The GOP has no interest in what is good for the country. It does what is good for its supporters, who overwhelmingly benefit from their policies. It is government for sale. That they have managed to fool so many fly-over country people into thinking that the GOP is 'their party' amazing. The focus of Red States spending on Education, or lack thereof, is a contributing factor in eroding critical thinking skills.
Both the GOP and Democrats are Keynesians except that it's for different sets of people.
While the size of the fiscal multiplier is debatable or the efficacy of stimulus debatable, what the Republicans are doing is setting US public finances on a more unsustainable trajectory – which may likely hit Trumpland harder.
The stimulus "we don't need now"? That's not so clear. Earnings of many people remain low; labor force participation rates are down, despite the rosy unemployment rate (even after adjusting for an aging population); inflation remains too low for monetary policy to be effective if things go bad. And if the economy is so great, why are interest rates so low?
Tax cuts for the rich is not the stimulus we need ever, but we may still need stimulus.
@Ross Boylan
No we don't. A "stimulus" is a government investment (paid for or not, through tax cuts or tax credits or subsidies) to increase GDP growth.
For years already now, GDP growth has an annual average of 2%. That's a normally growing economy, when it comes to fully developed, Western economies.
Of course, producing wealth is NOT enough (and has never been) to allow ordinary citizens to make ends meet.
For that to happen, we need a very different kind of bills: bills that distribute the wealth produced equally, or at least more equally.
In other words, we need a very different kind of political action: increasing the minimum wage by law, making healthcare and education more affordable, etc.
The idea that somehow high economic growth would solve all problems and that then, miraculously, the wealth of the wealthiest citizens would "trickle down", without any laws that mandate them to share with America as a whole, is just that: a myth.
The only problem here is that even part of the left is now taking over this myth, and refuses to admit that the economy is booming, simply because wealth remains concentrated at the top.
Nothing will ever happen as long as we let the GOP control DC, as those are the guys that don't even think about distributing America's wealth among its workers.
The economy is doing great. Now we need a POLITICAL solution that stops shifting its wealth to the top 1%.
That means: VOTE!
2
@Ross Boylan
The unemployment rate cited by those who claim that the economy is booming is the U-3 rate, which consists of the unemployed who are eligible to collect unemployment benefits (BLS doesn't want to tell us that). U-3 is called the "headline" unemployment rate - because it's the one the government wants us to see and influence our opinions. Unemployment benefits are time-limited, so, when a beneficiary's time runs out and is still unemployed, he or she get shifted to the U-6 unemployment rate. U-6 is much higher than the U-3 headline unemployment rate, but it's never cited as the official unemployment rate. U-3 is the "official" unemployment rate, which presents a false depiction of socioeconomic reality.
2
@Ana Luisa
Thanks for your comment. I agree that policies other than macroeconomic stimulus are necessary to solve many problems. But your comment seems a mix of straw man arguments and implausible assertions.
First you define stimulus as investment, against virtually every other use of it I've seen, and its goal as boosting the long run growth rate of the economy. Stimulus is any kind of spending, and the normal goal is to get out of a slump.
Having defined an unusual goal, you then assert the goal is impossible because we are stuck with 2% growth rate (even after a recession with more total GDP loss than the great depression?). That's irrelevant to whether a stimulus can work in a depressed economy, and ridiculous in taking the performance of the last few decades as a natural law.
Your assertion that the economy is booming is consistent with the headlines, but not with the data mentioned in my original post. Perhaps we disagree on what metrics to use in judging the economy.
Finally, you set up the straw man that high growth will solve all problems, knock it down, and conclude that (therefore?) it is a myth that it will do anything at all. So if it doesn't do everything, it must do nothing?
For example, are you sure that higher employment would have no effect on wages, workers' ability to organize, or any of the problems you mention?
72% of this 21 trillion National Debt falls under Public Debt, Us. The most Significant portion is our Social Security Trust Fund, Disability Insurance and Medicare at 53%. The Federal agency portion, Intragovernmental has borrowed 2 trillion dollars from this 53%.
The current revenue takes in more taxes than needed and is ending soon. Ask yourself this; How much money of this revenue does djt's 10 year budget allocate to pay back this debt, extending the life of Social Security? The truth, Not one penny.
Where will this GOP find the money to pay the S.S. Trust Fund as the number of retired recipients is growing at a rate of about 100,000 per month? Djt and posse will start by cutting these unnecessary federally funded "social welfare programs", Disability Insurance and Medicare. The Social Security Trust Fund will eventually fade away.
I pray when I wakeup on 11-7 and open up my digital subscription to the Times, I read that yesterday was an historical voter turn out. The color Blue won the majority of our House and/or Senate.
3
Re: “Here’s what fiscal policy should do: it should support demand when the economy is weak, and it should pull that support back when the economy is strong.”
I find it bizarre that a professional economists can say something like this when there is nothing in the logic of macroeconomic theory that can justify it. Where is it written that given the level of government expenditures, exports, and the propensities to consume and invest it will be possible to maintain full employment if the government pulls “that support back when the economy is strong.”
