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CBO Forecast: Trillion Dollar Deficits, Slow Growth, And High Unemployment

Yesterday, the Congressional Budget Office released a rather grim forecast for the nation’s budget deficit and economic future:

The Congressional Budget Office on Tuesday predicted the deficit will rise to $1.08 trillion in 2012.

The office also projected the jobless rate would rise to 8.9 percent by the end of 2012, and to 9.2 percent in 2013.

These are much dimmer forecasts than in CBO’s last report in August, when the office projected a $973 billion deficit. The report reflects weaker corporate tax revenue and the extension for two months of the payroll tax holiday.

A rising deficit and unemployment rate would hamper President Obama’s reelection effort, which in recent weeks has seemed to be on stronger footing.

If the CBO estimate is correct, it would mean that the United States recorded a deficit of more than $1 trillion for every year of Obama’s first term.

CBO Director Doug Elmendorf told reporters that Congress will have to make important choices this year regarding the supercommittee trigger and tax policy that will have huge effects on the deficit.

While unable to recommend choices, Elmendorf said that addressing the deficit sooner rather than later is easier.

The deficit was $1.4 trillion in 2009, $1.3 trillion in 2010 and $1.3 trillion in 2011. The largest deficit recorded before that was $458 billion in 2008.

CBO had forecast an 8.5 percent unemployment rate for the end of 2012 in its August report. It now expects the jobless rate to be higher and to still be at 7 percent in 2015.

The higher unemployment numbers are due to lower economic growth than previously estimated. Gross domestic product for 2011 is now estimated to have grown 1.6 percent in 2011, down from the 2.3 percent forecast in August. CBO a year ago had predicted 3.1 percent growth for 2011.

The outlook for 2012 has also worsened. GDP is forecast to grow only 2 percent this year, compared to a previous estimate of 2.7 percent.

Budget cuts from the August debt deal and projected tax increases set to kick in when the Bush tax rates expire at the end of the year, will “restrain economic growth this year and significantly restrain growth in 2013,” according to CBO. But it says the fiscal prudence will help growth in the out years.

Under the CBO’s projections, total Federal Debt would rise to $21.7 trillion under 2022. However, because of the assumption that the CBO operates under in making these types of projections, it’s likely that the actual debt will be significantly higher absent serious and large cuts in the size and scope of government. For example, the CBO assumes that all of the Bush Tax cuts will be allowed to expire on December 31, 2012 and will not be extended or renewed at any point thereafter. Politically, that is simply not going to happen. The Obama Administration has already said that it wants to extend the cuts for everyone earning less than $250,000/year while Republicans want to extend the entire package, however that dispute gets resolved it’s rather obvious that the cuts will be extended in some form. The CBO also assumes that Congress will not act yet again to pass the so-called “Doc Fix,” which prevents Medicare reimbursements to physicians by 30%. Congress has passed that fix every time it’s needed as a matter of course, and it’s unlikely that they are going to change that any time soon, or that they are going to risk large numbers physicians dropping out of Medicare. The report also assumes that Congress will not continue to makes at adjustments to the Alternative Minimum Tax to prevent it from applying to even more middle class taxpayers. Again, that’s a fix Congress has routinely passed and its not realistic to think it won’t happen again. Finally, the report assumes that Congress will not touch the sequestration cuts that were part of August’s debt ceiling deal, but there are already signs of bipartisan support for modifying the cuts to defense spending. In other words, the CBO’s deficit estimates are overly optimistic because it doesn’t factor political reality into the equation. If all of these mesuares are taken by Congress, the 2022 would inccrease to $29.2 trillion.

Peter Suderman expands on this point:

Now, it’s true that current law, and thus CBO’s “current law” baseline, calls for us to tax even more, and to cut some hundreds of billions in spending on physician payments out of Medicare: But that’s because current law assumes that we’ll cut payments to physicians by nearly 30 percent in a few months, despite years of both parties supporting overrides to such cuts. And it assumes that tax hikes, including allowing the Alternative Minimum Tax, which was originally designed to hit just 55 very wealthy earners, will eventually hit half the country (meaning much of the middle class)—something neither party is going to support.

As is now common, liberal wonks are pointing to the baseline scenario as evidence that we don’t really have a deficit problem. After all, Congress just has to follow current policy in order to keep revenues nearly in line with expenditures. But even forgetting about the country’s historical inability to raise tax levels substantially above 20 percent of GDP, there’s simply no plausible near-future political environment in which this happens. It’s a cute fantasy designed to comfort those who don’t want to cut federal spending.

And ultimately, it’s the increases in spending that kill us: “If that rising level of spending is coupled with revenues that are held close to the average share of GDP that they have represented for the past 40 years…”, the CBO says, “the resulting deficits will increase federal debt to unsupportable levels.”

The more worrisome part of the CBO forecast, though, are the GDP and unemployment numbers, which are largely in line with the forecasts we’ve seen from the Fed and private analysts. It portends a future of  a near-stagnant economy that would be in danger of being pushed into yet another recession by any number of possible events beyond the control of anyone in Washington, whether its an international crisis, more trouble in the Eurozone, or a spike in energy prices that sends shockwaves through the economy. With employment already near 9% and likely to stay there for two years or more, another recession would be disastrous, with unforeseeable political consequences. Thanks to our long term debt issues, there isn’t a whole lot that Washington can do in the way of direct stimulus — both massive new spending and a massive new tax cut (without spending cuts) seem out of the question right now.  The Federal Reserve has kept interest rates near zero for years now, and apparently plans to continue doing so through 2014. It’s hard to see what else there is left to do other than let things work themselves out. Of course, that’s never the answer politicians want to hear.

Related Posts:

About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. Steve Verdon says:

    What we need is even more deficit spending!

    Like or Dislike: Thumb up 1 Thumb down 10

  2. MBunge says:

    Mother Jones blogger Kevin Drum recently wrote about how he was afraid that Romney and the GOP might win and get credit for the economic recovery that’s inevitably going to happen. The reason Drum thinks the recovery is inevitable is because he doesn’t want to give Ronald Reagan ANY credit for the 1980s, so he has to pretend that the economy goes up and down no matter what government policy is put in place.

    The reality is that our economy is going to be in tenuous shape for a long time and things could get really bad, really quick if the wrong decisions are made in DC.

    Mike

    Like or Dislike: Thumb up 2 Thumb down 4

  3. @Steve Verdon:

    And unicorns! Plenty of unicorns!

    Like or Dislike: Thumb up 0 Thumb down 5

  4. Hoyticus says:

    Why not increase the rates on the income tax, institute a value added tax (like all other industrialized countries), devalue the dollar, have a financial transaction tax i.e. capital controls, and craft a coherent National Exonomic Strategy? Along with large cuts in military personnel as they consume 30% of the military budget. But offer business some incentives like capital grants, free land, and temporary tax exemptions if they relocate production here.

    Like or Dislike: Thumb up 0 Thumb down 1

  5. Hey Norm says:

    Silly partisan punks pretending to be pundits.
    CBO projections mean nothing when applied to the PPACA.
    They mean everything when they support your doom and gloom view of the future.
    What a f’ing joke you are.

    Like or Dislike: Thumb up 10 Thumb down 3

  6. Brummagem Joe says:

    @Doug Mataconis:

    And unicorns! Plenty of unicorns!

    Well was the money used to bail out the financial and auto industries deficit spending? No doubt like your favored candidate Romney you would have preferred to see the destruction of the domestic auto industry but deficit spending when aggregate demand is depressed is an entirely logical approach. In fact given that the US can currently borrow money for effectively nothing in real terms it now makes more sense than usual. But I’m sure you will continue to rely on the confidence fairy for the formulation of your economic theories Doug.

    Like or Dislike: Thumb up 6 Thumb down 0

  7. Norm,

    All I’ve said about the CBO’s projections regarding the PPACA is that one has to remember that they are based upon the information and assumptions provided by the advocates of the bill. If that information and those assumptions are incorrect, the the projections aren’t necessarily reliable.

    Similarly here, the CBO’s projections about deficits in 2022 aren’t reliable because they make assumptions about what Congress and the President are likely to do that are not politically realistic.

