Bad Economy Effects Last a Lifetime
Damage from starting one's career during a recession can persist over one's entire working life.
Regular commenter John Personna passes along a rather depressing report from Justin Lahart of WSJ’s Real Time Economics blog:
Number of the Week: Falling Wages for Young College Grads
9.6%: Decline from 2000 to 2010 in inflation-adjusted median earnings of people 25 to 34 years old with a bachelor’s degree and no graduate degree.
Few people have gone unscathed by the bad economy, but the way it has damaged the prospects of America’s young college graduates may be one of its most lasting legacies. The high unemployment they are now experiencing will leave many of them a step behind throughout their careers. Research by Yale School of Management economist Lisa Kahn found that workers who graduated from college during the deep recession in the early 1980s were still worse off than workers who graduated in better times in 2006.
When young college graduates do land a job, it often won’t pay well. According to the Census Bureau, the median annual earnings of a worker 25 to 34 years old with a bachelor’s degree (but no graduate degree) was $40,875 last year. That compares with $45,200 in 2000, adjusting for inflation.
That inflation-adjusted earnings for college grads early in their careers is worse during the worst economic crisis in decades than it was during the mild recession of 2000 isn’t shocking, although the magnitude is higher than I’d have guessed.
The real story isn’t so much the dip itself but the fact that study after study shows that people never fully recover from a bad start. That’s a continuing theme in Kahn’s research. Her paper “The Long-Term Labor Market Consequences of Graduating from College in a Bad Economy” came out in 2009 and got quite a bit of coverage at the time.
While it might seem like things will be looking up as soon as the economy revives, her findings show that the damage from entering the job market during a recession can last up to 20 years.
Khan says salaries for new employees are directly related to the unemployment rate. Using data from the National Longitudinal Survey of Youth, she calculates that those graduating during hard times earn 6 to 8 percent less in their first year on the job for each percentage-point increase in the unemployment rate. That means a 1982 graduate entering the job market when the unemployment rate stood at 10.8 percent earned, on average, 23 percent less than a worker graduating in May 1981 when unemployment was 7.5 percent.
In the long run, this has immense consequences which are difficult to overcome. In comparing groups of graduates who entered the work force during economic downturns with their luckier counterparts who graduated in better times, Kahn found that there is a major difference in the amount of money earned over time. “One striking fact,” she says, is that “over 17 years after college those groups have a $100,000 difference in earnings.”
The problems begin as soon as a new graduate comes face-to-face with a tough job market and begins making compromises. “People leaving school in a recession are starting at a lower-level job and at a lower earning level,” because there just aren’t that many jobs around, says Kahn. In many cases, graduates end up taking jobs unrelated to their career plan. “By the time you switch back into your field,” says Kahn, “you are behind.”
Those who join the workforce in better days, meanwhile, continue to progress in their higher-level and higher-paying jobs where they can hone their skills and receive pay raises and bonuses based on their higher original salaries.
Even for those who do manage to find their dream job during a recession, there may not be much reason to gloat. “What if you are in a recession and you are the one lucky guy who finds a great job right away?” asks Kahn. “You will never know if you would have done better in a boom time. My work shows that, on average, throughout the entire sample, you would have been doing better.”
Another factor that adversely affects job prospects is the fear associated with searching for a new job. Studies show that those who regularly move between jobs increase their salaries and get ahead faster. Kahn found that those who had a tough time finding a job in the first place are less likely to put themselves back on the market — even once the economy has improved. “They change jobs less often, and when you are young you are supposed to change jobs more often,” says Kahn. “You need to find the right fit for you, and that’s often how people increase their salaries.”
[…]
Frighteningly, the 9.7 percent estimate doesn’t even include unemployed people who have simply given up looking for work or have taken on low-paying, part-time gigs to try to make ends meet. When the U.S. Bureau of Labor Statistics includes people who are not working full time but would like to be, the unemployment figure for August jumps to 16.8 percent.