What Keynes actually said was: “I conceive … that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment; though this need not exclude all manner of compromises and of devices by which public authority will co-operate with private initiative,” and this is exactly what happened following WWII.
See the Keynesian World War II Myth: http://www.rweconomics.com/htm/WW2.htm
2
@George H. Blackford That Keynes doesn't support the notion is irrelevant. It should be clear to anyone who gives it a moments thought that you have to ease up on stimulus when it is not needed in order to repay the debt when it is not. This is simple arithmetic principles, not fancy economic notions.
The GOP has perverted fiscal policy since Ronald Reagan. He made racist comments about 'welfare queens' and Bush Sr, ran the '88 ad demonizing blacks. Now they are out into the open, running racist ads and making racist statements all across the country, embracing white supremacists and nationalists. They are no longer the GOP. They are either Trump's or Joe McCarthy's party, filled with anti-semitism,and hatred of muslims, immigrants, black and brown skinned people, and LGBT. What the 'good' republicans are doing in the party if they exist is a mystery. They don't matter and are irrelevant. Nobody is listening to them.Not Trump,not his supporters, not independants and not democrats.
1
I don't understand the republican resistance to counter-cyclical Federal fiscal policy. They understand that Federal fiscal policy can stimulate the economy, or dampen the economy. But they refuse to operate that lever accept to amplify the private sector economic cycles.
Ideally, we would be saving Federal money in economic expansions, and then spending that rainy-day fund in economic contractions. A deficit based approach is less desirable than a surplus based approach. But basic counter-cyclical Federal fiscal policy seems so obviously rational.
1
@votingmachine This is my take on it. The Republicans view it as a purely partisan exercise. If a Republican is president, then spend like crazy and goose the economy. By the time the stimulus wears off the Democrats will be back in the White House, at which point the Republicans block everything. Economy booms under Republicans and sputters under Democrats. Plus they don't view a crash as a bad thing because if one is wealthy, that's when you buy up bargains. Simple, from their point of view in their zero sum political partisan game.
2
We have an incompetent person in the White House. He was nominated by the GOP which would lead any sane person to question the GOPs sanity and competence. And there are a lot of misconceptions and downright wrong ideas that many Americans have about the budget. What we need are some op-eds from Mr. Krugman that answer our questions about the budget directly without any wonk in them.
Why is it okay for the US to run a trade deficit with other nations?
Why should we cut taxes in a recession and leave them alone when the economy is running well?
Why don't tax cuts work as intended?
And who believes that trickle down economics works and why?
Thank you in advance Mr. Krugman.
Donald Trump is the distraction -- shooting people on 5th Avenue while our pockets are picked.
"If ifs and buts were candies and nuts we'd all have a merry Christmas". ...Don Meredith, Monday Night Football
PK is not addressing the reality of today's low unemployment: the fact that people have jobs does not automatically mean that the economy is strong.
The labor participation rate is at one of its lowest points ever. Workers are struggling to support themselves and those not working, at lower wages than they need and deserve.
The looming deficit has little or no relation to any of this. It's a result of criminally low tax rates on the mostly better off, not on government spending to stimulate the economy.
This is not a time for austerity. It's a time for raising taxes on the rich. For lowering the age of eligibility for Social Security and Medicare and increasing benefits. For raising the cap on contributions to Social Security. For investment in the country's failing infrastructure.
In other words, we should treat the economy as if it's still in crisis, not jump on the low unemployment celebratory bandwagon.
4
@Jerry Engelbach
By "austerity" Krugman clearly means here NOT increasing the deficit.
He has always supported strengthening social security and Medicare and raising the minimal wage etc. Those are policies that in most Western countries are plain common sense, and in the US part of the very core of what Democrats stand for.
The same goes for raising taxes on the wealthiest - something candidate Trump promised to do, but only Democrats time and again achieve, once they control DC. Obamacare, for instance, raises taxes for the wealthiest citizens, and that's one of the main reasons why the GOP wants to destroy it.
Does this mean that the "economy" is in "crisis"?
I don't think so. A growing, job producing economy is one thing. Passing laws that distribute the wealth produced by the American people fairly, rather than shifting it systematically to the wealthiest citizens, doesn't have anything to do with the economy itself, but are purely political choices.
We can either vote for a party that supports a fair distribution of wealth, and then we'll see the kind of progress that is typical in any democracy: real, lasting, non-violent step by step progress, election after election. Or we can vote for a party that supports laws that suck the wealth out of the middle class and hand it out to the wealthiest citizens, and then even the economy may end up being hurt by such reckless practices, but this IS a political choice, a choice that "we the people" have to make.
4
Worse, the fiscal stimulus is at the expense of almost doubling the deficit.
The debt is projected increase by $12 Trillion over the next ten years.
That is $80,000 per taxpayer on our federal credit card.
