Yay! Debt Hits 100% of GDP and Other Good News!

Don't worry be happy!

After the deal raising the debt ceiling was signed U.S. debt increased by $238 billion putting the federal government debt over GDP at the end of 2010. Also, the Dow has dropped 300 points. The two are not directly related, but it both stories indicate that there are very severe problems ahead and there are some connections I think.

First our fiscal outlook is very, very grim. Medicare alone is going to present a very tough problem and a problem that raising taxes alone wont really solve. While a tax increase would certainly help, there are number of problems that come with them. First off, higher tax rates rarely raise the amount of revenue that is initially projected. People try to avoid taxes. Also, taxes impose a deadweight loss on economic activity. Deadweight loss is just that…lost. Nobody gets it, not the government, not businesses, not consumers. It is just gone. And this loss increases with the square of the tax rate. Higher taxes also reduce disposable income which in turn will reduce spending. And right now we see that PCE (personal consumption expenditures) have been trending down the past 3 months. Which of course brings us to the Dow losses.

A declining trend in PCE indicates that GDP will likely be declining as well. My guess is that the second quarter GDP will be revised downwards substantially from its already anemic 1.3%. The traditional definition of a recession was 2 or more quarters of declining GDP. It is a decent rule of thumb, and when you have declining GDP growth rates and the growing possibility of a quarter of negative GDP growth the expectation of a recession increase.

Now I do think taxes need to increase. At the very least we should be closing loopholes and look at various “tax expenditures” that distort economic activity. We need to cut spending. Probably not right now, but sooner rather than later. Basically a more balanced approach to solving our fiscal problems. And any such policy needs to have some sort of commitment mechanism built in. It is all well and good to come up with a budget plan to raise taxes, cut spending and so forth for the next 10 years, but if it can be quickly changed in a few years such a plan really has no force to it. It is merely cheap talk.

And I agree with my co-blogger Dave Schuler in this comment over at his website. Dave summarizes what he sees as the problems facing our country,

1. Bank malfeasance, misfeasance, and nonfeasance.
2. Tolerance of Chinese mercantilism.
3. Demographics-the retirement of the Baby Boomers.
4. Crony capitalism.
5. Overgrown healthcare, financial, education, and defense sectors.
6. A generally enormous amount of deadweight loss.
7. The collapse of the housing bubble and the serial policy errors that followed the collapse.

What will we do about these problems? My guess: nothing.

And here is a nice thought…consider that we are sitting here with a flagging economy with an unemployment rate of 9.2%. What will unemployment climb to if we go into another recession? We are 2 years into this recovery, as flaccid as it is, and looking at expansions since the end of WWII the longest is 120 months, and the shortest is 24 months, the average is 59 months. Our economy is nothing like what it was like during the Clinton boom (the 120 month expansion), so we may very well be on the brink of another recession.

FILED UNDER: Economics and Business
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. Steve,

    The more interesting question is what can we do about the problems that you and Dave Schuler listed?

    If by “we” you mean the government, I’m not sure there’s all that much.

  2. Fog says:

    Looks like it’s time we had the big debate on defense spending. We spend roughly twice as much as the next 5 countries put together, and this time it’s not just the liberals asking why. It’s going to be real hard to convince people to cut Medicare while defense spending stays at this level.
    Come back, Ike. We need you.

  3. ponce says:

    All those problems could be solved with a decent growth rate in our economy.

  4. hey norm says:

    So what…it’s been higher than 100% and we didn’t all whither and die.
    There is one solution here…we need to get the Republicans heads out of their asses. Everything they say about economics and the economy, and everything they have been saying since the 80’s, is wrong. Supply-side economics has been proven to be a laughable theory. Their assault on the middle class has back-fired.
    Times are lean…we need to spend. Run the Debt as a percentage of GDP to 120%. People are still falling over themselves to lend us money for nothing. Interest rates are practically zero. There is readily available labor. Construction costs may never be more competitive. Invest. Generate some jobs. Get the economy growing again – as it was before Obama’s stimulus ran out. Maybe even generate a little bit of inflation.
    Then when we get flush again we can worry about the debt – as we absolutely must. The Republicans have gotten us into an upside-down position relative to the economic cycle. Now is not the the time for austerity folks. That kind of thinking is ass-backwards.
    The only way to fix this is to get back in sync with the economic cycle.

  5. Steve Verdon says:

    @ponce:

    Ponce we are not going to double our growth rate.

    Or…yeah I wish I had a magic unicorn too.

  6. Steve Verdon says:

    @hey norm:
    You mean do what the Japanese did…sorry that didn’t work to well.