For those unlucky enough to be sending out resumes for the first time right now, the Yale professor has lots of advice: “Go back to school if you can stomach it,” she says. “Be mindful that you might not be reaching your full potential right now, and always be thinking, ‘Should I move? Maybe there’s a job out there that I would be better suited to.'” Recessions make people fearful, so they tend to settle for jobs that don’t stretch them; to overcome that pitfall, you need the right mindset. As Kahn puts it: “Don’t accept the status quo.”
That’s a hell of a lot easier to say from a secure post at Yale than it is to do as a young person desperate to keep a job.
UPDATE: Matt Yglesias points to two charts depicting Unemployment Rate by Age and Unemployment Rate by Education and observes.
[I]f everyone you know has a BA, then your social reality is of an economy that’s not necessarily in crisis. This is especially true when we combine the charts. There are a lot of members of the classes of 2008, 2009, 2010, and 2011 who are feeling intense economic pain. But if you’re a middle aged college graduate, the vast majority of your friends are outside of the key crisis demographics. As I said before, I simply don’t believe the Federal Reserve would be doing what it’s doing if nine percent of Charles Plosser’s friends were unemployed. Something has to be done to make the jobs and income crisis real to the people who matter.
He’s certainly right that middle aged college graduates have a very different perspective on the current state of the economy than young non-grads. I’m not at all sure, though, what the Fed would be doing differently if its consciousness were somehow raised. As far as I can tell, it’s pretty much fired every bullet in the chamber and missed the target.
Yes, but God forbid these people who’ve seen their futures smashed by a bunch of bankers who have made billions out of this disaster should, you know, say or do anything about it. Instead they should resign themselves to crappy lives with no hope of real success, and make sure they tip their hats to the super-rich if they ever pass them in the street.
Isn’t that the Gospel of OTB?
I’ve been thinking about this since I read that story this morning … more on that below.
First, this Marketplace Report is also excellent. It hits many of the same themes, discusses the effect of “do what you love” career counselling, the counter-example of “made in California” clothes heading to South Korea, and the broadly bad picture. It is a remarkable round-up of what we’ve been seeing in OTB threads. If you can load it on your phone or an iPod and go for a walk, I recommend it.
So, what I’ve been thinking is about the worldview I had in 2000, and the political philosophy I had to match it. We know that worldview and political philosophy co-evolve. I’ve been thinking about what’s changed in my worldview over the last 10 years and how I’ve been forced to change my philosophy to go with it. I think that is the right adjustment, as opposed to “fixing” my worldview and not moving 😉
In 2000, I thought that while US effects of globalization were sad in places like the Rust Belt, they were receding. We were finding new wealth (me the computer programmer), and that people were adapting. It was sad for those Industrial Heartland regions, but I thought the Comparative Advantage was proving itself, with some pain.
Now I’m not so sure. In another thread I refer to The lost decade for the middle class, with its sad chart. Something bad happened after 2000. We didn’t get continued post globalization adjustment and an improved middle class.
I think it’s because outsourcing benefited the rich more than the … well the 99% to borrow a theme, and the 99% did not have “comparative advantages” ready to tap.
That all makes me less friendly to free trade bills, and more ready to tax the rich, than I was in 2000.
I skimmed the article, and will save it for closer reading, later. However, unfortunately there is merit to it’s gloominess. Young adults have a much more complex world to navigate through these days. There are less guarantees, and far more gapping holes in the opportunities that are out there.
My young 20’s son and I had a three-hour talk yesterday about this subject. He is totally flummoxed about where he should go with his life. He wants to make a difference in the world, not just become someone who is grateful to put bread on the table, letting all the other dreams merely evaporate through lost and wasted time. My inspiration and Mom ‘wisdom’, however, is more pragmatic. So, here we are, slipping emotionally and intellectually into each other worlds, trying to understand each other the best we can.
Consequently, my advice focuses on mining foot holes and objectives for a desired destination, while his gaze reaches over these initial grinds, the valleys of planning/effort, lifting themselves to altitudes that frankly take my breath away.