And Ryan and McConnell are already talking about cuts to Social Security and Medicare for our parents who worked and paid into the system for 50 years.
All to give the billionaire class more tax cuts and wealth.
6
According to Oxfam:
-The US is the third least taxed country in the Organization for Economic Cooperation and Development (OECD).
-Back in 1979, the US had the 16th highest taxes as a percentage of GDP, out of 24 countries at that time.
-In 2010, the US had the 32nd highest taxes (i.e. almost the lowest tax structure) as a percentage of GDP out of 34 OECD countries.
Princeton economists Alan Blinder and Mark Watson after analyzing data stretching back to World War II:
“The U.S. economy not only grows faster, according to real GDP and other measures, during Democratic versus Republican presidencies, it also produces more jobs, lowers the unemployment rate, generates higher corporate profits and investment, and turns in higher stock market returns. Indeed, it outperforms under almost all standard macroeconomic metrics.”
Facts matter. Future = Democrat; Fiasco = Republican.
11
@Tomas O'Connor
OLD facts, not to do with current labor-less economy we have now, and narrow, convenient lenses. Ironic that you invoker "blinder."
That Paul Krugman calls government deficits stimulus shows how much free lunch economics has taken control of the economics profession. free lunch economics is what HW called voodoo economics. It's the claim that supply can be detached from demand. That higher profits drives higher demand because cutting labor costs to increase profits increases supply from the profit motive, and supply increases demand, as if consumers are driven by the "wealth" from inflated prices of scarcer capital assets, not wage income.
Keynes was very clear what was needed in 2009 forward. More capital, and capital is not money. capital is factories and machines, housing, cars and trucks, and the public capital that enable an economy to function and grow: roads, bridges, rail lines, trains and buses, water and sewer, schools, health care clinic with skilled professionals - all things built by paying workers, construction workers and teachers and trainers to build the human and built capital.
The money paid to build assets is not deficit spending, it's investment.
Just as when you borrow $250,000 to buy a $300,000 house you are not running a $250,000 household deficit during your good economy year - you have down payment of $50,000 and good income, building public infrastructure is not deficit spending.
Keynes is very clear (in Ch 24) that when workers are idle, the problem is too little capital, and the solution is building more capital until so much capital eliminates scarcity profits.
1
Your premise is I think faulty on Krugman and your history of what HW defined as voodoo economics is. First, deficit spending is stimulative and when it is done is the issue fundamental to the article. In down times, stimulus makes sense. In somewhat good times, it makes less sense or no sense at all because it tends to be merely inflationary and drives up interest rates which are effectively a tax on the poor and middle class who lack sufficient capital to begin with. Higher interest rates though are a boon to the rich who now have a safe harbor for their capital (profits) saving them the risk of investing it in businesses. HW accused the policy ideas of supply side economics proposed by Reagan as the nonsense they were then and still are. What did conservatives do? They rejected Bush of course because it was all a fraud then as it is now - it was just cutting the taxes of the wealthy that was important then as it was last year. The real point is we are deficit spending even more because of a loss of corporate tax revenue that has not been offset the by the lower tax rate and not because of relative spending increases. This is totally different from investing in infrastructure that would provide a real return to the country and jobs for the poor and middle class hired to create it. But the Koch brothers oppose infrastructure that would depress demand for gasoline. Are we winning anything with Trump and Republican policies, yes if your really rich and no for everybody else.
4
@mulp
Except that he's NOT calling "deficits" stimulus.
What he's saying is that normally both Democrats and Republicans agree that a VERY specific type of government spending, namely one that stimulates a given economy (and as confirmed by the CBO analysis of such a spending bill) is needed when unemployment is high and GDP negative.
The Recovery Act was such a spending. It contained 50% of very well-designed tax cuts and tax credits (for instance for small businesses (the most important job creators in the US) ... IF AND ONLY IF they hire a new worker or don't fire someone they would have had to fire otherwise), and 50% of subsidies (= direct government payments to for instance improve America's infrastructure).
Normally, such spending bills are one-time spending, not structural spending, and they aren't paid for, because to pay for it with a negative GDP (= lower government income) would mean dramatically cutting other government spending, which would only make things worse.
So THIS kind of spending has always created a deficit. As it's not a structural deficit, once the economy gets going again it can be more or less easily eliminated.
IF instead you decide to pass PERMANENT tax cuts, and you don't pay for such a bill, then you create a structural deficit. That is what the GOP just did with their over the board tax cuts for the wealthiest.
Krugman's point is that it's foolish to do so, especially when the economy doesn't need any stimulus, as is the case today.
2
@Ana Luisa
Just a note on tax cuts for small businesses.
I had a small manufacturing business for 13 years employing 40 people.
The only thing that caused me to add workers was increased demand.
Any tax cuts went into my pocket for a new BMW and vacations to Europe.
That's true for big corporations, too. Any CEO hiring without increased demand would get fired.
6
Voo-doo economics won't stay dead because GOP pols have convinced people who should know better that this time the idea is going to work.