    And how will spending money we don’t have help with Chinese mercantilism? How will it deal with the Demographics? What will it do for the health care spending that growing at 2x GDP, or the financial sector that has zombie banks?

    Spending more money wont fix bad policies, bad incentives, and the like.

  7. steve says:

    1) I wish you would use publicly held debt. You have formal economic training.

    2) Since it takes a long time to recover from a banking crisis, I think we mostly need to wait. We need to work off the bad debt and real estate inventories we are sitting on. Not very sexy, but I think that is what it comes down to for now. Meanwhile, don’t kill the seed corn and resolve the long term problem of health care.

    Steve

  8. hey norm says:

    @ SV…really?
    Growth under GWBush (and his massive tax cuts for the “job creators”) was nominally 2.3%…but actually less because the ’07/’08 contraction has recently been discovered to be much, much worse than previously believed. Under Clinton growth was 3.5%. No not double…but I think we’d take it right now. In fact the last 4 Democrats grew GDP at an overall average of 4.1%. Still not quite double, but…hell…even Reagan managed 3.5% growth…or 150% better.

  9. ponce says:

    Ponce we are not going to double our growth rate.

    Not with our current crop of loser CEOs.

    Time to get some Chinese CEOs over here…

  10. jan says:

    When I read people like Norm, it’s more understandable why we are facing a fiscal crisis. There is no rational basis for so many of his opinions. I’m sure he believes what he posts. However, ‘suggestions’ of running the percentage of debt to GDP towards a crazy 120% is just that — crazy! Also, tied into raising debt, is his solution to “spend,” and the money he would use of course would be ‘rich’ people’s money. Business and the ‘rich’ have become the targets of every progressive in this blog. And this is the same class warfare that FDR used to solidify a devoted base composed of targeted groups chosen for appeasement, versus those who were pointedly discredited and labeled the bad guys.

    Amity Shlaes’s book, The Forgotten Man, has debunked many of the more liberal and romantized historical versions of the Great Depression.

    Shlaes argues persuasively that a key to Roosevelt’s success was his mastery of the political process and especially his knack for passing legislation that would create constituent groups henceforth supportive of Democratic candidates. These included senior citizens mobilized by the Social Security Act, unions by the Wagner Act, artists and intellectuals by the Works Progress Administration, farmers by agricultural subsidies, and consumers by the promise of cheap electrical power. The creation of large constituencies for federal programs was a new development in the United States, one that ran against the grain of established practices of federalism and private enterprise. Indeed, during the founding era, Jefferson and Madison had feared precisely this prospect in their battles with Hamilton over federal power. Yet this was surely one of the more significant legacies of the New Deal.

    She points out how FDR, like Obama and the progressives are doing now, painted business in the most villainous of terms.

    The sluggish economic response to New Deal policies, Shlaes suggests, was due partly to Roosevelt’s need to bait businessmen and bankers for their supposed role in bringing about the crisis. They were “economic royalists” who had hoarded profits, exploited workers, fixed prices, and grown rich by speculation.

    Not only was the premise behind the New Deal similar to the ones being propagandized by some around here, but so too was their implementation.

    As for Roosevelt’s policies themselves, part of the “second” New Deal in 1935 was an undistributed-profits tax, which forced businesses to disgorge proceeds typically withheld for investment. That same year, the Wagner Act, authorizing a process of collective bargaining between unions and business, led to a rapid increase in wages—and thus in corporate costs. As Shlaes emphasizes, the New Dealers tended to see business as an institution to be squeezed rather than as a source of investment, invention, and growth. Their moves against private enterprise, and their threats to regulate large sectors of the economy, created a political climate hostile to investment.

    According to Shlaes, and those who agree with her analysis, FDR’s 11 year Great Depression could have been pared down to a 4-year Depression, if not for all the government intervention he imposed, especially on business, through his legislation of heavy regulation and the strong-arm approaches of the Wagner Act. This act, although passed in 1935, didn’t really start to weigh in until after FDR’s election in ‘squeezing’ business into subordination, and for many squeezing them out of business.

    The final push and ‘stimulus’ that eventually worked was going to WWII.

    Commentary Magazine: The Forgotten Man by Amity Shlaes

  11. hey norm says:

    @ SV…
    http://www.piie.com/realtime/?p=20
    Yes, yes, yes…we need to deal with all those things. The ACA, while a positive move to deal with the biggest driver of increased costs across the economy, didn’t go far enough. Again – Republicans voted against Republian policy – they need to get their heads out of their arses.
    But we need to get growth going again in the immediate term. If we don’t we won’t be able to move on any of those things in the short, medium or long-term.
    And oh-by-the-way…we just spent a couple months on an artificial crisis which had nothing to do with any of this.