    Like or Dislike: Thumb up 1 Thumb down 0

  8. Gromitt Gunn says:

    @Steve Verdon: @Doug Mataconis:

    If only we could look to another developed economy’s ongoing politcal/economic experiment in austerity to see how well abandoning Keynesian principles in favor of reduced government spending work out. Of course, with Labor soundly defeating Cameron’s LibDem/Conservative coaltion in 2010 and implementing a policy of free unicorns for everyone, we’ll never be able to make such a comparison.

    Like or Dislike: Thumb up 5 Thumb down 1

  9. Brummagem Joe says:

    @Doug Mataconis:

    You are of course correct here Doug because these CBO projections have a lot of iffy assumptions baked into them. That’s why they are to be taken with a large pinch of salt. Instead of agonising about overlong forward projections we need to recognize why do we have a deficit of around a trillion and what needs to be done to return it to the 2-3% of GDP that it’s averaged since the war.

    Like or Dislike: Thumb up 1 Thumb down 0

  10. Davebo says:

    Shorter prolific poster Doug.

    I was against the CBO projections before I was promoting them.

    A lawyer (allegedly) who has double standards? Who could have thunk it! With any luck, everything will fall to crap and Doug will be able to support his vote for the Republican nominee even though he is not now and has never been a Republican. One would think such fence straddling would be painful on the groin.

    Like or Dislike: Thumb up 1 Thumb down 2

  11. john personna says:

    Let’s remember, in context, that the Obama administraiton suggests only a mild increase in revenues, while ALL REPUBLICAN CANDIDATES RECOMMEND CUTTING TAXES FURTHER AND EXPANDING THE DEFICIT.

    In an election year, that should be your focus, Doug.

    Like or Dislike: Thumb up 11 Thumb down 0

  12. @Steve Verdon: actually yes we do.

    Or we can look at 2% interest rates in the face and determine that somehow the markets won’t finance deficits to countries that control their own currency and go for a double dip recession to please the gods of Expansionary Austerity as it looks like Britain has done.

    Like or Dislike: Thumb up 4 Thumb down 0

  13. john personna says:

    You know, as a second thought .. it is conventional wisdom that a “bad economy” hurts the incumbent, but what happens when it makes the opposition look that much more ridiculous?

    Like or Dislike: Thumb up 0 Thumb down 0

  14. JohnMcC says:

    The main thing to take away is the incredible mess that the previous administration made of the economy. Something like $14 trillion that people thought they actually owned — we had actual figures showing how much our 401K’s and our homes were worth — just frigging disappeared.
    Unless, of course, you had a prominent position in a major bank that the taxpayers would bail out.

    Like or Dislike: Thumb up 4 Thumb down 0

  15. Gromitt Gunn says:

    @Dave Anderson: Trying to get one of these guys to grasp that the reduction in state and local government payrolls is what dragged down 2011 growth, and that the reduction in state and local government payrolls is correlated directly to the expiration of most of the 2009 stimulus funds is seemingly an exercise in futility.

    Like or Dislike: Thumb up 4 Thumb down 0

  16. john personna says:

    @Dave Anderson:

    I can only assume that Steve and Doug have wrapped themselves in alternate realities, ones in which opposition to the administration has a non-destructive plan.

    Either that, or they’re going for the “don’t blame me, I voted libertarian” out.

    Like or Dislike: Thumb up 6 Thumb down 0

  17. @Brummagem Joe:

    Except, as I note, the CBO’s projections for economic growth are consistent with what the Fed has put out, as well as the forecasts of every major private analysts. We’re not going to see that 3% growth you’re dreaming about any time soon.

    Like or Dislike: Thumb up 0 Thumb down 0

  18. Steve Verdon says:

    I love all the negative comments for my sarcastic remark…clearly my comment must have hit close to the mark for many.

    Like or Dislike: Thumb up 0 Thumb down 2

  19. john personna says:

    @Gromitt Gunn:

    Well, I think the data show that we did “least bad” of the OECD countries. Well, maybe us and Germany.

    Maybe the “superstition” level of complaint, that the economy is not great and Obama is President plays to less informed voters, but in reality we aren’t doing that bad.

    Like or Dislike: Thumb up 2 Thumb down 0

  20. Tano says:

    @MBunge:

    he doesn’t want to give Ronald Reagan ANY credit for the 1980s, so he has to pretend that the economy goes up and down no matter what government policy is put in place.

    Well, there is something called the business cycle, y’know, and last I heard, it had not been repealed.

    While I don’t know what specific Drum argument you are referring to, the standard claim for not giving Reagan credit for the mid-80s boom is not that government policy had no effect, but rather that the government policy responsible for the boom was instituted by the Fed, not the Reagan Administration, once the inflation dragon had been slain. The Fed was run by Paul Volcker, who , many seem to forget, was appointed by Jimmy Carter, not Reagan. Volcker’s inflation fighting cost Carter his reelection (as Volcker has acknowledged) but the results were well timed for Reagan’s reelect.

    Like or Dislike: Thumb up 3 Thumb down 0

  21. Lomax says:

    Translation: Republicans win White House

    Like or Dislike: Thumb up 0 Thumb down 0

  22. Steve Verdon says:

    @Hoyticus:

    But that guy’s comment gets nothing? Christ, look at that…lets:

    1. Raise taxes,
    2. Implement a new tax.
    3. Implement yet another tax.
    4. Come up with a “coherent economic strategy”, what ever the Hell that is…we’ll trust the smart people in Washington (never mind that many of them were there when we got into this mess).
    5. ????
    6. Wonderful times.

    Wait..this guy must be an underpants gnome.

    @Gromitt Gunn:

    Ahhh the Krugman line…never mind that the UK is still running deficits…rather large deficits.

    @Dave Anderson:

    Ahh yet another MMTer. Sorry, just not convinced by that line or argument.

    @john personna:

    Exactly right Kreskin.

    I hate to disappoint, I don’t care if Obama is re-elected. I don’t care if Romney is elected or even Bachman because in the end it wont matter. Policies will likely be pretty much the same. Of course, everybody runs around with dire predictions worse than those of Dr. Venkman, but in reality the policies will remain largely as they have as is the direction the country has been going in.

    On wards to the next bubble!!!

    Like or Dislike: Thumb up 0 Thumb down 1

  23. Hoyticus says:

    @Tano: Finding someone on the internet with a grasp of monetary policy? You give me hope for America.

    The main thing is that too many people are balance sheet constrained, too many liabilities too few assets. The assets are also illiquid like cars and homes. That’s why we should engage in fiscal stimulus to prop up demand and allow people to pay down debt as well as engage in Industrial
    Policy to lower the trade deficit.

    Like or Dislike: Thumb up 0 Thumb down 0

  24. Hoyticus says:

    @Steve Verdon: You didn’t address my comment in any substantive way, the income tax increase would be low to say 38%, the Value Added Tax is a consumption tax on imports that would encourage domestic consumption, a financial transaction tax would be like a tenth of a cent per stock transaction.

    Also you ignored the other half of the comment completely that eliminates massive amounts of spending as well as capital grants aka easy loans or credit for businesses as well as free land to set up factories and temporary tax relief to induce investment and job growth in America.

    Like or Dislike: Thumb up 0 Thumb down 0

  25. Brummagem Joe says:

    @Doug Mataconis:

    We’re not going to see that 3% growth you’re dreaming about any time soon.

    Would you like to point where I’ve said were going to see 3% growth this year? Most forecasts have it in the mid 2’s and that’s about where I think it will be although having said that forecasts from the Fed and other economists over the last ten years wouldn’t win any Nostradamus awards. Basically the economy is operating well below capacity because of weak demand which exists for a variety of reasons notably continuing deleveraging, the housing market and cash strapped states. Some parts of the economy are doing well like exports and the recovery in manufacturing has been surprisingly strong all things considered. There’s only one way to create a shortcut to more rapid growth and that’s by expanding demand using fiscal stimulus since monetary stimulus is largely exhausted, but that’s not going to happen for political reasons that don’t have much to do with economic laws.

    Like or Dislike: Thumb up 0 Thumb down 0

  26. Rob in CT says:

    @Tano:

    I find that argument pretty persuasive. The Fed caused a recession by tightening rates, beat inflation, and then loosened up and *boom* Morning in America.