Republicans have been telling the electorate for several decades that it's the *Democrats* whose economic policy is ideologically based irresponsibility rather than their own.
Dems have let some tiny things make an enormous difference in how voters might think .
Imagine how much clearer the Affordable Care Act debate would have been if Democrats had established that the law requires people to *have* health coverage , not necessarily to *buy* it.
Sarah Palin could inject "death panels" into our vocabulary because she got to describe a couple of the 10,000 Medicare billing codes.
Whenever Republicans started to excoriate the estate tax, somebody should have reminded Americans to look at the relationship between passing Medicare in 1964 and estates that were big enough to be taxed several decades later.
Of course, once "debts for our grandchildren to pay" became a euphemism for "not paying our share today" GOP politicians could divert a lot of attention away from just how little they think that share should be.
3
This is fine economic planning if your time horizon is 3 to 6 months, and you have zero concern after that. Since fiscal policy will essentially off the table for the next recession, I just hope the Fed's planning gives us that proverbial soft landing so we don't go deep and need fiscal stimulus to help us climb out.
2
The economy is booming but Americans are very angry, why? The only question is what will happen when the market goes belly-up? I guess we can fall back on our anger of those others and blame them for our stupidity.
2
@Carol
If the economy were "booming" working people would be rolling in prosperity.
They're not.
And the stock market has nothing to do with it.
@Jerry Engelbach
There is NO evidence WHATSOEVER proving the Republican myth that as soon as an economy booms (which for any developed Western economy means about 2% annual GDP growth and low unemployment), somehow, miraculously, America itself would prosper.
Time and again, the opposite has been proven: if you want the wealth produced by all Americans taken together, to go to America, rather than the wealthiest 1%, you need LAWS that do so. If you want the opposite (as the GOP wants), you also need laws that do so.
People will only "be rolling in prosperity" if they engage politically and vote for political parties that support equal distribution of wealth.
If we don't vote or vote for the GOP, the exact opposite will happen.
In other words: "it's not the economy, stupid" ... we ALSO have to make crucial POLITICAL choices.
Obama and the Democrats restored economic growth, but before they could start tackling inequality, "we the people" gave Congress to the GOP, which systematically blocked fair distribution of wealth. Only Obamacare still got through, and that was it.
People imagining that the Obama stimulus should have solved ALL problems, both economical and political, have been vulnerable to the "invisible hand" GOP myth. There IS no invisible hand. There's the GOP hand, which actively votes for legislation increasing inequality, and the Dems' hand, doing step by step the opposite.
So it's up to us to choose ... and engage!
VOTE!!
I strongly believe the GOP had a plan more less Ryan thought out. They pursued repeal of Obamacare first to gain spending cuts to offset the costs of their tax plan. Perhaps not revenue neutral but a plausible plan. When the repeal went down in flames, the choice was a much needed infrastructure program. A bipartisan measure financed a low cost. A time to bind wounds.
The donor class and internal GOP politics derailed any infrastructure plan in favor of the eventual tax measure to bail out the wealthy. With no savings from Obamacare and an increase in defense spending the deficit swelled. Infrastructure no longer a priority.
It did not need to happen this way. Fixing Obamacare, doing an infrastructure program and revamping the tax code to benefit corporations and the middle class could have been bipartisan.
2
As to the Hutchins Center chart, I want to see red (looks all blue to me) on the chart but I just can't. That's O.K., hopefully I will see far less red in D.C. next Congress. Fortunately, I do understand clockwise.
The Republicans love to assail the Democrats as the "Tax and Spend" party. I guess that makes them the "Untax and Spend" party. How are Republicans going to bring down the debt if the untax part of the plan fails to replenish the treasury? Anybody got a guess? Does it start with an "E"?
1
This article highlights why racism, all the ism's, are so important to the Republican party. As the voters start to figure out that the party isn't really for them, the Repubs bring out the race card, they use fear and lies to make voters support the party that hurts them the most economically. And unlike healthcare and middle-class tax cuts the Republicans follow thru on the racist agenda.
9
Now, if only that great mass of MAGA wearing sycophants would wake up and realize that the fiscal idiocy of the Republican Party is a thousand times more of a threat to their future then a rag-tag band of shoeless refugees shuffling towards the border. But alas, it is the doom of man that he forgets...
12
Could the Times accompany such a column with a parallel effort advising how a family with at least some assets can attempt to protect those assets from the government, or other, perversions reported in the column ? It’s interesting to know better what is going on but not good to feel helpless in the face of it.
3
@Frank Not sure why a financial planning piece is parallel. Families with assets can research and find an honest financial planner. (careful as Trump and GOP removed regulations that Financial planners or advisors must work in the best interest of their client) or perhaps a good tax lawyer. Worthy investments. Our Family has had a financial advisor/planner for many years and our assets have grown. take care
3
An American author (and journalist) once wrote:
"A man who hasn't had much experience, and doesn't think, is apt to measure a nation's prosperity or lack of prosperity by the mere size of the prevailing wages; if the wages be high, the nation is prosperous; if low, it isn't. Which is an error. It isn't what sum you get, it's how much you can buy with it, that's the important thing; and it's that that tells whether your wages are high in fact or only high in name."