  12. hey norm says:

    Jan,
    I would love to not have the debt at this level – if only the Republicans hadn’t run it up and left us with policies and obligations that continue to impact the debt in a massive way today.
    I know from another thread that your solution to our current economic woes is to tax poor people and the elderly at $20 a year. And ride unicorns I suppose.
    Here is a thorough debunking of Shlaes book…which is not much respected by professional economists in general, but certainly embraced by the Tea Party specifically. The big hole in Shlaes is that she ignores the enormous growth of the post-war American economy, as though it never happened.
    http://economistsview.typepad.com/economistsview/2007/07/david-warsh-on-.html

  13. Ben Wolf says:

    Steve,

    The debt is completely irrelevant economically. That you think it’s somehow a critical issue shows you fundamentally misunderstand what a sovereign nation is, or how Monetary Theory works. Please put the Austrian and Chicago school books down, they’re just misleading you.

  14. hey norm says:

    Jan,
    In your life do you spend all your money when you get it, and then just go hungry when you don’t? Or do you save money when times are good, and then spend some of that savings to get you through the tough times?
    What the Republicans have done is get us off course, by spending a boat-load of money when we had a structurally balanced budget…and now, after they have created a structural debt, they want us to just go hungry. We need to get back in economic sync. The only way to do that is to spend money to jump-start the engine.
    You are right…WW2 was a mass expediture of money…the debt as a percentage of GDP then was closer to 150%…which only proves my point and proves you wrong. But there was way more to it than that. We were on our way with fairly strong post-depression recovery when people like you got worried about the debt and cut spending. That set the recovery back. WW2 got the recovery going again – in a big way.

  15. Ben Wolf says:

    @jan: Commentary is not a disinterested magazine, nor is Shales a disinterested historian. Both operate with the intent of pushing a specific ideology. For once step outside of the narrow, rigid thinking you consistenly practice here. Just once, consider the possibility you may have things wrong.

  16. hey norm says:

    Jan,
    What Ben points out is true, and applies also to your link to the American Thinker the other day. Sources matter.

  17. steve says:

    I didnt think anyone took Shlaes’ book seriously anymore. A lot of credible economists and historians have studied the Great Depression. Schwartz and Friedman are much better. Sumner’s work is nice. Bernanke’s is pretty good. There are a whole ton of people to read, so I would stay away from pop analysis.

    Steve

  18. Stan says:

    @Doug Mataconis: In 1937 FDR cut spending in an attempt to balance the budget. In the ensuing three years the US fell back into a steep recession that ended only with the onset of World War II. I wonder if Doug thinks these two facts are related, and if they bear any relation to the recent budget deal.

  19. Steve Verdon says:

    @ponce:

    GDP growth in the U.S. has never been sustained at a 5-7% level. GDP in the U.S. grows at around 3-3.5% on average from 1947 – present. We did hit higher growth rates earlier on in the series, but the series was quite a bit more volatile then as well.

    @hey norm:

    See my answer to Ponce, we don’t need 3.5% or even 4% more like 5-7% sustained year-over-year. Not going to happen.

    And the ACA did nothing but ossify our currently broken health care system.

  20. Steve Verdon says:

    @hey norm:

    What, his channeling of Dick Cheney that the public debt is economically irrelevant?

  21. hey norm says:

    @ SV…

    Then clearly all is lost. Man the life-boats!!! Oh my, whatever will we do???

    Gimme a break. Average growth might not be a panacea, but it would be a lot better than what we have had. The Bush Tax Cuts were supposed to create growth. We got less than 2.3% growth over 8 years as a result. And aenemic job growth. Yet we still give credence to that crap. Solve that problem and we’re home free.
    Give me 3.5% growth, then once it’s sustainable let me up revenues to Clinton levels, and cut spending – oh, let’s say on a 3:1 basis. And then I’ll come get you out of your life-boat and we can start working on your list. But there ain’t no way anything on your list gets done minus growth. And growth ain’t happening without some sort of stimulus. What that consists of – I have my own ideas clearly – but I’m open to suggestion. Mortgage relief – fine.
    And yeah…the ACA ain’t perfect…but it got done. Now let’s make it better.
    But first we need to get Republican heads removed from butts.

  22. hey norm says:

    @ SV…
    Read what I wrote:

    “…Then when we get flush again we can worry about the debt – as we absolutely must…”

  23. Console says:

    Amity Shales is an english major. Which explains a lot about the state of conservative economics in america.