But, no matter how deep or relevant our conversations, there is the wall of reality out there which is the source of so much present-day chaos. We are in limbo now in obtaining our sense of direction as a country, let alone as individuals. Change is abundant and diverse as well, throwing the majority of us out of our comfort zones, ranging from values, morality, types of jobs, globalization, advancing technology, weakened family structures giving way to more tribalism…..it’s all very difficult for anyone at any age to process, let alone easily traverse.
I also think the dimensions of our problems cannot be conveniently confined to ‘bankers, wall street, rich people’ and the like. While that is a simplistic place to stop and vent one’s rage, there is a bigger picture of discontent and evolution going on, that’s almost intangible to explain but is universally just ‘felt.’
@James Joyner
This isn’t a situation in which the Fed can help because monetary policy alone is ineffective in a balance sheet recession. Fiscal policies can do a huge amount, but appears to be politically impossible, which is why I’m so incredibly pissed at half the Democrats and 100% of Republicans. Those unemployed grads didn’t max the credit card or take out bad mortgages or financialize the economy into a monstrous casino, but they sure as hell are paying a heavy price for their elders’ stupidity. We could do a lot to help them but we won’t because economic ignorance, greed and plain mean-spiritedness are the hallmarks of modern D.C.
@jan:
You should advise your son to learn a new language. It doesn’t really matter which one he chooses. (Real pessimists would recommend Mandarin, of course.)
@James,
The Fed could do quite a bit more than it’s doing. Krugman covers this especially well, and in much more of a scholarly than ideological way as well: in a bad economy, the Fed has to signal that it’s prioritizing either low inflation or low unemployment. Right now we have very low inflation, and if the Fed signaled that it was shooting for a somewhat higher level it might spur investment (and employment) just by making a credible promise. Sitting on your money is less and less attractive as inflation rises, and the way to drive real interest rates down when you’re already at a near-zero nominal rate is to drive inflation up.
In essence the continued vigilance about inflation is prioritizing the maintenance above the “haves” over the enhancement of the unemployed. Bondholders whine about inflation because it makes the money they’re owed less valuable. And everyone seems to have an irrational anxiety about the phenomenon since it seemed out of control back in the 70’s. But putting some more into the system right now might do a world of good and the Fed seems too cowardly to act.
@john personna:
John,
Verbal skills is one of his skills. He had 4 years of Japanese in high school. Comfortably knows Spanish, and bits and pieces of other languages as well. BTW, That was another good article you posted. Art, writing, music, though, are his passions.
No matter what you do for a living, there’s someone just as smart, hard working and credentialed as you are in China or India willing to do your job for much less money.
The only thing that matters is how well your profession has erected barriers to keep this competition out of your job market.
@jan:
Art, writing, and music are the passions of all of those hipsters who are protesting in NYC., The problem is that there is no version of an economy other than a bubble economy than can produce jobs for hipsters in NYC that can pay enough so that those hipsters can afford to live in NYC.
Without a bubble and with high taxes, NYC cannot produce the the wealth required to have a hip NYC (see the NYC of the 1970’s with urban flight and very high crime) but since all bubbles end, there is not long term, economically sustainable way for all of those hipsters to live in NYC.
Another superdestroyer post showing that:
A: He’s no hipster
B: He’s ignorant of economics
C: He’s never lived in the Big Apple.
All of these deficits are probably caused by illegal aliens.
@john personna: I don’t know if you are being facetious or not but more and more I’m starting to think the more talented, educated professionals may want to learn Spanish and Portuguese as well as Mandarin. Emigration to growing economies to our south may be a viable option.Perhaps life in Singapore is not as odd as it may have seemed a few years ago. Will we suffer a brain drain?
@Davebo:
NYC depends upon the wealth created by the financial sector. Since nothing is manufactured in NYC and even though NYC is the biggest center of health care research and training, those jobs do not go to liberal arts hipsters.
The not-for-profit sector in NYC is funded by the taxes paid for by the financial sector.
What I find the strangest is that the hipsters seem to think that NYC can remain hip without the financial sector paying a huge amount of taxes and funding a large number or organizations where the hipsters work.