— Mark Twain, A Connecticut Yankee in King Arthur's Court (1889)
If Democrats or Republicans wish to hold the American People's purse strings for much longer, then it would behoove its current or future members to enact the following legislation (at the local, state, & federal levels) on behalf of their employer—the American People:
(1) Defend the biosphere;
(2) Provide top-notch universal health care & quality education;
(3) Mandate a national living wage;
(4) Protect & expand entitlement spending programs for those in need;
(5) Reassign some defense discretionary (i.e., optional) spending to other discretionary spending programs;
&
(6) Forever tax the rich, corporations, & pass-through entities at the levels of the 1940s and 1950s.
Why?
Because the Anthropocene waits for no one.
(See, e.g., "Humanity Has Wiped Out 60% of Animal Populations Since 1970, Report Finds," Guardian (Oct. 29, 2018), https://www.theguardian.com/environment/2018/oct/30/humanity-wiped-out-animals-since-1970-major-report-finds.)
4
@TravisTea
You present a more or less comprehensive plan. It is good for people to hear this so they can start to internalize it and are more open to taking action when the possibilities are presented to them
I personally working on the lead up to your first point. I'm trying to educate that climate change will ravage our ways of life, ability to produce food, and our ability to operate a prosperous and efficient economy. Once some people understand this, then we can get to your first point of defending the biosphere.
You keep explaining the rest of the path to people, and I'll continue to try to help them find the beginning of the path. Godspeed.
5
I like to think I can read graphs, but can make no sense at all of the graph Krugman presents.
1
@Bob Garcia. See Ana Luisa's post about 4 hours before yours which is addressed to those who don't understand the graph or think it's mistaken. The problem is that many readers infer there is a timeline in the graph, and there isn't. Look at the labels on the axes: Fiscal stimulus and Unemployment. The dates that label the two graphs are the two different time periods from which the data were collected.
2
'...And now, with unemployment very low but a Republican in the White House,...' But with a Republican in the White House is unemployment really low? Or is someone at Labor cookin' the books?
@JONWINDY Ha, but you are right. One cannot trust any department as trump appointed the director. I have read various pieces that talk about other indicators that are not government generated that unemployment is low. Take care
Paul Krugman is, as always, the voice of reason on economic issues.
1
I have several degrees in mathematics and I am having trouble understanding your graph.
No trouble understanding the article.
The purpose of today's GOP is the exact same as that of any totalitarian oligarchy: make the people so poor and ignorant that you can use the government to increase your own wealth and that of your wealthy buddies all while being re-elected time and again because a huge propaganda machine cultivates frustration and hatred and then invents fake crises and fake solutions, making people believe that you're actually doing something for the country as a whole.
Leftist political parties are vulnerable to high levels of corruption too, as history has shown. It's just that in that case, they tend to do the opposite: tell the people that their programs will shift money from the wealthy to the poor and middle class, whereas the programs they implement aren't science-based at all, so end up hurting ordinary citizens even more than before.
In the US, for two decades now it's the GOP and GOP alone that has thrown away its moral compass and sense of decency and has become entirely corrupt, whereas the Democrats are doing the exact opposite.
Venezuela is a good example of leftists giving in to corruption rather than putting ordinary citizens first.
And if the media here in the US don't start to systematically highlight this fact, and instead merely tries to focus on GOP lies and denouncing or debunking them, people won't realize that there's an alternative and become so disgusted with politics that they stay home rather than vote - which is exactly how corruption increases even more.
3
The cycle of debt crisis from bull to bubble to crash to normalization and back again has been with us for millennia. It is not a partisan issue and to frame it that way shows a desire for narrow partisan advantage rather than shedding of light on the subject. Anyone who wants to learn about it in earnest should download Ray Dalio's free pdf book on the subject. He has forgotten more about markets than Dr. Krugman will ever know. Do an Internet search for "A template for understanding big debt crises by Ray Dalio" and leave the political spin behind.
@btb
Maybe.
In the meanwhile, the question is: when is the best time to sign a stimulus into law, and when is the best time to pay off the debt?
According to Republicans, the best time to pay of the debt is in the midst of high unemployment and a shrinking economy, and the best time to sign a government stimulus for the economy into law rather than paying back our debt, is when we have full employment and the economy is steadily growing.
For Democrats, the exact opposite is true.
What Krugman shows here is that for a long time, both Democrats and Republicans agreed, and that it's only since 2009 that all of a sudden Republicans flip-flopped.
So from now on, Democrats and Republicans disagree about this question, you see?
With that, any comments on substance? What's the best thing to do in your opinion? Should we pay back the debt today, or increase it and wait until unemployment is high before imposing austerity? Any ideas?