  24. Steve Verdon says:

    @hey norm:

    “…Then when we get flush again we can worry about the debt – as we absolutely must…”

    Yeah, but it never happens Norm. When we have booms we almost always continue to run deficits. Yes I know there was those 2 years or so during Clinton, but that just proves my point. We almost never run surpluses in the boom years. If we did, we wouldn’t have a deficit/debt problem right now. Expansions typically last far longer than recessions. Clinton should have run a surplus for about 10 years. He didn’t, so he fails your policy as well. And don’t get me wrong, I miss Clinton. Yeah, he was getting a hummer in the Oval Office…but heck…who here would turn down a hummer? And in looking back he did alright during his time in office.

    Then clearly all is lost. Man the life-boats!!! Oh my, whatever will we do???

    Nothing. I don’t think our system of government can handle the kind of mess we’ve gotten ourselves into.

    Gimme a break. Average growth might not be a panacea, but it would be a lot better than what we have had.

    Problem is when countries get that much debt after a financial crisis it reduces economic growth, it doesn’t increase it. Look at the work of Rogoff and Reinhart. We’ll be lucky if we get 3.5%. As it is we’ll more likely see growth in the 1.5-2.5% range.

    The lower portion of that range is not enough to reduce unemployment. The upper range will take years. Right now we are seeing the recovery falter. Another recession now and unemployment could go even higher.

    Granted I don’t think reducing government spending right now is a good idea. But we need something that indicates that our fiscal situation will move in the right direction. We have nothing to do that. Nothing. Sure we can pass some stupid budget deal, but then Congress can undo it later. Those things have little or no long term value. And I’m not opposed to tax increases either, for the record.

    Give me 3.5% growth, then once it’s sustainable let me up revenues to Clinton levels, and cut spending – oh, let’s say on a 3:1 basis.

    According to the BEA, growth under Clinton was around 3.8% or 3.55% depending on how you look at it. Clinton did good, as I noted before I miss the guy TBQH, but he didn’t get growth above 4% except periodically and even then what credit he deserves is highly debatable.

    But there ain’t no way anything on your list gets done minus growth.

    Okay we seem to be having a mis-communication problem here. I agree Norm. My point is that we are not likely to see much growth. What growth we will see is more likely to be in the 1.5% – 2.5% (annualized on a quarterly basis) than the 2.5-3.5% we typically see. The reason for this is the massive public debt load we are carrying.

    Given the other pessimistic news (e.g. the declining PCE numbers) we might very well be on the brink of another recession. That will just make things worse, not better.

    I would love to see growth in the 3.5-4.5% range. Really. I just don’t think that is a reasonable expectation. And obtaining even moderate growth is not something we know how to do with certainty. Sure we could follow your policy: let the public debt run up to 120% of GDP, but will that lead to growth in the 3.5-4% range? Why? I’m not seeing it. I suppose it could, but I’m skeptical. Nobody has a surefire strategy for promoting growth. If we did, George H. W. Bush wouldn’t have lost to Clinton. Carter wouldn’t have lost to Reagan. Obama would be doing whatever it is that promotes growth to ensure his re-election.

    So my pessimism isn’t partisan. I don’t think we are in trouble because of Republicans or Democrats. I think we are in trouble because we’ve pursued wrong headed policies…that are the result of both parties. Policies from the last 40-50 years. I think Medicare was a horrible idea given its structure (that is, nice idea, very badly executed). It was a demographic time bomb. I think Social Security is dubious because it has likely adversely impacted savings. The mortgage home deduction for income taxes is highly distortionary. The way we have employers pay for health care benefits as a type of untaxed income is bad in that it causes over consumption. The list goes on and on and on.

  25. anjin-san says:

    You know Jan for a gal who is just an average Democrat that is concerned about her party’s direction, you sound a lot like a straight up GOP shill…

  26. michael reynolds says:

    I love this news. It takes our government to make me look like a prudent, rational money manager.

    That snark aside, don’t corporations often carry debt greater than their income in a given year?

    I’m asking, not being a smart ass.

  27. sam says:

    @Steve Verdon:

    Then clearly all is lost. Man the life-boats!!! Oh my, whatever will we do???

    Nothing. I don’t think our system of government can handle the kind of mess we’ve gotten ourselves into.

    But when I suggested the Jesus Maneuver over at Dave’s place, you registered disapproval. What changed your mind?

  28. ponce says:

    I would love to see growth in the 3.5-4.5% range. Really. I just don’t think that is a reasonable expectation.

    Yep, because our crappy CEOs have taught Americans that 1-2% growth is an amazing achievement that should be rewarded with massive increases in their salaries.