    @Steve Verdon:

    never mind that the UK is still running deficits…rather large deficits.

    If you are familiar with the Krugman line then perhaps you’re also familiar with the argument regarding why that might be? That the cuts hurt the economy, which further reduces revenue, so you don’t even get the savings you thought you were getting.

    I take it your argument is that British “austerity” is too namby-pamby and that things would be better if they put their big boy pants on and *really* got cutting?

    Like or Dislike: Thumb up 3 Thumb down 0

  27. gVOR08 says:

    @Tano: I have no idea what Taibbi thinks about the recovery in the ’80s. But you have to take it as a package. If Reagan gets credit for killing inflation, then he gets the blame for maintaining the second dip of the recession that the Fed, as you recognize, deliberately caused.Nothing to do with the business cycle. Once you realize Reagan was responsible for killing the recovery in progress and causing the double dip, that kind of cancels out credit for the recovery.

    How credit/blame should be parcelled out between Volker and Reagan, I have no idea.

    As far as this silly ‘Reagan made a better recovery than Obama’ business that’s come up lately, Krugman and many others nail that. Our current recession is not like your father’s recessions. The early 80s were. In the 80s the Fed deliberately caused the recession by making money tight. When they quit (under pressure of an imminent Mexican bank collaps IIRC) we recovered. The current recession wasn’t caused by tight money, and the Fed can’t cut interest rates below zero. (Well, they effectively could, but it would require a deal more imagination and political will than they seem to have.)

    Like or Dislike: Thumb up 0 Thumb down 0

  28. Brummagem Joe says:

    @Steve Verdon: Ahhh the Krugman line…never mind that the UK is still running deficits…rather large deficits.

    Well that would be partly because the promised economic expansion that was going to occur as a consequence of austerity measures hasn’t done so and tax receipts have remained depressed. Er….wouldn’t it?

    Like or Dislike: Thumb up 3 Thumb down 0

  29. MBunge says:

    @Tano: “Well, there is something called the business cycle, y’know, and last I heard, it had not been repealed.”

    You mean it was the business cycle that nearly destroyed the global economy? It was the business cycle that collapsed the housing market? It was the business cycle that nearly wiped out the U.S. auto industry?

    My point is not to argue against the existence of the business cycle. It’s that assuming we’re in the midst of a normal business cycle seems willfully stupid and to suggest that the thing to worry about a Romney victory in November is that he and the GOP will get credit for some great economy that’s right around the corner and will arrive no matter what policies a new Republican President and Congress implement goes beyond stupid to some sort of brain damage.

    Mike

    Like or Dislike: Thumb up 0 Thumb down 1

  30. Brummagem Joe says:

    @gVOR08:

    You’re broadly correct. The current recession is a classic balance sheet one whereas the Reagan recession was the product of Volcker’s tight money policies. However, I’m not sure how the Fed cuts interest rates below zero and even if they could by some financial alchemy that’s not the problem which is weak demand in an economy where 70% of GDP is consumer spending.

    Like or Dislike: Thumb up 0 Thumb down 0

  31. David M says:

    The CBO forecast is useful, even if the baseline scenario isn’t realistic. It’s an example of what would need to happen to fix the deficit, and a good baseline to examine the effects of the candidates plans. The Medicare Doc fix? That’s not going away regardless, same with the AMT. But the size of the tax cuts and slowdown in military spending? Anyone arguing for much larger tax cuts is going to make things worse, same with anyone claiming we aren’t spending enough on the military.

    Like or Dislike: Thumb up 0 Thumb down 0

  32. Rob in CT says:

    Re: Drum’s argument…

    This might be over-generous, but here goes:

    All President Romney would need in order to become mythologized as the champion of recovery would be a rebound that starts in, say, 2015. So you don’t have to think recovery is “just around the corner.” You just have to think we’ll get one in time for the 2016 election.

    I agree that worrying about that is rather beside the point, but there are some scars, obviously, on the Left due to the wide-spread acceptance of the claim that Reagan is the reason the economy recovered in the 80s.

    Like or Dislike: Thumb up 1 Thumb down 0

  33. Steve Verdon says:

    @Brummagem Joe:

    I don’t think you understand, the UK’s deficits are extremely large relative to the size of their economy, so no I don’t think the austerity argument explains it.

    @Rob in CT:

    I take it your argument is that British “austerity” is too namby-pamby and that things would be better if they put their big boy pants on and *really* got cutting?

    No, I’m just not convinced that huge levels of spending will solve the problem and might very well exacerbate the problem. Last time we had a severe recession, the 1930s, it wasn’t massive spending that got us out. In fact, looking at things like industrial production and when we went off the Gold Standard (and inflationary policy) growth was very robust….until various New Deal policies nearly strangled the recovery in its infancy.

    We might be able to live with huge deficits for awhile if we didn’t face even bigger fiscal issues not too much further down the road. But we aren’t so I remain highly skeptical of Krugman and those who claim massive spending is the solution.

    @Hoyticus:

    Your comment just doesn’t merit serious response. When somebody writes “coherent National Exonomic Strategy” I know that there is nothing to the comment since it is so open ended. It is like saying, “Lets pass a law that makes things better, who can be against that!?!?”

    Sorry.

    Like or Dislike: Thumb up 0 Thumb down 2

  34. john personna says:

    It is important to note that European austerity is with reference to themselves, and their past spending. It is fair to note that their spending, especially their social spending, is still at a high level compared to our history.

    And so, what? We should judge austerity or not as divergence from a nation’s own track-record? That’s probably defensible.

    The CS Monitor has a good graph as part of this story. We were more audacious in 2011 than most.

    Like or Dislike: Thumb up 0 Thumb down 0

  35. john personna says:

    BTW, Germany is in many ways the standout economically. I’d be open to several of the ways we could be “more German.”

    Strange thing is, the pro-business right sees German business success as “socialist” in detail.

    Like or Dislike: Thumb up 0 Thumb down 0

  36. Gromitt Gunn says:

    @Steve Verdon:

    ….until various New Deal policies nearly strangled the recovery in its infancy.

    Not really. Most of the contraction occured during/shortly FDRs flirtations with austerity.

    Like or Dislike: Thumb up 4 Thumb down 0

  37. Hoyticus says:

    @Steve Verdon: The policies I proposed are part of the strategy. At this point it’s painfully obvious you don’t read very much about microeconomics at all or macro for that matter. The VAT would curb imports which would lower the trade deficit as well as increase domestic demand. Also you miss the point on the New Deal programs, they steadily reduced unemployment as well as increased aggregate demand until FDR foolishly tried to balance the budget in 1937 and the US went back into recession. WWII finally provided enough aggregate demand and capacity utilization to fix the economy.

    Like or Dislike: Thumb up 1 Thumb down 0

  38. Tsar Nicholas says:

    “Trillion dollar deficits, slow growth, and high unemployment.”

    Hell, that’s nothing. What you haven’t factored in are inflation and Social Security.

    With the Fed recently having tossed in trillions of dollars into the hopper it’s only a matter of time before we start experiencing substantial inflation. Not that we’re necessarily headed back to 1979 levels, but still in this bad economy even a 5 or 6% inflation rate would be deadly. That’s around the corner.

    Then there are the Boomers. They’re starting to retire now in large numbers. Over the next 5-10 years it’ll become a cavalcade. Social Security is an off-budget item. Politically speaking there’s not a chance that benefits will be reduced or even means tested. The inevitable shortfalls will be financed with debt. It’ll be a debt bomb on top of a debt crater.

    The Jon Stewart / Stephen Colbert generation is going to have to foot these bills. Not exactly the sharpest tools in the shed. It’s going to get real ugly. I expect to be short selling U.S. Treasuries. Not tomorrow or next year. Pretty soon. On the near-term event horizon.

    Like or Dislike: Thumb up 0 Thumb down 3

  39. john personna says:

    Soooo, in this election year no one actually stepped up (above) to say that a Republican candidate had the answer for growth and jobs!

    I guess the old “cut taxes, cross fingers, and wish” plan has worn thin, even among those who had been its only proponents. Remember, it still worked in the McCain/Palin days.