5
@Ana Luisa
That pat comparison doesn't stand the reality test.
There is no right time for Republicans to sign a government stimulus for the economy into law.
They have no interest in stimulating the economy. Their agenda is to steal as much as possible for the rich.
1
@Jerry Engelbach
What Krugman shows is that that's only the case since a decade now. Before, Democrats and Republicans agreed that during certain economic crisis, you need a stimulus. They often disagreed about how to best stimulate an economy, but they at least agreed THAT it was necessary.
Since 2009, the GOP flip-flopped, and opposed ANY form of stimulus during a severe recession, even tax cuts.
And now that the economy is booming again, all of a sudden they start claiming that the economy needs to be stimulated. That, according to them, is what will increase wages.
As we know, however, the minimum wage is mainly the result of political decisions, and never an automatic byproduct of a booming economy itself. And the GOP systematically blocks all Democratic initiatives to obtain a more equal distribution of the wealth produced by America's economy ... so it won't happen as long as "we the people" sit out elections and allow a minority of Americans to decide elections and win them.
1
On most issues, Republicans are all talk, no action.
They SAY they support low deficits, but then as soon as "we the people" give them the legal power to deal with deficits, immediately double or triple them. Only Dick Cheney had the guts to admit that for Republicans "deficits don't matter", before handing over a record and structural $1.4 trillion deficit to Obama.
They SAY they support healthcare bills that would increase the number of Americans with health insurance and that would lower costs, but all their HC bills do the exact opposite, and even that they're not motivated/skilled enough to get through Congress and signed into law. In the meanwhile, their tax cuts for the wealthy destroy the healthcare of a whopping 13 million Americans. If you know that Obamacare saves an additional 40,000 American lives a year, it becomes clear that their tax cuts for the rich are LITERALLY death panels (this bill alone is responsible for 200,000 American deaths a decade, whereas Obamacare saves almost half a million American lives a decade).
They SAY they want to increase border security and tackle illegal immigration, but it's only Democrats who truly care about this issue and Obama who managed to get comprehensive bipartisan immigration reform through the Senate (2013), which the GOP blocked in the House, and after 2 years in the WH, Trump basically achieved nothing at all on this issue, except for a couple of PR stunts.
If it weren't for Fox News' FN, they'd be out of office
4
Let's not overlook the possibility of simply hijacking the entire narrative for the sake of the very few. Trickle-down economics , the failure of failures, is now called something else. Policy is now a press release, practice is now a Gimme exercise for the very insular and well-padded part of society.
As policy, with America's vast infrastructural, health and ridiculous costs for critical education, the Republican train wreck makes no sense. A few very superficial numbers, fine for the illiterate, are generated, and everything's fine.
In opposition, the Republicans blocked sound policy at every opportunity. A lot of rich guys did all possible to prevent any kind of fairness in policy. The hookline was "Republicans are angry", uttered by every GOP thing in front of a camera. Everything was terrible, according to them.
What do these absurdly rich guys want now, revenge for being rich? Even the insane have a rationale for what they do; this is just psychotic irresponsibility, with a herd of sycophants/psychophants going "Yeah, boss" and getting jobs making the train wrecks worse. "Perversion" is a very polite word for this systematic destruction.
3
The myth of Republican financial responsibility should have been dead before the G.W. Bush administration, but what person thinks it makes sense to run two wars, create the largest expansion to Medicare in its history - without funding it - and also provide two big tax giveaways to the wealthy?
https://www.heritage.org/health-care-reform/report/why-medicare-expansion-threatens-the-bush-tax-cuts-and
So now they're maxing out our national credit cards again, during a time when we should be paying down debt.
During the Obama administration (Obamacare was funded), the pious GOP leadership complained that the economy should be run like a household, and that deficits were always bad. Well, I'm surprised that the GOP leadership haven't all been evicted if they run their household finances like they run the country.
They've never recovered their sanity after Reagan & Co. decided that the federal government should be mismanaged to death.
5
Is there a way to make a graph/graphs to demonstrate your concept in a non-economist way? I too had difficulty reading it. Maybe two graphs, one with a timeline.
I certainly understand the concepts and realize this is what is going on. It was pretty predictable with the Republicans in control.
Its easy to see grand conspiracies at work, though reality is probably self interest and ignorance. Some people are surely working this for great gain, but most are just going along happy that they are getting wealthier.
I remember in The Big Short, a few saw what was going on but most of the titans of finance were as ignorant as everyone else. However, they were in the position to gain going up and down, now up again.
It will be interesting to see what happens when they start cutting Social Security and Medicare. They will start with Medicaid and social programs for the poor. The propaganda that "community" will take care of the deserving poor has been in effect on talk radio for at least 10 years, maybe more. My suspicion is that it will happen with stealth and slow erosion as has happened with higher education and taxes.