    A wholesale firing (or better yet, prosecution) of our cowardly and greedy executive class would go a long way towards getting America’s GDP growing close to China’s rate.

    Amity Shales is an english major.

    She is also a fringe right loon in the Glenn Beck mold.

  29. sam says:

    @anjin-san:

    You know Jan for a gal who is just an average Democrat that is concerned about her party’s direction

    Nobody around here believes that bullshit.

  30. Ben Wolf says:

    @michael reynolds: The little secret about corporate America is that it’s in debt up to its eyeballs. The extra couple of trillion in cash they have on hand is only a fraction of their total liabilities. I’m sure QE3 through QE16 will make them solvent again though.

  31. sam says:

    @Ben Wolf:

    I’m sure QE3 through QE16 will make them solvent again though.

    Heh.

  32. sam says:

    @Steve Verdon:

    I think we are in trouble because we’ve pursued wrong headed policies…that are the result of both parties. Policies from the last 40-50 years. I think Medicare was a horrible idea given its structure (that is, nice idea, very badly executed). It was a demographic time bomb. I think Social Security is dubious because it has likely adversely impacted savings. The mortgage home deduction for income taxes is highly distortionary. The way we have employers pay for health care benefits as a type of untaxed income is bad in that it causes over consumption. The list goes on and on and on.

    But Steve, how did those things (I’ll exempt the home mortgage deduction) cause the banking crisis? How did Social Security, Medicare, and untaxed health care benefits cause Lehman to implode? How did those programs precipitate the rise of corporatism and the rottenness in the financial system? How were they instrumental in creating these zombie banks that are really gonna kill us? How did they work their malevolence in the subprime shitstorm? Can you tell us?

  33. mattb says:

    The little secret about corporate America is that it’s in debt up to its eyeballs.

    To be fair to “crappy CEOs” (and I’ve met some in my time) this is as much a product of Wall Street and Analysts as anything else. Part of the reason for large loads of corporate debt goes back to a time when Corporations that held reserves were seen as “cheating” their shareholders (see the Wall Street for a succinct dramatization of this concept). Money in the bank was seen as money that was “sleeping.”

  34. PD Shaw says:

    I’ll take the opposite tact from sam, how did these things cause the problems with the PIIGS?

    I’m guessing demographics are a more significant problem than is generally discussed across advanced economies and may be an understated problem with Japan’s recovery in particular. But the rest, I don’t know enough. I wonder if there is a large range of potential policies that a democratic country might pursue (much broader than the range within America) that still ultimately depends too much upon leveraging tomorrow for today.

  35. Hey Norm says:

    @ SV…
    Hehehe
    “…Clinton should have run a surplus for about 10 years…”
    He was president for 8 years. So there is that…
    Reagan ran up a huge debt. Bush 41 and Clinton made reasonable budget deals and after 12 years things got evened out. The Republican response was to run up more debt, and deny everything that worked under Bush 41 and Clinton. We see the result today. End of story. The best thing we could do to help our economy would be to make the Republicans face reality. Then we could make some moves.

  36. Hey Norm says:

    Also steve…the Clinton expansion is the longest run we’ve had without a recession in how long? Exactly.

  37. john personna says:

    hahahaha

    Attacking your 7 points with any zeal would itself produce a market crash.

  38. jan says:

    @ponce:

    Amity Shales is an english major.

    She is also a fringe right loon in the Glenn Beck mold.

    Here is a little rundown on Amity Shlaes

    Her resume is long and broad. Her book about the depression, “The Forgotten Man…..,” was on the NYT best sellers list (which is no biggie, except for those who still look at the NYTs as an unbiased, legitimate news source — which it isn’t, anymore), and has won credibility with most, except left wing people like yourselves. She has challenged the liberal left icons version of depression politics such as John Galbraith, Arthur Schesinger, and of course Paul Krugman (the man who was a consultant to Enron). I have heard many interviews with Ms. Shlaes, read her columns, but as of yet just seen excellent excerpts and analyses of her book, while not reading it yet. I have it on order, though, from Amazon.

    Commentary is not a disinterested magazine, nor is Shales a disinterested historian. Both operate with the intent of pushing a specific ideology. For once step outside of the narrow, rigid thinking you consistenly practice here. Just once, consider the possibility you may have things wrong.

    I disagree, Ben. Commentary has a conservative bent, for sure. But, their articles are informative, well-written and simply give another perspective from yours. That doesn’t, however, automatically make their remarks wrong. Perhaps, you are the one wrong, Ben. Did you ever think about that?