    Like or Dislike: Thumb up 0 Thumb down 0

  40. Ben Wolf says:

    @Tsar Nicholas:

    With the Fed recently having tossed in trillions of dollars into the hopper it’s only a matter of time before we start experiencing substantial inflation.

    No.

    @Hoyticus:

    Why not increase the rates on the income tax, institute a value added tax (like all other industrialized countries), devalue the dollar, have a financial transaction tax i.e. capital controls, and craft a coherent National Exonomic Strategy? Along with large cuts in military personnel as they consume 30% of the military budget.

    Tax increases are counterproductive.

    @john personna

    BTW, Germany is in many ways the standout economically. I’d be open to several of the ways we could be “more German.”

    Germany will be in recession by the end of the second quarter if it isn’t already. It has profited by squeezing wages for over a decade as it covertly subsidized exports, violated its Maastricht Treaty obligations and impoverished its neighbors. Their long-term economic planning over the last three years has been waiting for american consumers to once again become the buyer of last resort.

    Like or Dislike: Thumb up 0 Thumb down 0

  41. Steve Verdon says:

    @Gromitt Gunn:

    No Gromitt, look at industrial production during that time.

    Try this link.

    Shortly after NIRA, growth drops off to practically nothing for several years. Once NIRA is declared unconstitutional growth resumes, but at a reduced rate.

    What happened in 1937 was not good either, but is later than the time period I’m pointing too.

    Regarding British Austerity…Britain has the third largest deficit in the world. I find it a bit much to believe that it is all due to “budget cutting” which thereby reduces economic growth. Really? It happens that fast?

    Sorry, not buying it.

    Like or Dislike: Thumb up 0 Thumb down 0

  42. Ben Wolf says:

    Last year the U.S. private sector put $460 billion into savings and deleveraging of debt. It lost $600 billion to the trade deficit. Against this drain we have a budget deficit barely sufficient to replace those net financial assets and nothing left to counter the $1 trillion dollar hole in consumer spending. The only problem with the deficit is it isn’t big enough. The private sector is hemhorraging cash and the only place it can turn to for more is the federal government.

    Like or Dislike: Thumb up 0 Thumb down 0

  43. Ben Wolf says:

    After reading the CBO report I have to wonder what the f***k they’re smoking. They project consumer spending and economic output to return to full by 2014, and I have no idea how the hell they get that, nor can I figure out their methodology. Best not to trust any of their projections.

    Like or Dislike: Thumb up 0 Thumb down 0

  44. Brummagem Joe says:

    @Steve Verdon:

    I don’t think you understand, the UK’s deficits are extremely large relative to the size of their economy, so no I don’t think the austerity argument explains it.

    I fully understand because I’m reasonably familiar with the UK economy . Their public debt was much worse than ours (as indeed was their private debt) but the austerity program was supposed to create a virtuous circle of economic expansion and reduction of the deficit and debt by a combination of the cuts in spending and increased tax revenues from an expansion of economic activity. The point is, it hasn’t happened, in fact it’s got worse because it’s produced a slowdown in economic activity that was already not very strong. Neither incidentally have they been anywhere near as effective as us in a private deleveraging.

    Like or Dislike: Thumb up 1 Thumb down 0

  45. Brummagem Joe says:

    @Steve Verdon:

    Regarding British Austerity…Britain has the third largest deficit in the world. I find it a bit much to believe that it is all due to “budget cutting” which thereby reduces economic growth. Really? It happens that fast?

    I don’t think he said that and I certainly didn’t. The UK started from a point of public and private debt, and annual public deficits that were worse than ours. Okay. The austerity program was supposed to reduce the deficit while freeing up resources for the private sector to create jobs that were being lost in the public sector by budget cuts (Do I really have to link to Osborne and Cameron’s speeches?). Meanwhile Mervyn King at the bank of England went in completely the opposite direction because whatever he said in public he knew this was going cause a slowdown in economic activity. Hence he’s kept interest rates at effectively zero and had two major bouts of QE but this wasn’t enough to compensate for the fiscal contraction and Q4 had GDP at -0.2% and the bank’s latest forecast is that growth for this year is going to be +0.6 which probably means Q1 of 12 will be negative as well (ie. the definition of a double dip.) I think Osborne has cut his GDP forecasts for this year four or five times. The consequence of all this pain is that far from cutting the deficit it’s essentially unchanged. Okay?

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  46. Brummagem Joe says:

    @Ben Wolf:

    The private sector is hemhorraging cash and the only place it can turn to for more is the federal government.

    Er…no…corporations are loaded with cash, bank capital ratios are at highs and the public has cut its debt.

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  47. Ben Wolf says:

    @Brummagem Joe: Do you think I made those figures up? $600 billion left our economy last year just in the CAD and I’m sorry, but the private sector has come nowhere near digging itself out of debt. The process will take a decade, meanwhile roughly a trillion dollars annually is exiting the money supply.

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  48. WR says:

    @Steve Verdon: “I love all the negative comments for my sarcastic remark…clearly my comment must have hit close to the mark for many.”

    Yes, that must be it. There’s simply no way people would be reacting negatively simply because your sarcastic comment was pointless, shallow, uninformed and condescending. Clearly, we are all trembling in front of your genius.

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  49. Brummagem Joe says:

    @Ben Wolf:

    and I’m sorry, but the private sector has come nowhere near digging itself out of debt.

    Er…where did I say they had? Corporate balance sheets are basically in great shape. Bank capital ratios are stronger than before the recession and non financial corporations are sitting on mountains of cash. Consumers repairing domestic balance sheets does not constitute “the private sector” haemhoroging cash whatever that means. And you might want to look at what’s happened to the money supply over the last three years.

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  50. WR says:

    @Steve Verdon: @Steve Verdon: ” I don’t care if Obama is re-elected. I don’t care if Romney is elected or even Bachman because in the end it wont matter. Policies will likely be pretty much the same.”

    Funny, that’s what all the geniuses in the punditocracy told us in 2000. Couple years later we were on the path to our current financial state with ludicrous tax cuts for billionaires and two pointless wars the administration chose to put on a credit card.

    But keep telling yourself they’re all the same, and that it doesn’t matter who won. That kind of hip, knowing attitude really makes you look cool. Well, to adolescents and libertarians, anyway.

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  51. Brummagem Joe says:
  52. An Interested Party says:

    And unicorns! Plenty of unicorns!

    Well, more deficit spending is certainly more realistic than the idea that there will be massive cuts to the entitlement programs…

    Last time we had a severe recession, the 1930s, it wasn’t massive spending that got us out.

    Didn’t World War II end the Great Depression? Certainly that war involved massive spending…

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  53. Ben Wolf says:

    @Brummagem Joe: The private sector has another $45 trillion of deleveraging to go. As I said, it will take a decade. Furthermore what corporations are sitting on is saved money, that is money taken out of circulation. Saving drains the money supply. The only way to prevent that is for government to spend more into the economy than savers can take out. If government does not run deficits the private sector will become financially poorer until It goes bankrupt.

    You are confusing the money supply with the monetary base.

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  54. @Steve Verdon:

    You know, Steve, evolution or climate deniers can also link to “some guy.”

    The Wikipedia consensus says something else:

    The common view among mainstream economists is that Roosevelt’s New Deal policies either caused or accelerated the recovery, although his policies were never aggressive enough to bring the economy completely out of recession. Some economists have also called attention to the positive effects from expectations of reflation and rising nominal interest rates that Roosevelt’s words and actions portended.[39][40] It was the rollback of those same reflationary policies that led to the interrupting recession of 1937.[41] One contributing policy that reversed reflation was the Banking Act of 1935, which effectively raised reserve requirements, causing a monetary contraction that helped to thwart the recovery.[42] GDP returned to its upward slope in 1938.

    Now, I fully understand that you can link to more of your private value network, the one sharing a minority view … just as those creationists & etc. can.

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  55. Brummagem Joe says:

    @An Interested Party:

    Actually GDP was back to pre crash levels by 1936 which is why FDR instituted a spending squeeze and this produced a mini recession, nothing like the disaster of Hoover, but a slowdown that lasted into 1938 which is when the Brits and French started a spending binge on military supplies and the US economy never looked back.