2
Paul, there's still no accounting or diagnosis of the massive impact of, as Bernie would say, the "HUUUUUGE 'negative externality cost dumping" from the fossil-fuel, weapons, chemical, and financial industry scams which act like massive hidden corporate taxes on our government, our people, and our environment.
Where's the serious economic research and GINI Coefficient of Negative Externality Cost Inequality --- from these looting/hoarding bad economic actors?
Where are the serious economists' calls for a 'Wealth Reform' timely claw-back of hoarded trillions in supposedly corporate 'surplus value' ?--- when the stranded and hidden 'negative externality costs' are already far greater than any faux-profits of this cost-shifting class?
5
@Alan MacDonald
Agree. If we computed the costs of fossil industry externalities (costs passed on and borne by others) and deducted those costs from fossil industry GAAP earnings, I'm pretty sure the results would show the industry has never made an economic profit. In fact, the losses might be beyond comprehension. E.G., what is the dollar cost of destroying Planet Earth?
There are some academic projects underway to try to do these calculations for various businesses.
2
It seems likely that much of the reason for the Fed's current policy of increasing interest rates, so vocally lamented by our President, is to counter this perverse fiscal policy that he and his party are implementing.
5
Government statistics will continue to be reliable for a while. The government has a lot of inertia, a lot of trained employees, a lot of procedures. It will take time for the Trump Administration to start cooking the books, but, if the Republicans succeed in holding the government, slowly it will happen, and our economic statistics will eventually become like Chinese or Russian official statistics. We're not there yet. But it will happen, and there may not be a clean dividing line where we can say, after this date, the statistics are unreliable. This type of Administration will not allow truth to stand anywhere, given enough time to stamp it out. All functionality, whether public or individual, must ultimately be based on truth, if only truth with oneself. This is the most fundamental reason why false equivalence is wrong. Today's Republicans profoundly lie and do it knowingly,a nd the President most of all, which is saying a lot, considering how much people like McConnell, Cornyn, Gowdy, etc., lie. No one who thinks that massive lying is OK is actually "conservative."
4
Despite stories of millionaires jumping out of windows during the Depression, a large portion of the uber wealthy have multiplied their wealth many times as a result of economic downturns, and especially, the Depression. That's when they snap up all the assets of the less well-heeled for pennies on the dollar, and then sell them back to us later.
And NOT for pennies on the dollar.
5
The author is barking on the wrong tree. The Republicans policy have nothing to do with economics, it a pure political moves of budget cuts and austerity when a democrat is in the White House and tax cuts for their donors coupled with increased spending on the military industrial complex when they control the White House regardless of the state of the economy.
9
Budget austerity, Mr. Dubinsky, for the Democrats?
Ok. I'll buy your thesis when you explain how the Obama administration's doubling of the national debt can be seen as "austerity".
There are two elements of our national economy that Dr. Krugman's mathematical analyses fail to measure...the effects of a reworking of the regulatory environment, and the confidence of the consumer in the direction that the economy is moving.
Dr. Krugman has somewhat of a bias and a fair degree of history in making predictions that never come true. Remember, he claimed that the stock market would crash when Trump was inaugurated and a recession would be upon us. Now, two years down he road, he is pulling out all of the stops to double down on his prediction.
I have no doubt that a recession is in our future. They always are...Two years from now. six, a decade or more. A recession WILL come.
I do see, however, that a Democratic House will go a long ways towards reducing the confidence in the American economy and might even be the trigger point for having a recession sooner or later.
I have no idea what Tuesday's election will offer our nation. But I do know that I will be a lot less enthusiastic about our economic progress if there is nothing but continued dysfunction in our Congress as a result of the vote of The People.
I will, however, be accepting of that dysfunction, and accepting of the fact that a continuance is what The People have chosen.
Elections have consequences.
@The Owl
Here's where you're mistaken.
Yes, the debt went up under Obama. And it is already and will continue to go up under Trump.
Why is that?
Because Bush left with a STRUCTURAL and record $14 trillion deficit. "Structural" means that even when subsequent presidents wouldn't pass any spending bill at all, the debt would nevertheless go up because a structural deficit needs decades before you can eliminate it entirely.
From then on, if you want to know whether a president is increasing or slowing down the debt growth (= increasing or cutting the deficit), you can't just look at what the debt does, you have to ANALYZE the content of the deficit related to the budgets that he signs into law.
If he signs bills into law that overall cut the deficit, he's fiscally responsible. If he doesn't, he's agreeing with Dick Cheney who, before he left the WH with a $1.4 trillion structural deficit, said that "deficits don't matter".
Obama cut Bush's deficit by two thirds. So he, like Clinton and the vast majority of Democrats, is de facto a fiscally responsible politician.
Trump and the GOP passed a $1.5 trillion tax cutting bill without paying for it. That means that they already INCREASED the deficit they inherited by $1.5 trillion. So they put ideology before deficit reduction and slowing down of the debt growth, you see?