    Amity Shlaes (for those who can’t even spell her name correctly) works are considered, by and large, nonpartisan in her research and points derived from said research. And, she doesn’t frame her ideas in the liberal progressive mold, like many of her predecessors have done, which offers more clarification of what actually occurred during FDR’s reign in the WH.

    Shlaes does not tackle previous accounts head-on, nor does she advance a general interpretation of her own. Instead, she tells the story of the Great Depression and the New Deal through the experiences of some of the more influential figures of the period—Roosevelt men like David Lilienthal, Rexford Tugwell, Henry Morgenthau, Felix Frankfurter, and Harold Ickes; businessmen and bankers like Andrew Mellon, Samuel Insull, and Wendell Willkie—and of genuinely “forgotten men” like the Schechter family of Brooklyn, small-businessmen who ran afoul of FDR’s regulatory ambitions.

    What emerges from these stories is a New Deal that was more experimental in its policies, more hostile to business, more vindictive toward its foes, and far less successful in reviving the economy than previous writers have acknowledged.

    Shlaes exposes much that has been previously acclaimed during the depression years, specifically FDR’s handling of it, to be distorted, if not false, showing some of the progressive impressions to be fed by urban legend type of writing. Muffled by the written tomes of liberal writers are how many people came to see FDR’s policies as hindering recovery. Even his own treasury secretary came to see this as being the case. There is usually another fuller story behind the reported or recorded story, and Shlaes tells the one behind the depression.

  39. Ben Wolf says:

    FYI, all the signalling out of markets screams deflation, despite creating an additional $16 trillion in bailout money. We could at any time retire the public debt by seigniorage without even coming close to generating inflationary pressure, but we won’t; the fools have stamped out all debate and locked us into a course of austerity that will permanently cripple our economy.

    For those with anything to protect, the best place for your assets is in low-yield bonds or plain cash. Mark my word on this.

  40. Jib says:

    @jan:

    No, no, no. GDP rose 36% from 1933 through 1936. 36%! Greatest 4 years of economic growth in American peace time history and second only to FDR 3rd term which was during WWII. By 1937 real GDP was higher than the previous high in 1929. By definition, depression over. Period

    Unemployment dropped 10 points in FDR’s first term. 10! From 25% to 15%. If Obama could pull off the same thing, we would have unemployment of 0%.

    This is all revisionist BS. FDR’s first term was an economical miracle. Which is why anybody who lived through that time loved the man. Unemployment was slower to respond and remained higher than GDP would indicate it should be for most of the 30’s.

    There is plenty to criticize about FDR but not the New Deal. It was and remains the most successful govt economic program EVER. Not even close. Makes Reagan’s puny GDP growth look like Carter.

  41. Jib says:

    If anyone cares, here is the data:

    http://research.stlouisfed.org/fred2/data/GNPCA.txt

    Annual Real Gross National Product in Billions of Chained 2005 Dollars starting in 1929

    Source is that noted nest of communists, the St Louis Fed.

  42. Jib says:

    Note that even though there was a recession in 1938, GNP was still higher than the pre-depression high in 1929. That makes 1938 a recession distinct and separate from the depression.

    I know I am over doing this but this crap drives me nuts. How are we ever going to get out of this if people just believe whatever they are told. Stop swallowing everything you read. Be skeptical. Do some research. Read the DAMN DATA! That is what Gore created the Inter-tubes for.

  43. ponce says:

    Amity Shlaes (for those who can’t even spell her name correctly) works are considered, by and large, nonpartisan in her research and points derived from said research.

    Haha,

    Just like Fox News is “fair and balanced.”

    As Jib points out just above, the American economy has never performed better than it did under that Commie FDR.

    And the Republicans have spent the past 60+ years trying to keep that fact covered up.

    Shlaes is just the last wingnut propagandist on sentry duty.

  44. Ebenezer Arvigenius says:

    She has challenged the liberal left icons version of depression politics such as John Galbraith, Arthur Schesinger, and of course Paul Krugman (the man who was a consultant to Enron).

    This disdain for proper scholarship is a typical bane of the American right. But even though:

    Doesn’t it make you slightly nervous that you are recommending to us to read the book of an English BA student without any economical or historical background to “tell us the truth” about how (among others) a two Pulitzer winning historian, one of the most influential Economists of the 20th century, the chairman of the federal reserve and an Nobel prize winning economist (along with most of academia of the last 80 years) got everything wrong in their analysis of the great depression?

  45. anjin-san says:

    and has won credibility with most, except left wing people like yourselves.