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  56. Brummagem Joe says:

    @Ben Wolf:

    The private sector has another $45 trillion of deleveraging to go.

    Don’t be ridiculous. The private sector is never going to deleverage to zero. They are merely going to go back to more normal ratios.

    Furthermore what corporations are sitting on is saved money, that is money taken out of circulation.

    Corporate cash balances have NOT been taken out of circulation

    Saving drains the money supply

    .

    Er no….look up the defininition of Monetary Supply

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  57. Brummagem Joe says:

    @Ben Wolf:

    “You are confusing the money supply with the monetary base”

    I’m not. I know the difference although I wonder if you do.

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  58. Steve Verdon says:

    @Brummagem Joe:

    Joe, it is not a univariate system. Would that life were so simple. And extreme austerity is probably just as bad as extreme deficits. So I don’t find the UK situation compelling argument that we should just keep on spending.

    @WR:

    I think you have me confused with you WR. By the way, I’m impressed more than one sentence.

    @WR:

    Sorry bud, wrong premise. I never said things wont get any worse…I’m saying that policy wont change that much. Really, do try to keep up.

    @An Interested Party:

    No, WWII did not get us out. There were two recessions in the 1930s (1929-1933 and 1937 to 1938). The first probably wouldn’t have been so bad if we didn’t insist on staying on the gold standard and pursue deflationary policies. The second was boneheaded in that there was an attempt to balance the budget too soon. Add on NIRA and its chilling effects on economic growth and you have a nice decade long period of misery and uncertainty.

    As for WWII sending hundreds of thousands of young men off to get shot at is not a good solution to unemployment…sure it works, but it is something I’d hardly call welfare enhancing. Similarly blowing up other countries infrastructure and diverting resources to accomplish that is also less than optimal as well. Taking these considerations into account during 1939 to 1945 and the conclusion is that that time was one where people were generally worse off than they were in most of the prior decade.

    And it is funny how those of a liberal persuasion decried Bush’s warmongering, but then turn right around and say, “WWII, it was a good thing economically speaking.” If that is true then should we start a war now?

    @john personna:

    Oh nice, ad hominem tu quoque fallacy. Nevermind the actual data behind the data for the industrial production chart at the link. And I like how your Wikipedia (egads it must be true now…its Wikipedia!!) relies really on the research of Eggertsson…yeah a broad selection of economists there. And yet, I’m the one like a creationist when in fact you are just linking to one person. Nevermind that my link also references Cole and Ohanian, two additional economists who think the NIRA slowed the recovery (I agree with Glasner that they take their argument too far) as well as Scott Sumner. Finally, the notion is also one that Professor Hamilton also indicated as playing a role in the duration of the Great Depression.

    I know, I know these guys are all just a bunch of whacko creationist like economists.

    Tell me again, I’m like a creationist, but while you are at it, get a slightly longer list if you are going to accuse me of linking to “some guy”. Oh, but don’t forget Cole and Ohanian are referenced in you precious Wikipedia.

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  59. Steve Verdon says:

    @john personna:

    By the way, nice job making it impossible for me to rebut you. First, I’m bad for linking to “some guy” (never mind that that some guy also references two other economists), or that at least 2 more economists have made similar claims. But you finish off by saying pretty much that anyone else I name is just part of the same cabal of creationists economists.

    You are such a tw@t John. Oh, and that strategy you used, taken straight of the creationist playbook. Really…well done.

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  60. @Steve Verdon:

    Well, your main problem is that economics, as a discipline, is unable to do more than squabble.

    There was a consensus for a long time on the Great Depression, and the success of government as spender of last resort. That history was largely accepted for half a century. I mean, Milton Friedman supported New Deal spending.

    That was a position of the right. It was OK to accept that success because it was deep in the past. Then, suddenly, a new crisis emerged. At the same time “conservatism” was undergoing a great change. It “coincidentally” was not interested in “conserving” but was looking to “re-litigate” that New Deal.

    Conservatives had to find someone, anyone, to line up and deny what had been accepted within their ranks … and quick!

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  61. Basically that is why I have no respect for revisionists. Their work is not data driven, it is produced (like creationist and climate pseudo science) to satisfy a market demand.

    People want the history rewritten, and so someone will.

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  62. A little more:

    Friedman was initially unable to find academic employment, so during 1935, he followed his friend W. Allen Wallis to Washington, where Franklin D. Roosevelt’s New Deal was “a lifesaver” for many young economists.[19] At this stage, Friedman said that he and his wife “regarded the job-creation programs such as the WPA, CCC, and PWA appropriate responses to the critical situation,” but not “the price- and wage-fixing measures of the National Recovery Administration and the Agricultural Adjustment Administration.”[20]

    So today no one asks for the wage and price fixing, just the jobs-creation programs.

    Say it together “Milton Friedman was not a real conservative.”

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  63. An Interested Party says:

    Actually GDP was back to pre crash levels by 1936 which is why FDR instituted a spending squeeze and this produced a mini recession, nothing like the disaster of Hoover, but a slowdown that lasted into 1938…

    The second was boneheaded in that there was an attempt to balance the budget too soon.

    Ahh, so it would be dangerous to proceed with the GOP wet dream of slashing the budget drastically…of course, that is mostly rhetoric, as Republicans have never done that when they’ve been in power…

    If that is true then should we start a war now?

    I wouldn’t know, as I never claimed that is true…

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  64. Brummagem Joe says:

    @Steve Verdon:

    Joe, it is not a univariate system. Would that life were so simple. And extreme austerity is probably just as bad as extreme deficits. So I don’t find the UK situation compelling argument that we should just keep on spending

    .

    Er… this is gobbledegook.

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  65. Brummagem Joe says:

    @Steve Verdon:

    And it is funny how those of a liberal persuasion decried Bush’s warmongering, but then turn right around and say, “WWII, it was a good thing economically speaking.” If that is true then should we start a war now?

    And this is a nice combination of a non sequitur (the Bush reference) and a reductio ad absurdum

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  66. Steve Verdon says:

    @john personna:

    Glanser, Sumner and Hamilton are not revisionists. You could make that argument about Cole and Ohanian, but I don’t subscribe to the entirety of their argument. I do think NIRA slowed the recovery, the data supports that. That this goes against the “consensus” opinion does not bother me nor does it make me a “creationist” in my thinking. After all, the consensus was that atoms did not exist…then along came that “creationist” physicist and “revisionist” Albert Einstein….

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  67. Brummagem Joe says:

    @Steve Verdon:

    No, WWII did not get us out. There were two recessions in the 1930s (1929-1933 and 1937 thro 1938).

    And actually it did definitively end the depression. Initially by British and French arms purchases in the US and then by the massive expansion of US federal spending on re-armament. And at least two of us are well aware there was a second slowdown in 1937/8 (it’s referred to several times above) but it wasn’t remotely in the same league as that of 29-32.

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  68. Steve Verdon says:

    @Brummagem Joe:

    No Joe, it pointing out:

    1. That the economy does not depend on a single variable…univariate means it has only one variable.

    2. That just because I don’t think we should spend, spend, spend that we should engage in a strong austerity program either.

    It is your failing in ascribing those views to people who don’t share your views.

    @Brummagem Joe:

    No it is not, it is pointing out that many people who want to defend FDR and government spending often run to WWII when in fact that is a pretty bad argument. Thinking about it for a few minutes should make this obvious. People tended to give up quite a bit to fight war, both the soldiers and the people at home. Economically speaking it was not a “good time”.

    @An Interested Party:

    Just because I oppose spending, spending, spending does not mean I’m in favor of some other person’s policy. This should be obvious…but apparently not.

    @john personna:

    Squabbling this is amusing.

    Look at your next post, the one referencing Milton Friedman. You stupidly point to the CCC, WPA, and so forth and how Friedman didn’t like NIRA. I explicitly point to NIRA as a cause for slowing the recovery, but I’m a revisionist. Note that NIRA was there in my very first link.

    Also, lets keep in mind that Roosevelt ran on a platform of balancing the budget.