I live in Brazil. There is no employment for hipsters in Arts, sorry.
@jan:
Provided that he’s at a point in his life where he’s mobile (or has a partner whose willing to go along with this) I think that there are two options he should seriously consider:
a. Service work/Teaching English Abroad.
I wouldn’t suggest Japan as that’s notoriously expensive, but comfortable Spanish opens up Spain and most of Central/South America. The great part about this is that if he’s frugal its possible for him to make money in the process — due to the standard of living differences — and it would provide him with a bunch of creative fodder. It also would require him to develop/hone a number of key skills and experiences. Also, should he decide on a more conventional career, that year abroad becomes very marketable if he knows how to sell it (and he may find opportunities for ex-pats abroad).
b. Military – either full-time or in the guard
Note that I’m not being sarcastic here. Not only does the military help develop discipline that necessary for an self-motivated vocation such as the arts but it could also be a fertile ground for developing new skills. And when your life isn’t your own, I am told it’s surprising how much time frees up for writing. Honestly if I was in his position today I’d seriously consider trying to get into the medical corp or into intelligence/ops (I’d be rubbish on the front for a number of reasons).
@superdestroyer:
You keep using this word “hipster.” I do not think it means what you think it means.
@mattb:
According to the urban dictionary, I believe I am using it correctly. http://www.urbandictionary.com/define.php?term=hipster
The protesters in NYC are the ultimate hipsters and are just pissed off that jobs do not exist that will allow them to afford to live in NYC. Of course, they are living in NYC because they detest the rest of the U.S.
@mattb:
Good suggestions, both of them. His dad was in the Navy, and received much of his education compensated for by that means. However, our son has no leanings towards the military.
And, I think the overseas experience/work would also be a suitable if not an exciting path. However, he will have to figure it out…but parents tend to stand on the sidelines trying not to show their concerns while lending whatever support they can give, which in his case is to believe in him.
I only brought up his plight earlier because he reminds me so much of the discombobulated thought trains, anxieties many people in his generation seem to be going through. And, after looking at the above article it just got me to thinking about the whole situation even more…….
Thanks again for your considerate post.
@mattb: SD assumes other peoples’ minds are as simple as his. Thus everything can be distilled down to “hipsters”, “people who hate America” and “taxes are too high”. He can’t comprehend a person who thinks or operates in a context more complex than a binary state. Best to ignore him entirely.
@Andyman: While I respect Krugman, his belief the Fed can do anything to improve the current economic climate is limited by his Keynesian training. All the Fed can do is make efforts to increase liquidity in the banking system. That’s why it engaged in both a loose money policy, two rounds of quantitative easing and Operation Twist. The theory is to boost bank reserves and lower interest rates to spur lending, but the theory ignores reality: banks are not reserve constrained.
There is no limit to the reserves they can access, so buffing up reserves located at banks has absolutely no effect. Ditto interest rates: they’re already at the zero lower boundary and the attempt to reduce long-term rates is destined to fail because banks can make more money speculating with deposits obtained through the Fed than they can lending it for productive purposes.
I think it’s the boom and bust economy that’s the problem. I graduated from college in 1968 with a degree in engineering. Bad timing – right after graduation I found myself in the Army. When I got out of the army in 1971 there was not an engineering job to be had – I read electric meters for four years. I got an engineering job in 1976 and made good money until 1983 when the boom busted. Two years of unemployment and temporary jobs before I got another engineering job. I was just getting out of the hole when there was another bust. Another two years of turmoil although I was working most of the time but for significantly less than I was used to. Another great job which I left for another great job and I was just about out of the hole once again. Then the Tech bubble burst in 2001 and my factory and my job were sent to China.
@john personna: Living in Daejeon as I do, I can also recommend that Korean may suffice as a second language. In yesterday’s Korea Herald, an article is claiming that Samsung is now the largest electronics company in the world (but that may be boosterism). Korean has the additional advantage over Chinese (of any dialect) of being both alphabetic and phonetic, therefore easier to learn (but not by much).
