Ellington

Paul Krugman explains in his New York Times column why we could be facing economic disaster as a result of the obsession over slashing spending:

[T]he deal itself, given the available information, is a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America's long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.

Start with the economics. We currently have a deeply depressed economy. We will almost certainly continue to have a depressed economy all through next year. And we will probably have a depressed economy through 2013 as well, if not beyond.

The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn't work that way, a fact confirmed by many studies of the historical record.

Indeed, slashing spending while the economy is depressed won't even help the budget situation much, and might well make it worse. ...

Previous Comments

ID

164195

Comment

Here is a slightly different perspective about what is in the deal, from Nate Silver of FiveThirtyEight: First, the timing: the cuts are heavily back-loaded, so the deal is unlikely to have much direct effect on the economy in 2012. The spending cuts will proceed in two stages. There is an initial round of about $1 trillion in cuts, which will be locked in place when (and if) the deal is signed by the president. Then there is an additional $1.5 trillion in cuts, which will go into effect if Congress is unable to agree to the recommendations of a bipartisan commission (or “Super Congress”) by the end of the year. The first round of cuts include “only” about $22 billion in reductions in 2012 spending — the same as the bill proposed last week by Representative John A. Boehner, which provided some of the outlines for this deal. That would reduce 2012 G.D.P. by just 0.1 percent, other factors being equal. The second and larger round of cuts, according to the White House’s summary of the deal, would not include any reductions to the fiscal year 2012 budget. Instead, those cuts would kick in during 2013 and last through 2022. ...

Author

DonnaLadd

Date

2011-08-01T14:33:51-06:00

ID

164196

Comment

"The worst thing you can do in these circumstances is slash government spending..." Those words carry weight, coming from a qualified expert like Paul Krugman; and this segment doesn't even mention the fact that revenue is not even in the equation. I would think the absence of extra income would just serve to further exacerbate the problem. Have to ask, where is the balance?

Author

jamesparker

Date

2011-08-01T14:34:13-06:00

ID

164197

Comment

Interesting take on this -- THE TRUTH ABOUT THE DEBT DEAL: It's Pretty Much Meaningless -- wherein the case is made that very few cuts actually happen in the near term, and that the claim that there's $1 trillion in cuts is mostly smoke-and-mirrors (it's caps on future spending). The "super committee" will meet and make its recommendations, they'll see if they can get legislation out of it, and go from there... that legislation could include tax reform or additional revenues, although those wouldn't pass the House. Obama still has the option of vetoing any additional attempts to extend the Bush tax cuts, although how that would play out in the 2012 elections is anyone's guess.

Author

Todd Stauffer

Date

2011-08-01T14:42:24-06:00

ID

164201

Comment

If shared suffering is the only way to kill off the republican party and it's blind supporters as presently configured and operating then sadly I must declare that Im all for it. I'm reminded of the time I had to interview three recently unemployed gentlemen who had lost their jobs due to the recession in the 1980s. I asked them how could they smile under such arduous circumstances and they pointed to a gentlemen five persons above them and said that gentlemen is our boss and we would gladly eat grass as long as we knew he had to eat grass too. I'm all for eating grass with the cows as long as I know Bubba and Robbie are eating with the pigs.

Author

Walt

Date

2011-08-01T16:27:40-06:00

ID

164203

Comment

Another angle (that actually agrees more with Krugman): Spending Cuts Will Make the Deficit Worse. The trick in this one is that it's looking specifically at what Japan did when it prematurely tried austerity after it's economic collapse in the 1990s. Since its multi-decade recession began, Japan had pronounced periods of "fiscal consolidation" and each time... deficits rose due to collapsing GDP. It goes back to my War on Math #2 post -- the current deficits are partly a result of an actual *drop* in revenues thanks to the remarkable recessions we've gone through. If you want smaller deficits, you've got to get revenues up, and you'll kill that option if you cut spending too dramatically and bring down the GDP too quickly.

Author

Todd Stauffer

Date

2011-08-01T16:29:38-06:00

ID

164221

Comment

So, after some ridiculous theater that may well do very little to change much of anything, what do Republicans in the House decide to do: they go on vacation early without working on some key legislation. First among them is the re-authorization bill that would put 4,000 Federal Aviation Administration employees back to work. They've been furloughed for over a week now, and hundreds of associated aviation-related construction projects employing many more remained halted. Failure to act also means the government will forego over $1 billion in taxes and fees on airline tickets. Sigh.

Author

Todd Stauffer

Date

2011-08-02T14:22:30-06:00