    LOL. Dismissed…

  46. ponce says:

    Doesn’t it make you slightly nervous that you are recommending to us to read the book of an English BA student without any economical or historical background…

    You’re asking the Republicans,.the party of “Joe” the “Plumber,” certified political expert, if it bothers them to listen to obvious b.s. from a neophyte wingnut hack?

    The cool thing about being a Republican is that everyone is an expert in every subject.

    Except the actual experts, of course.

  47. Scott O. says:

    Guys, give the poor woman a break. If you were spinning as fast as she is you’d be dizzy too.

  48. sam says:

    Guys, give this a read, This Astronomical Recession by Jennifer Finney Boyan in the Times. I’d never heard of the Maine Solar System Model. But then it’s in Aroostook County, beyond which there is no more United States. I can’t really describe the piece, just read it and see how it bears on our discussions here. I found it beautiful and quite moving.

  49. john personna says:

    Ezra Klein wrote a much better piece. In particular:

    The impoverished and reckless economic policy conversation in Washington isn’t helping to cope with these trends, but even if we got our act together, the reality is that we have limited influence over what happens in China or in the Eurozone and Japan. And it’s not even clear how much an ideal policy response would do to speed America’s recovery.

    The interesting thing about that paragraph is that it does tie back to Steve’s piece, particularly the dream hit-list, the seven points, at the bottom. Steve has a tendency to squint at economic problems, see them in a certain way, and then express anguish that his ideal policy ideas will never be tried. That’s fine I guess, but I think it’s a lot harder to name possible policy moves that would have an impact on the global economic picture.

  50. john personna says:

    Tim Duy’s Fed Watch has another good take, which does not warp the week’s news into “oh, noes, the world is not my way, again”

    Excerpt:

    Bottom Line: The market nosedive does not yet guarantee Fed action in the near future. History has shown the Fed tends to react with a lag. They should have learned better by now, but if they had learned anything, they would not have pushed forward with hawkish rhetoric earlier this year. Arguably, they will hold firm, let the markets think they are out of the game and further bid down implied inflation expectations, and then, once the damage is done, up the level of stimulus. Terrible way to run an economy, I know. Still, it would be remiss to declare anything is certain before the employment report is released. A downside surprise could promt the Fed into more rapid action. I am now entirely speechless on the European situation – with Trichet’s ongoing hawkish stance, it has truly devolved into one of those slow-motion train wrecks that one only sees in the movies.

    As I come up to speed, after being away from the news for a few days, (a) I don’t get the “surprise” factor, but especially from people who have been pessimistic for a year or more, and (b) I think this is more Europe-centered than US-centered policy mavens may believe.

  51. hey norm says:

    Todays jobs report confirms everything I said aove about Republicans being arse-backwards.
    We added 154,000 private sector jobs.
    Unfortunately we also lost 37,000 public sector jobs – government is shrinking.
    So at 117,000 net jobs the report is basically break-even. Not a step forward, but not back.
    This is exactly what Republicans want. What they dream of.
    But it is not the way to recovery. Republican ideology is holding back growth.
    Is that their plan? Hard to argue otherwise.

  52. hey norm says:

    @ Jan…

    “…has won credibility with most…”

    No – she has not. She has credibility with the far right extremists like you. And people who fawn over Ayn Rands adolescent tripe.
    David Frum, one of the last conservative thinkers, put things perfectly yesterday:

    “…Imagine, if you will, someone who read only the Wall Street Journal editorial page between 2000 and 2011, and someone in the same period who read only the collected columns of Paul Krugman. Which reader would have been better informed about the realities of the current economic crisis? The answer, I think, should give us pause. Can it be that our enemies were right?

    http://www.frumforum.com/if-the-conservatives-were-right-about-the-economy

  53. Ben Wolf says:

    @jan: I used to be like you Jan. I would have been making the same arguments you do from broad principles rather than empiricism. I read Commentary and right-wing only sources of information, just as you do. Around 2004 the empirical reality began breaking through my ideological force field; the reflexive hostility to science, to the idea of expertise, the latent racism, supply-side doctrine which never worked and the self-styled victimhood of a priviledged, wealthy white majority hell-bent on maintaining its social power. Eventually I was forced to reconsider the things I had always believed to be truth.

    Have you ever re-thought and rejected a core belief, Jan?

  54. Steve Verdon says:

    Norm,

    “…Clinton should have run a surplus for about 10 years…”
    He was president for 8 years. So there is that…

    Also steve…the Clinton expansion is the longest run we’ve had without a recession in how long? Exactly.

    I know but “Clinton’s” expansion was for 120 months (exactly according to NBER the official arbiter of recessions and expansions in the U.S.). It ended almost precisely when George W. Bush got into office. So….whose expansion is it?