@Ben Wolf:
The Hipsters are living in Manhattan because they most of them grew up somewhere else and hate where they grew up.
Look at all of the interviews that have been made with the protesters. The biggest issues have been students loans, universal health care, and better paying jobs with all of those entitlements being paid for with much higher taxes on the rich.
Of course those hipsters seem to fail to understand what NYC was like in the era of 70% tax rates and high inflation. Do they really want to go back to the 1970’s.
If they cannot afford to live in NYC why not move someplace with a lower cost of living and more jobs like Houston, DAllas, or Fargo. Well, those cities are not hip enough for the hipsters and just are not NYC.
So, the real question is why should the entire U.S. be reorganized so that hipsters can have a higher standard of living while living in NYC?
@Mr. Prosser:
I think I’m kind of rueful about the number of people I hear about who are learning Mandarin. They might be right, but I think I liked the days when you learned English for economic reasons, and anything else for cultural enhancement.
@superdestroyer:
Is everyone under 30 a dirty hipster?
It is everyone under 30 who is suffering record unemployment (the worst in 60 years) and falling wages (down 10% in the last 10 years).
… or maybe you are saying no one under 30 should try living in NY …
@Just nutha ig’rant cracker:
Korea is awesome. I wonder if they will face the unification risk/reward in the next 10 years …
To recapitulate:
We got the two main things that were supposed to drive jobs: free trade and lower taxes.
They didn’t drive the jobs though. And so we have two choices: change our philosophy, or reject reality.
@john personna:
There are many reasons why the unemployment rate is so high for the 20-somethings (including hipsters)
1. The demographics of 20 -something is different than preceding generations.
2. Fewer entry level positions.
3. The size of the preceding generations and length of time in the work force limits the number of jobs.
4. globalizaiton. If the average 20-something in the U.S. has fewer skills than a 20-something in China, then how can the U.S. afford to compete in the world market.
5. The U.S. has a different legal and regulatory environment than our competitors. The U.S. has a system that makes it very hard to do new things and makes it very slow and expensive to do new things. Thus, the U.S. is not flexible enough to compete in the world marketplace.
Do you really think high tarriffs and high taxes will create more high paying jobs for the Hipsters in NYC? I would love for you to provide the economic justificaiton for such an economic model.
@superdestroyer: ]]
That’s the strawman, isn’t it? Anything other than “ever lower” is “high.”
@Ben,
Isn’t a credible inflation target one way to get out of a liquidity trap? In other words, tell the banks that if they sit on their money it’ll be worthless in ten years so they might as well invest it. That’d get things moving again.
And higher inflation would help with the balance-sheet-recession aspect of the problem as well. Short of offering some sort of nominal relief to households, offer real relief by pushing wages up. Let the lenders hold the bag for once.
@Andyman:
The odd thing is that we have almost 4% inflation now, even as bonds “signal” much less.
… I think maybe the Fed has too much control over interest rates for our (individual?) own good.
@john,
The bond markets are forward-looking. I think most of the 4% you’re citing was from instability and speculation in the oil markets in the last year; apparently bondholders don’t see that happening again.
Ex energy costs, I don’t think people are seeing a lot of structural inflation in the system. The Fed could plausibly change that, no?
@Andyman:
The Efficient Market Hypothesis is dead and buried. In the aftermath we use words like “weakly” efficient, or “there are a lot of other things going on.”
IMO traders know that their bond purchases imply an impossible long term inflation rate, but they don’t care. They fear other investments even more.
(or alternately, they are scared to own more oil, gold, or farmland than they already do.)
@John,
It’s definitely possible that traders are signing up for investments that they know will carry negative real rates of return, either because they want to diversify or they think everything else will do worse. Possible but IMO unlikely.
I actually agree that markets aren’t efficient or particularly wise. What that means is that we can have 4% CPI for however many years and traders might still have a reason, however irrational, to think it’ll slack off starting tomorrow. So the way to couple what consumers are experiencing *now* with what investors are predicting about the future is to have the Fed credibly promise that the current inflation rates will continue for, say, five years, regardless if oil craters or Europe falls apart or whatever. Then back up that promise with however much monetary easing or outright printing is required. That’s how to get liquidity off the sidelines and into the game.
