The other night I said to myself, “I haven’t checked Bruce Barlett’s web pages in awhile.” Sure enough, he’s got a good piece on deficit reduction and infrastructure investment in the NY Times. I’ll quote it at length here:
Much of the motivation for deficit reduction, a goal shared by policy makers across the political spectrum, is the belief that deficits consume the nation’s seed corn. That is, deficits represent negative saving. Because saving is presumed to be the key determinant of long-term real economic growth, deficits deplete the supply of saving and thus reduce growth.
There are many problems with this analysis. Continue reading
From the NY Times, Austerity Kills Government Jobs as Cuts to Budgets Loom:
Two year changes in government spending: by quarter, in constant 2005 dollars
The chart is a bit difficult to read here. Click through to the article for a better view. The bottom line: Contrary to what you may be hearing in the popular press and around the watercooler, government
spending investment and consumption* has contracted over the past several years – almost 5% over the past two years. That contraction is one of the reasons for the anemic economic recovery since The Great Recession kicked in. Doubling down on those cuts will only exacerbate the problem. From the article (emphasis added):
As reported by the NY Times:
“[The Republicans] will not collect a ransom in exchange for not crashing the American economy,” Mr. Obama vowed in the East Room, a week before his second inauguration. “The financial well-being of the American people is not leverage to be used. The full faith and credit of the United States of America is not a bargaining chip.”
That’s the right position. Let’s hope he has the backbone to not back down.
Minting the coin needs to be an option.
Fiscal Cliff Deal
I Do Not Understand the Obama Administration, Brad DeLong.
The big reason to make a deal before January 1, 2013 was that detonating the “austerity bomb” would impose 3.5% of fiscal contraction on the U.S. economy in 2013, and send the U.S. into renewed recession. It was worth making a good-enough deal–sensible long-run revenue increases and tax cuts to close the long-run fiscal gap plus enough short-term fiscal stimulus to make the net fiscal impetus +1.0% of GDP–in order to avoid renewed recession.