    Then you claim there is no data. There is data. There is the data for industrial production. It flattened out after a dramatic rise right around the time NIRA passed. And it started rising consistently again when NIRA was struck down.

    So yes, no data, only squabbling. Please.

    Oh, and no, Friedman was not a conservative. He was more a classical liberal aka a libertarian in many of his positions. If you had read down a bit further in Wikipedia you’d know this. Or maybe you do, but decided to ignore it anyways.

    Your selective quoting…sure reminds me of a creationist.

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  69. @Steve Verdon:

    Do you distinguish between the spending and the wage or price actions?

    The political “re-litigators” seem most interested in disproving stimulus, whereas economiss, Cole and Ohanian and people in that vein, were more interest in the command and control aspects.

    I think above this started as a claim about stimulus spending, right?

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  70. Steve Verdon says:

    @Brummagem Joe:

    Joe,

    Fine, try reading Kuznets on GDP and military spending. I know you wont go with me, but maybe a Nobel Prize winner and the father of our national accounting system might persuade you.

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  71. @Steve Verdon:

    Look at your next post, the one referencing Milton Friedman. You stupidly point to the CCC, WPA, and so forth and how Friedman didn’t like NIRA. I explicitly point to NIRA as a cause for slowing the recovery, but I’m a revisionist. Note that NIRA was there in my very first link.

    Actually, your first comment, in all its glory, was this:

    “What we need is even more deficit spending!”

    Now, if you are pointing to NIRA as a disproof of spending … you’re doing the political switch, right?

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  72. Ah, I see your strategy in detail now, Steve.

    You said ‘until various New Deal policies nearly strangled the recovery in its infancy.”

    When you did that you made a stealthy switch from deficit spending to command and control.

    Command and control of the type no one asks for now, and which certainly doesn’t matter one damn in discussion of modern stimulus.

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  73. Steve Verdon says:

    @john personna:

    I’m doubtful of spending and fiscal policy. Regarding the Great Depression we never spent all that much really. The bigger and more pervasive parts of the New Deal were the ones that dealt with price controls, limiting competition, and so forth.

    So this idea that FDR and the Great Depression proved that fiscal policy works is a very dubious assertion IMO given the above.

    And as I’ve implied above I think cutting spending to the bone immediately would be bad. At the same time we can’t continue spending and spending and spending as if deficits don’t matter. Especially considering that we face even larger fiscal issues in another 10-20 years. It would be great if we could commit to a path of more sustainable fiscal policy for the future, I just don’t think the U.S. government can make a credible commitment to such a policy.

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  74. WR says:

    @Steve Verdon: “Sorry bud, wrong premise. I never said things wont get any worse…I’m saying that policy wont change that much. Really, do try to keep up.”

    That may be the most incoherent thing ever written on this site. Is Jay Tea writing your material now? Are do you really believe that if two separate individuals introduce idential policies, the outcomes will be radically different? How does that make any sense at all?

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  75. Steve Verdon says:

    @john personna:

    No, I was referring to NIRA all along (it is right there in the link, in particular the graph of industrial production). NIRA encapulated the policies of setting prices, curtailing output, limiting competition, etc. It wasn’t just one policy, but several wrapped up in one piece of hideous legislation.

    It is particularly odious in that not only did it retard the recovery it also undermined the separation of powers when Roosevelt threatened to pack the court after it and other parts of his New Deal were struck down.

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  76. superdestroyer says:

    @JohnMcC:

    When does the economy stop being the “Bush economy.” I suspect that many liberal historians will be writing, in January 2017, about how President Obama’s administration had to struggle under the Bush Recession during the entire eight years of his administration.

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  77. Steve Verdon says:

    @WR:

    Are do you really believe that if two separate individuals introduce idential policies, the outcomes will be radically different? How does that make any sense at all?

    Of course not. BTW might want to work on the writing there…the “Are do you….” rather incoherent.

    Sucks when things like that come back and bite you don’t they.

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  78. Steve Verdon says:

    @superdestroyer:

    Worked for FDR using Hoover. :p

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  79. superdestroyer says:

    @Hoyticus:

    A tax on imports is called a tarriff and would cause other countries to raise their tarriffs on American goods. Why would you want to put Caterpillar out of business just to protect some poorly run U.S. company.

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  80. Brummagem Joe says:

    @Steve Verdon: 2.

    That just because I don’t think we should spend, spend, spend that we should engage in a strong austerity program either.

    I know what univariate means. So what is the appropriate policy response to a severe recession?

    No it is not

    It was a classic reductio ad absurdum. No one advocates starting major wars as a cure for recessions it just so happens as matter of historical fact that WW 2 ended the great depression and provide a convincing demonstration of the efficacy of deficit spending. You then proceed to mix up economic and social issues during WW 2. It’s totally irrelevant what people may have given up in social terms. In economic terms the war was a source of massively increased activity as a cursory glance at GDP growth 39-45 demonstrates. And it was also a period of considerable improvement in social wellbeing as it happens.

    Fine, try reading Kuznets on GDP and military spending.

    Fine go read Krugman on the effects of WW 2 expenditures on the US economy. Krugman’s got a Nobel hasn’t he?.

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  81. Steve Verdon says:

    @superdestroyer:

    And lets recall that another contributor to the depth of the Great Depression…Smoot-Hawley. And that most see protective tariffs as raising prices, reducing output and employment and increasing the profits of businesses. Not exactly all that great when you want to promote just about the opposite on every one of those things.

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  82. Brummagem Joe says:

    @Steve Verdon:

    At the same time we can’t continue spending and spending and spending as if deficits don’t matter.

    Now we’re in strawman territory. No one as far as I can see is advocating indefinite increases in the deficit. The issue is whether deficit spending is an appropriate policy response in times of recession.

    Regarding the Great Depression we never spent all that much really.

    In the context of the times and historical precedent it was considerable.

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  83. Steve Verdon says:

    @Brummagem Joe:

    I know what univariate means. So what is the appropriate policy response to a severe recession?

    I think it has been amply shown that nobody really has a solid answer on that one, unfortunately.

    It was a classic reductio ad absurdum.

    I thought it was a non-sequitur.

    No one advocates starting major wars as a cure for recessions it just so happens as matter of historical fact that WW 2 ended the great depression and provide a convincing demonstration of the efficacy of deficit spending.

    I’m saying it didn’t because while GDP rose, it only rises if you count defense spending which is a dubious notion. For precisely the reason you are pointing too…nobody wants war…spending for it isn’t welfare enhancing. It isn’t a good thing.

    It’s totally irrelevant what people may have given up in social terms.

    On the contrary that is precisely what we are talking about, IMO. What people give up or don’t. Are the better off or worse.

    In economic terms the war was a source of massively increased activity as a cursory glance at GDP growth 39-45 demonstrates.

    As I said, read Simon Kuznets, he was doubtful of counting military spending in GDP.

    And it was also a period of considerable improvement in social wellbeing as it happens.

    Not if you got shot dead in North Africa when you otherwise wouldn’t have been there.

    Fine go read Krugman on the effects of WW 2 expenditures on the US economy. Krugman’s got a Nobel hasn’t he?.

    Krugman is a polemicist now…not exactly somebody I’ll take as a reasonable expert on a topic.

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  84. Steve Verdon says:

    @Brummagem Joe:

    We are going to have deficits for a very long time Joe. The question is do we keep them at their current astronomical levels…keeping in mind problems like Medicare and Social Security…or do we look for something more sustainable. Krugrman, et. al. want lots more spending. And lets keep in mind that we could very well be in another recession in a year or two. What then? $2 trillion dollar deficits? $3 trillion?

    To the extent that high debt levels and deficits act as a drag on the economy, reducing them as best we can would seem reasonable.

    But then again this is politics and reason doesn’t really apply.

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  85. Drew says:

    Heh. An entire crew against Verdon…….and Verdon is cleaning up.

    Reminds me of the Monty Python movie where the fighter has had both arms and legs cut off and is screaming some bull about not yet starting to fight.

    Mr Verdon, you seem to have t hings well in hand. The notion that Saint Obama will not have the worlds ills cured…………..or have even made a chicken scratch…..has struck a chord. Talk about over promising without having a clue……

    When do we break out the Roman columns and the vapid “we are the people we have been waiting for crap?”. Take another toke, lefties.