Unfortunately, I am letting some liquid assets sit at negative interest. I had originally expected an increase in interest rates by this time.
I’m afraid it might take a target of 8% or something to scare them.
@john personna:
I’ll take that as a no. I have read others who claim that the protesters are actually just protesting against Math. The Hipsters do not understand the difference between a normal distribution and a log-normal distribution and seem to feel that everyone should be able to earn the same as those at the far right of the log-normal distribution.
Maybe the hipsters should just realize that they attempt to have a career in a field where few succeeded and many fail and that they just failed.
@superdestroyer:
Look, taxes (especially) on the wealthy are at historic lows. Tariffs have been pushed toward zero (but unevenly).
The first thing to say is where is the prosperity that was supposed to bring?
The second thing to say is that you can nudge them, just a little bit, to improve the balance of the budget and pay for the safety net, without coming any where near historic highs. Hell, you can stay under half of the historic highs.
Really dude, you are telling me we have to keep doing what failed because anything else is [insert paranoia here].
@superdestroyer:
BTW, I’m having trouble grasping YOUR math. When employment and wages are down for the entire under-30 demographic, how is that a “hipster” problem?
@john personna:
the federal government has been runnning a $1.5 trillion dollar deficit for three years. Do you really think that a surcharge on millionaires is doing to make up that deficit.
The NYC hipsters do not really care about employment. The support eliminating insurance as an industry (about one million jobs lost), favor eliminate a large number of healthcare workers, eliminate the last of manufacturing in the U.S. while expanding entitlements just so they have have a higher standard of living while living exclusively in NYC.
Why should those of us who get up and go to work in the morning in non-hip jobs have to pay more taxes, fill out more paperwork, and have a lower standard of living so that the hipsters can live the good life?
@superdestroyer:
That’s kind of a weird way to look it it. It’s like “sure, I reduced my payments to Visa … does that mean adding $50/month is going to help now?”
1. Yes
2. Too bad we didn’t start sooner.
I think on the rest you are ignoring the data, and pretending it is all hipsters. If this was ONLY a few MFAs with college loans, nobody would have much sympathy for them. This striking a national vibe because it isn’t only them, of course.
@Andyman: What I’m saying is that the Fed hasn’t the power to make your suggestion happen because it can’t print money to spend into the economy. It can pump liquidity into the financial system, but each time it attempts to do so the money gets diverted into economically useless forms of speculation. We need fiscal stimulus to get money flowing through the lower levels (poor and middle class) where it will do real economic good. Cash injected at that level will cycle through the economy (hopefully) a few times before being captured by Corporate America and made inert through saving.
Repeal of Glass-Steagall was a knife in the throat of the real, productive economy. Banks can borrow any quantity of money they like, either through interbank loans (Fed Funds) or through the Fed’s discount window. This also means banks don’t check their deposits before they make a loan, they simply credit the borrower’s account and then go to the Fed to obtain necessary deposits at the end of the business day. Under the old regulatory scheme this wasn’t a problem, as only commercial banks could do so, and they had to make sure the loans they made were good otherwise they ended up on the hook to the Fed.
But now investment banks like Goldman Sachs can borrow in the same way and the result is the ludicrous $600 trillion derivatives trade, almost 200 times the size of real global production. Think about that for a moment: capital is debt, and debt is capital. We have a derivatives trade which makes claims on production that not only does not exist, but cannot possibly ever exist in quantities sufficient to satisfy the “investments”. This is exactly why the demonstrators are absolutely correct to attack Wall Street as a massive, fraudulent casino destroying actual productive growth.
The problem of these so called “hipsters” is part of bigger problem: in North America, Europe and Latin America you have many more people than needed studying things like Law and Liberal Arts in the University. Most of these people do not study things like Classical Literature or Law because they like what they do but because they don´t know to do any other thing and they don´t like Math.