    I mean really, its great to name recessions and and expansions after politicians, but when you get right down to it is dumb as f*cking all Hell because no politician has control over the economy.

    I’m sure you completely missed the point.

    Ponce,

    The growth we need is in the 4-6% range to keep up with things like health care spending in general and Medicare in particular. We will never see average growth like that because we have never seen growth like that. Absent that growth (and a miracle to attain it) we’ll have serious problems.

    I also find it quite amusing that you are obliquely pinning your hopes on finding super CEOs who will raise the nations growth rates to unprecedented levels.

    sam,

    The banking crisis is but one part of the problem. A significant problem, but we’d have a huge fiscal problem without the banking crisis. And the roots of the banking crisis go back alot further than you think. The mortgage deduction is part of it. Even back to the Great Depression the U.S. government has been monkeying around in the housing market to promote home ownership. Not necessarily a bad thing, but when it starts to distort what we might otherwise see, then there is a potential for a problem. Especially when coupled with low wage growth, which I think is significantly related to how health care benefits have been handled.

    Norm again,

    Unfortunately we also lost 37,000 public sector jobs – government is shrinking.
    So at 117,000 net jobs the report is basically break-even. Not a step forward, but not back.

    While it doesn’t help to lose government jobs (at the State and Local levels, not federal) we wont get out of this mess by having government hire people. Government doesn’t produce much. Government is more into the business of redistributing the economic pie. Putting more people to work doing that does not promote growth.

    sam again,

    Guys, give this a read, This Astronomical Recession by Jennifer Finney Boyan in the Times….

    Oh FFS, I thought the notion of sunspots in economic sound dubious. Now we are going to with astrology. The decrepitude of Neptune…GMAFB. Maybe we should start sacrifices to make the economy god happy.

  55. hey norm says:

    @ SV…
    1) Yes – I did miss the point. But that expansion began with Bush 41 and the 1990 budget deal. Clintons ’93 Budget Deal closely replicated 41’s. Today’s Republican party stands in direct opposition to the policies that created that 120 month expansion. In fact they said then that both deals would destroy the economy. They wer dead wrong then, and they are dead wrong now. As stated earlier…their heads are up their arses.
    2). We won’t get out of this mess by hiring Government workers…You’ve never seen me advocate hiring Government workers…but we certainly won’t get out of this mess if we keep firing them either. I believe we should invest – primarily in infrastructure. You have other ideas that I am not generally opposed to. But the Republican wet dream of firing the Government is counter-productive at best – a more apt description would be destructive.

  56. john personna says:

    Government is more into the business of redistributing the economic pie. Putting more people to work doing that does not promote growth.

    What an incredibly empty and ideological stance, capsuled in two sentences.

    We could simply note that education is a large segment of government spending, that it’s purpose is not redistribution, and that it does promote growth …

  57. hey norm says:

    Well, yes John, and keep in mind many are also cops and firemen and DPW workers.
    It’s worth noting that a lot of the 34,000 Government jobs lost were part of the Minnesota shut-down – so I assume most if not all are coming back.

  58. sam says:

    @Steve Verdon:

    “Oh FFS, I thought the notion of sunspots in economic sound dubious. Now we are going to with astrology. The decrepitude of Neptune…GMAFB. Maybe we should start sacrifices to make the economy god happy. ”

    That’s a really, really stupid comment on her article. I’m thinking you didn’t read the piece.

  59. glasnost says:

    Steve,

    Since you’re responding to queries today, I think you’re overlooking two solutions:

    #1. Inflation
    #2. Public and private sector haircuts

    Most countries with very high public sector debt levels get there via bailing out private sector debt-driven collapses. Private sector debt brings public sector debt. The solution is to simply wipe it out and recapitalize the banks. Flood the economy with money, but only for the specific purposes of compensating the effects of eliminating liabilities by fiat.

    Loose money is a great cure for recession, but with high debt loads it will after shorter and shorter times unless it is used to pay down debt – so ensure that it is used for this purpose. Possibly giant public-sector lending programs that can only be used to pay down private-sector debt…

    Anyway, flood the zone enough and our currency will depreciate heavily, thus raising the cost of imported goods and services relative to stuff like finance and health care, which will also help solve the problem.

  60. john personna says:

    @glasnost:

    One of the effects of the recent financial engineering has been to push US government debt into short term notes. When you have that, you can’t really inflate. If you do so, you crank up your own debt service.

    In the 80’s the government had the good fortune to have a lot of money out in long term bonds. Those were locked, and people who held them got stuck when inflation produced higher rates going forward.

    [update: see also Marginal Revolution]