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  86. Hoyticus says:

    @superdestroyer: So we should have no tariffs at all? We should just engage in unilateral trade liberalization? If other countries already impose tariffs on US goods we should just suffer and “out compete” them? Also the Smoot-Hawley tariff had very little effect on the Great Depression, it limited demand for foreign goods and kept dollars in the US, the main problem was the “Creditanstalt” that caused a cascade of bank failures and actually caused the most damage.

    Another issue is the intervention in currency markets by the People’s Bank of China that keeps the yuan too undervalued…no one cares about exchange rates.

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  87. An Interested Party says:

    Just because I oppose spending, spending, spending does not mean I’m in favor of some other person’s policy.

    I never claimed you were in favor of that…

    The notion that Saint Obama will not have the worlds ills cured…………..or have even made a chicken scratch…..has struck a chord. Talk about over promising without having a clue……

    Umm, no one on this thread is pushing that line…

    When do we break out the Roman columns and the vapid “we are the people we have been waiting for crap?”. Take another toke, lefties.

    Oh yeah, the troll who wants to take down the food stamp president or the empty suit who claims that he too is unemployed could do so much better…while the lefties are taking another toke, perhaps the righties will have another drink or three…

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  88. WR says:

    @Steve Verdon: “Krugman is a polemicist now…not exactly somebody I’ll take as a reasonable expert on a topic. ”

    In other words, “I don’t care if he has a Nobel in the subject, he doesn’t agree with me, therefore he’s a hack!”

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  89. WR says:

    @Steve Verdon: “Of course not. BTW might want to work on the writing there…the “Are do you….” rather incoherent.

    Sucks when things like that come back and bite you don’t they. ”

    Wow. Somebody better tell Verdon that Jay Tea has hacked his account and is posting adolescent gibberish under his name.

    Which of course Drew thinks is masterful intellectual argument.

    I guess for some people junior high never ends…

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  90. superdestroyer says:

    @WR:

    Paul Krugman won his noble prize based on economic geography. His speciality is not global macroeconomics. Also, Dr Krugman has a definite agenda of growing the public sector and shrinking the private sector. This, of course, would give more influence and power to Ivy League economist but it seems that we are not suppose to point this out.

    Milton Friedman was also a noble prize winner in economist and even though his specialty ws monetary policy the left has always refuse to believe Dr Friedman. So much for the appeal to authority.

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  91. superdestroyer says:

    Maybe everyone should just accept the new normal. In the last twenty years, the only times that the economy grew at the rates required to maintain current spending levels, the U.S. was in a speculative bubble.

    If a speculative bubble is required for the government to generate enough revenue to sustain current spending levels, then those spending levels are unsustainable and must be cut. The idea of more deficit spending in order to create another speculative bubble to create more income tax revenue in the future is insane.

    The idea of austerity is not that it will help the economy in the short term but that it is the “medicine” that is required to cure the problems created by all of the deficit spending in the past. Increasing deficit spending now but pushes the problem down the road and will make the cure worse in the future.

    Dr Krugman knows that deficit spending is unsustainable in the long term but just does not care.

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  92. Ben Wolf says:

    @superdestroyer: The Fed has been pursuing monetarist policies for decades, particularly the last four years; it would be helpful for people to start ignoring Milton Friedman. Unless of course you are suggesting we drop money into the streets to stimulate the economy, as Friedman advocated.

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  93. Ben Wolf says:

    @Steve Verdon:

    Krugman is a polemicist now…not exactly somebody I’ll take as a reasonable expert on a topic.

    Krugman gets a lot wrong, enough to make his policy recomendations incoherent and contradictory. To his credit he has been making baby steps toward understanding how things actually work rather than totally relying on a fantastical model.

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  94. @Steve Verdon:
    No not MMT regarding markets willing to finance countries that control their own currencies at 2% to 3% rates — observed reality. Japan, the US, the UK, Canada etc all control their own currencies while running large deficits and are getting very low real and nominal costs of capital on their current new debt offerings. Countries that don’t control their own currencies are seeing high interest costs right now.

    My opinion on the sustainability of deficits will change when interest rates on long term debt go back to their historical trends, but not until then.

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  95. Glenn says:

    @Hoyticus: That’s exactly what should be done. Problem: it doesn’t gut the social safety net and that’s what pieces like this are about. It’s not really about debt or the deficit, which are concerns but not emergencies, but setting the stage for telling seniors and the poor they get nothing. It has been the conservative agenda for decades to fear monger about all the social programs, they’ll bankrupt us, creeping socialism etc., and now they have the crisis they think will get them the deep cuts they have been looking for.

    The biggest crisis is the jobs crisis but you’ll hardly hear any conservatives talk about THAT. Or how full employment would drastically reduce the deficit. No no, let’s not talk about THAT.

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  96. Brummagem Joe says:

    @Steve Verdon:

    I thought it was a non-sequitur.

    As well as suffering from historical amnesia you also appear to have comprehension problems. I specifically said the the non sequitur was the Bush reference Viz.

    And this is a nice combination of a non sequitur (the Bush reference) and a reductio ad absurdum

    You’re obviously a bit a dope with a high opinion of himself so rather than waste time wading thru your tediously repetitive counterfactuals, fallacies and hand waving…Consider

    Fed budget
    1929 3.1billion
    1936 8.3 billion
    1939 9.1 billion
    1945 93.0 billion

    GDP
    1929 90 billion
    1936 80 billion
    1939 90 billion
    1945 221 billion

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  97. Brummagem Joe says:

    @Ben Wolf:

    Krugman gets a lot wrong, enough to make his policy recomendations incoherent and contradictory.

    Would you like to give us a couple of examples? Krugman rather overdoes the doomsday scenarios and glosses over political realities but I’ve seldom found him getting much wrong when it comes to economic analysis or found his policy recommendations either incoherent or contradictory. Quite the contrary in fact. He’s been largely proved right about both the nature of this crisis (balance sheet recession/ liquidity trap), the size of the programs needed to break out of it, and the complete inanity of austerity as a policy response here and in Britain and Europe generally.

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  98. @Drew:

    Ah but Drew … you think the warming denialists are doing well too! Coincidence?

    FWIW, I can agree with Steve on a log (his more moderate beliefs) but I don’t agree that re-litigation has disproved stimulus. In particular, we saw that re-litigation arguments are clouded by command and control options not even on the table in this century.

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  99. anjin-san says:

    Saint Obama

    So what you are saying here is that you really don’t care about being taken seriously.

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  100. WR says:

    @Ben Wolf: “Krugman gets a lot wrong, enough to make his policy recomendations incoherent and contradictory. ”

    Oh, well if you say he gets “a lot wrong,” I’ve got to believe you. I mean, some people might want at least one example of some substantive issue on which Krugman’s been wrong. But for me, your firm assertion is enough to reject the writings of the Nobel winner. Because, after all, you’re some guy on the internet.

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  101. The funny thing about the “anti” complaints in this thread is that they are offered by people without a candidate or a plan. I may not agree with Steve or Drew (or Doug?) but I also know they are now kibitzing as outsiders.

    They have no ability to make things better, and no power to make things worse.

    At this point, they are harmless.

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  102. Steve Verdon says:

    @WR: @Brummagem Joe:

    No, the old Krugman, pre-NYT column days was worth reading and paying attention too. He looked at things based on his understanding of economic theory and went with it even if it wasn’t entirely to how he’d like things to be as a liberal/Democrat. For example, his views on international trade and the low pay of workers in other countries. Now it is reversed, so I put far, far less weight on what he says now than I would have in the past.

    @WR:

    Do you have anything other than vapid commentary? Data? Anything? Even a half-baked theory? No? Maybe you should let the adults continue the discussion then. Thanks.

    Also regarding Krugman, yeah he has a Nobel, but did he win it for National Income Accounting? No? Hmmm…Kuznets did, see what I did there? Probably not is my guess, but I tried.

    @Dave Anderson:

    Yeah, and Japan is in such great and fantastic shape. Oh..wait never mind. I don’t think Japan is the model we want to emulate.