Besides that, few Americans noted that the United States is running deficits on the federal level that are bigger than the whole GDP of countries like Australia or South Korea. In 2009 the federal deficit was equal to 50% of GERMANY´s GDP. That´s going to require tax hikes and cutting spending. That´s unsustainable.
@André Kenji de Sousa:
Why is that important?
@André Kenji de Sousa:
I really have no idea if this is true, but I lean toward the idea that Tiger Mom was sold short, even in these pages.
Jan, I don’t know if you’re still reading this thread, but if your son wants to pick up another potentially useful language toute suite, have him try Korean. The vocabulary is totally different, but the grammer is strikingly similar to Japanese. I bet he will find it much easier to stuff in the brain than Chinese.
(Yah, I’m trying for Mandarin myself. After I get my Russian back up to par…)
“Why is that important? ”
Germany is the economic powerhouse of Europe. We are talking about deficits that are comparable to the size of the entire GDP of countries that are competing with the US. That simply can not be sustained.
“I really have no idea if this is true, but I lean toward the idea that Tiger Mom was sold short, even in these pages. ”
It´s not only about a matter of Tiger Mom or Panda Moms. The point is to rethink the entire notion of education. Note that Math Education in the US is fair worse than in private schools in Latin America.
@André Kenji de Sousa: You’re aware that the population of Germany is one-fifth that of the US, right? As is their GDP?
The comparison you’re making is ludicrous.
@André Kenji de Sousa: Why can’t those deficits be sustained? What is it you believe will happen? Inflation? According to neo-liberal/Austrian economists we were supposed to have major inflation after the stimulus, QE, QE2 and three years of $1 trillion plus deficits but it hasn’t materialized. What do you fear will be the end result?
@john personna: But, we didn’t get low taxes; We have what is now the 2nd highest corporate tax rate in the world.
@Eric Florack: And the actual tax rate that corporations actually pay? Ooops, better now mention that — it blows all the whining right out of the water.
@Eric Florack:
Liar.
How many times has the difference between “top rate” and “effective rate” been explained to you?
@André Kenji de Sousa:
Oh, I agree. I’ve called for “reinventing education” in these pages for years now.
@john personna: It’s a debating tactic with Eric. He ignores the correction made to his unsubstantiated claims in the hope that at some point others will tire of correcting him. He can then get his propaganda out with no challenge to its accuracy and confuse the general public.
“Why can’t those deficits be sustained? What is it you believe will happen? Inflation? ”
What´s going to happen is what usually happens in countries that have high debt to GDP: you have to spend lots of money to service the debt and pay interest. People in these countries complain about a high tax rates and poor public services, precisely because a big part of the budget is used to pay debt. Besides that, you have money that private investors could be using investing in the economy instead being used to lend money to the government.
It´s true, today you have very low interest rates(In part because China buys American debt to keep their currency low). But that´s not going to last forever.
“You’re aware that the population of Germany is one-fifth that of the US, right?”
Yes, but we are talking about only the decifit in the federal level. We are talking about deficits that are as big as 10% of the GDP. No country can sustain these deficits, regardless of it´s size.
I’d suggest taking a closer look at Japan: the United States is an autonomous currency issuer and is not revenue constrained. All the government does when it sells debt is borrow back what it spent into the economy in the first place, so the transaction ultimately nets to zero plus interest.
There is no empirical evidence of “crowding out” private sector investment in a recession. On the contrary, crowding out occurs when the government balances its budget, because it is now competing with the private sector for relatively fewer dollars. Also, Japan.
China is a minority purchaser of Federal debt. Prices are high and yields low because investors understand the U.S. government cannot go broke and involuntarily default; Treasuries are quite literally the safest bet in the cosmos. The only possible way Federal debt can harm the economy is if interest payouts are large enough to push aggregate demand beyond the economy’s productive capacity and generate unacceptably high inflation. We ain’t nowhere near that level.
The only constraint on the Federal government’s to sustain deficits is the possibility of economically damaging inflation. Otherwise any level of deficit spending can be continued indefinitely.