going forward may be very misplaced) This devaluation helped them export their way to recovery. Not only can every country not do that simultaneously for obvious logical reasons, but their growth is now slowing back down due to this. 2018 might be optimistic.

The Baltic nations GDP growth has been very healthly and stable for the past 2 years. Latvia now has the fastest growing economy in Europe (or close to it)...do you really want to take the position that their austerity measures over the past 5 years were a failure?

Taking more than a decade to get back to your pre-crisis GDP while still having an unemployment rate around 11% even while massive emigration of jobless people fleeing your country are artificially reducing your working population is a success?

Again, if that's success I'm terrified of what failure might be.

 

[Pr0d1gy]

My ideaology tells me that austerity is a good thing and my head is too far up my ass to think for myself so this OP is a lie!!!!

 

[First]

Germany looks like they're heading for recession and Latvia is one of the fastest growing economies in Europe. Look at current GDP trends and External Debt-to-GDP trends for both Germany and Latvia. If Latvia chose the borrow additional money to stimulate their economy instead of going with the limited austerity route, what evidence do you have that would support a better outcome than what actually happened? Are there any other countries that you would point to as a success story for deficit spending stimulus policies?

Your argument is counter-factual, as are much of the arguments in economic scenarios that can't possibly be proven (that is, we can't know definitely what the better outcome will be, only what outcomes we've seen). All we know for certain is that Latvia's GDP growth epically tanked and they still haven't recovered their total outlay numbers from their previous pre-2008 level, and they won't anytime soon (looking at their average GDP growth since 2008). Germany, on the other hand, has a net positive average of 3.0% GDP growth between 2008-2012, so they are very much in the black since the crisis, which is common for a country that doesn't institute drastic austerity. In fact, Germany provided a good amount of fiscal stimulus to their economy after 2008, in manufacturing (auto) and welfare, despite what political speeches you may have heard or them asking for austerity from other countries.

Germany only has had tepid GDP growth in the most recent couple quarters, a worthless point to make without knowing how their growth will pick up (or not) this year, next year, etc. There are, of course, lots of other factors affecting Germany's economy that would take quite a while to get into here I'm sure, though of course I'm not an expert on Germany's economy at all.

Long-term results and trends determine the success of an economic policy. Bottomline, Latvia is a success story and has much reason for optimism going forward.

Latvia is not a success story by any measure; like I said, they experienced crippling cuts in GDP they haven't anywhere near recovered from since 2008, while Germany's GDP is already back to the roughly $3.6T level it was in 2008. Latvia? lol, no.

Yes, they were hit hard by the crisis...but it's impossible to tell how much of that hit was due austerity measures vs. other factors unrelated to austerity such as external debt liabilities.

I can't tell if this is an argument you just made up or what; how the hell does external debt liabilities explain a 15% drop in GDP?

EDIT: 19% drop!

The Baltic nations GDP growth has been very healthy and stable for the past 2 years. Latvia now has the fastest growing economy in Europe (or close to it)...do you really want to take the position that their austerity measures over the past 5 years were a failure?

Yes, Latvia was a massive failure so far given they experienced between -10% and -19% growth to get to where they are today, which is a 3%-7% GDP rate since recovering in 2010. Do you see which numbers there are the same and which aren't? As the U.S. has proven, there is a way to continue to grow the economy reasonably (3% average since 2009) and create millions of jobs that doesn't involved losing double digits in GDP growth for a full 1.5 years straight the way Latvia decided to do it.

Granted, I'm not an expert on Latvia, so I'd have to investigate further what they did. But the point still stands they did institute quite a bit of austerity, and failed miserably (so far). Whether they are successful in the long-term vs. the alternative way of going about growing (the way the U.S. and Canada went, for example) will be shown more in coming years.

 

[monovillage]

Yes, many people do. Austerity is defined by economists and policy analysts as policies that reduce government deficits.

Including tax increases

http://en.wikipedia.org/wiki/Austerity

In economics, austerity describes policies used by governments to reduce budget deficits during adverse economic conditions. These policies can include spending cuts, tax increases, or a mixture of the two.

 

[fskimospy]

Including tax increases

http://en.wikipedia.org/wiki/Austerity

Yes of course, I've said that multiple times. If you remember previous discussions about taxes I've said that in a perfect world I wouldn't be raising taxes now either as we need higher deficits short term.

Unfortunately that wasn't really politically feasible, sadly enough.

 

[fskimospy]

Interesting chart that includes Latvia's population over the last decade. Holy crap, look at the population fleeing the country in droves. A 7% drop in population in ONE YEAR.

Another success for austerity! Again, what would failure look like?

 

[thraashman]

Those comments were made in Feb 2009.

You're right. I don't know why I had the comments about debt ceiling in my mind when writing my response. As far as the statements about reducing the deficit by half though, he came damn close, the 2103 fiscal budget is a reduction of the deficit from the 2009 budget Obama inherited of 47%.

 

[nehalem256]

Another success for austerity! Again, what would failure look like?

http://www.bloomberg.com/news/2013-04-17/fed-says-moderate-growth-across-u-s-was-led-by-housing.html

The Federal Reserve said the U.S. economic expansion remained “moderate” amid gains in manufacturing, housing and autos that offset weakness in defense-related industries in some regions.
...
Consumer spending “grew modestly” even as some regions said sales were curbed by rising gasoline prices, higher payroll taxes and winter weather. “Employment conditions remained unchanged or improved somewhat,” the report said.

So when is austerity going to start hurting the economy?