    @Brummagem Joe:

    By 1945 there was no more recession and we weren’t spending to improve the economy, but to win a war. So I find your data less than persuasive. Yes we spent more, but it was not that much spending…not like what a Keynesian would have recommended.

    @Dave Anderson:

    Might be too late by then, but okay.

    @john personna:

    There was never much stimulus spending during the Great Depression. Did we spend more? Sure, was it what we’d see from Keynesian perspective? No. One should keep in mind that FDR ran partially on the notion of balancing the budget. He was not a huge advocate of spending. Talk about revisionism…the notion that FDR was a Keynesian is absolutely that. BTW FDR meet Keynes and they each had rather unfavorable impressions of the other. FDR thought Keynes was a quirky mathematician.

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  103. Steve Verdon says:

    Oh and Keynes thought FDR was an economic illiterate.

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  104. Steve Verdon says:

    @john personna:

    I don’t “have a candidate” because I think none of the candidates or the current incumbent will do f–k all to improve the situation.

    I could get all hot and bothered about the election but one venal and craven S.O.B. is no better or worse than another venal and craven S.O.B.

    I’m sorry, I plan on doing something worth while on election day. A glass of scotch and maybe some World of Tanks or Eve Online…or maybe watch something on Netflix.

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  105. Ben Wolf says:

    Krugman does not understand the banking system:

    He still persists in pushing the money multiplier myth. He still hasn’t realized the loanable funds market doesn’t exist.

    He doesn’t get that banks don’t loan money.

    He hasn’t realized loans create deposits rather than deposits creating loans.

    He mistakenly believes government spending drives interest rates up when in reality it drives rates down.

    He doesn’t understand the uses of bank reserves.

    He confuses the monetary base with the money supply.

    He still doesn’t get the difference between a currency user and a currency issuer.

    He doesn’t understand the U.S. has no long-term debt problem.

    I can keep going if you guys would like.

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  106. john personna says:

    @Steve Verdon:

    Well, as we said above, focus on the Great Depression was revived by current stimulus arguments. The question “should government be spender of last resort” rapidly devolved into all kinds of economic he-said, she-said. The re-litigation of Depression programs was part of that.

    That was thumb-nailed by some as “the New Deal failed, so stimulus is a bad idea.”

    @Steve Verdon:

    It’s fair to criticize all options when all options are bad, but it always risks making the impossible the enemy of the incrementally better.

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  107. An Interested Party says:

    He doesn’t understand the U.S. has no long-term debt problem.

    This is an item you have mentioned quite a bit…could you expound upon it? Conventional wisdom seems to be that the federal debt is an enormous (pardon the pun) problem that needs to be taken care of sooner rather than later…

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  108. Ben Wolf says:

    @An Interested Party: When you, or anyone else, buy a U.S. bond, your bank debits your account and holds on to the money. The bank then disburses some of its reserves to the governments account at the Fed, “paying” for the bond. But here’s the catch: the bank reserves used to buy the bond are supplied by the Fed, which has authority and capacity to create reserves at will. So the government is literally taking back reserves it issued to your bank in the first place. The reserves then disappear until the bond matures, at which time they are re-created and switched back to your bank, which then credits your account assuming you don’t roll the amount over into new bonds. At no point does the government actually get hold of the buyer’s money. Yes you read that correctly: the government isn’t actually borrowing anything.

    When our government spends it literally does so by having someone push some keys on a keyboard and money appears in the recipients’ accounts; it’s been doing this since Nixon closed to gold window in 1971 and the dollar became a fully fiat currency. Every penny it spends is printed by keystrokes. The only reason we continue issuing debt is because the laws on the books require government to sell debt in equal proportion to its deficits; that bond you just bought is nothing more than a risk-free vehicle for saving money. That’s why the debt freakout is silly: the bonds are the private sector’s savings.

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  109. Steve Verdon says:

    @john personna:

    The question “should government be spender of last resort” rapidly devolved into all kinds of economic he-said, she-said. The re-litigation of Depression programs was part of that.

    It is like you don’t even read what people write and consider it. You just forge ahead with your own views. “Oh, it i is revisionism therefore wrong.”

    Roosevelt never thought of the idea of being the spender of last resort. He never read Keynes. Thought Keynes was an oddball. That he did somethings sort of/kind of Keynesian were pure happenstance and not all that large. Whatever good they might have done was offset by the command-and-control policies that are absolutely not Keynesian.

    You yourself seem to agree that the command-and-control part is bad, but that somehow that doesn’t count, we’ll just look at those programs that did result in spending, data be damned.

    By the way, your precious Wikipedia has an industrial production graphic. It also tells you when NIRA passed. You can see for yourself that once NIRA passed…industrial production went form rapid growth to nearly flat for well about two years…when NIRA was struck down.

    Your inability to look at the data right in front of your eyes and think for yourself is a major short coming. Instead you rely on the consensus view. You are the kind of person that would have insisted Ptolemy, Ernst Mach, and the likes were correct. After all, at one time their theories/beliefs were the consensus. Of course they were also completely wrong.

    That was thumb-nailed by some as “the New Deal failed, so stimulus is a bad idea.”

    You can also see from the Wikipedia page when the U.S. went off the Gold Standard. You can also see industrial production take off like a rocket right around that time as well.

    Again, the data is right there…in front of you. Monetary policy (going off the Gold Standard) was the solution then. Did we need spending? No. Did we need NIRA? No. Would we have needed the CCC and WPA and the rest of the alphabet soup? Probably not, maybe as short term programs, but that’s at most.

    I know, I know, “revisionsim, therefore wrong!!!” But consider that Cole, Glasner, Sumner, Hamilton and Ohanian are all different people with different political views. They aren’t all part of the same secret cabal…well okay maybe they are, but damn they are doing a good job looking rather different…especially since Sumner and Glasner argue that Ohanian and Cole take their point considerably too far.

    It’s fair to criticize all options when all options are bad, but it always risks making the impossible the enemy of the incrementally better.

    It is my view that the set of politically feasible solutions or incrementally better policies is the empty set. For example, Obama Care. Will it be the end of the world that many on the Right claim it will be? No. Will it make things better…maybe. Will it make things worse? Maybe. Will it likely mean little or no improvement? Maybe. If we attach equal probability to all three of these outcomes we have:

    1/3 chance of things improving somewhat, vs.

    2/3 chance of no improvement or things getting worse.

    But thousands of comments have been written on it and trillions of electron sacrificed in the online debates and in the end….chances are nothing will have changed.

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  110. Steve Verdon says:

    @An Interested Party:

    And exactly who has proposed any single thing to deal with that problem? Obama? Nope. Romney? Nope. Gingrich? Nope. Anyone?

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  111. @Steve Verdon:

    I think you explained your own problem here:

    It is like you don’t even read what people write and consider it. You just forge ahead with your own views. “Oh, it i is revisionism therefore wrong.”

    Roosevelt never thought of the idea of being the spender of last resort. He never read Keynes. Thought Keynes was an oddball. That he did somethings sort of/kind of Keynesian were pure happenstance and not all that large. Whatever good they might have done was offset by the command-and-control policies that are absolutely not Keynesian.

    You yourself seem to agree that the command-and-control part is bad, but that somehow that doesn’t count, we’ll just look at those programs that did result in spending, data be damned.

    You’ve turned your argument inside out. You started with a claim about spending in 2012.

    But you just did another whole comment about NIRA and other crap. Like, if you focus enough on that we can forget where you started? What claim you were supposed to prove?

    BTW, keep ripping on Wikipedia. It’s sure to lose everyone in the audience under 60. Well under 40 for sure.

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  112. Just to be clear Steve, I am focusing on your original snark:

    What we need is even more deficit spending!

    As you sometimes agree, before bolting again, your NIRA argument doesn’t prove that.

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  113. WR says:

    @Steve Verdon: “Maybe you should let the adults continue the discussion then. Thanks.”

    Must be hard to type when you’re so busy admiring your own wit.

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  114. WR says:

    @Steve Verdon: “By the way, your precious Wikipedia”

    Thanks for that line, Steve. I now know I can safely skip everything you write from this point on without ever worrying that I might miss something useful.

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