As to the economy: look at no matter what graph and you'll see no Trump dent at all ... . So this is still the Obama economy. So don't worry ... ;-)
5
@The Owl
"I'll buy your thesis when you explain how the Obama administration's doubling of the national debt can be seen as 'austerity'."
The national debt skyrocketed under Obama due to the continuation of Bush II-era government-financed bailouts of mismanaged banks and several corporations, such as General Motors (GM was excused from repaying a large portion of its debt to the taxpayers). The banks and corporations received bailouts but, allegedly to pay for that, various forms of "austerity" were imposed on the rest of us.
3
When fiscal policy is set for more stimulus through unfunded tax cuts, while at the same time monetary policy is working in the opposite direction to dampen demand, by raising interest rates, there is a real conflict of economic policy settings.
At the same time as economic policy is conflicted, real wages are stagnating, while inflation is edging up.
When the economy is moving along steadily at a 2%to 3% rate of growth, with unemployment in the 3% to 4% range, is not the time for stimulatory tax cuts. Instead of the budget deficit dropping from around $585 billion in 2016, it is ballooning to close to $1000 billion in 2019.
If the economy does hit headwinds where growth is threatened, the current fiscal policy stance leaves little room for expansion. This is what happens when a not so stable genius, surrounds himself with other unqualified folk, whose blissful ignorance is a recipe for a self created economic slowdown that will hit Trump’s supporters. Main issue is that Trump will convince them their economic misery has nothing to do with Trump and the GOP, and they will believe Trump despite all the evidence to the contrary.
1
(wonkish) Paul, you need to tell us what this huge stimulus at the wrong time is going to mean for the economy. In Keynesian terms, it should mean a rapidly over-heating economy and then a recession. If it's not wage pressure, is it excessive demand leading to inflation pressures and rising interest rates? Or, a rising dollar from foreign financing of the deficit, leading to large trade deficits and rising interest rates? The wonkish question is not the lack of stimulus earlier, we've know about that for years; it's what this stimulus translates into as we're heading towards the end of a long expansion.
3
Couldn't I take the blue line to mean that fiscal stimulus is followed by higher unemployment and take the red line to mean that fiscal austerity is followed by lower unemployment?
1
@lester ostroy
No, because the horizontal axis isn't a time axis, but merely shows the relation between unemployment rate and stimulus, for two different periods.
2
as has been pointed out before these enormous deficits are part of the republican fiscal plan. by running up the debt by enacting tax cuts that favor the wealthy they will then be able to claim fiscal responsibility requires cutting the safety net including social security, medicare, medicaid and food stamps and the ACA.
11
Not really all that wonkish, Doc.
The GOP actively impeded recovery to full employment sooner by following a policy of austerity and sequestration. Once one of their own was POTUS - and from the look of things they didn't really expect it to be Donald Trump either - they took their foot off the brakes and amped up deficit-based stimulus. Thanks guys, you added 2.5 billion person-years to the suffering pile in order to advance your own agenda before the good of the nation.
There's a word for that sort of thing...and it isn't 'patriot'.
10
The simple answer is, Republicans don't care about all the people, only a few moneyed interests while the hallmark of the Democrat party is they always cared about everybody.
The Republicans always have and always will skim as much profits of society as they can.
When there's extra capital, they take it and when the people need it, they horde to protect their sponsors from taxation.
It really is just that simple. There's nothing wonkish about it.
9
The national debt has increased to 21 trillion. The public holds 16 trillon in debt. Japan, china, ireland, brazil and the cayman islands hold the remaining 6 trillion. The debt will grow by a trillion this year. The cayman island’s presence in this picture is strange. It can only mean a lot of money offshored by businesses avoiding taxes is lent to government. This year alone we have paid foreign creditors 32 billion so far just in interest. It is money that should have been saved and spent on medicare, social security and medicaid. The gop has been reckless with its 2017 tax cut to businesses, considerably worsening the deficit. Jimmy carter and Bill clinton were the only ones to bring deficits down. Bill clinton did it the right way, by raising taxes and cutting spending. Reagan, dubya and trump have considerably worsened the deficit. Obama was forced to increase spending because of the 2008 recession but cut spending later. Trump’s and the gop’s 2017 tax cuts, aimed at winning the mid term election and rewarding their supporters- business and farmers, were dumb and irresponsible. The debt is 76 percent of gdp and its growth is unsustainable. Soon it will cause interest rates to rise and the average american’s standard of living to fall
5
@observer
We shouldn't confound spending and deficit increasing policies.
Obama inherited a record, structural $1.4 trillion deficit.
"Structural" means that it takes decades before it can be eliminated. In other words: even if all the next presidents would pass no spending bill at all, it would still be there.
What Obama did is the same as what Clinton did: (1) to install the pay-as-you-go rule (abandoned by Bush and his "deficits don't matter" VP), which means only signing spending bills into law that are fully paid for, in other words that don't add a dime to the deficit, except for emergency spending, and (2) to actively cut the deficit.
Obama actually cut the Bush deficit by two thirds.
The Recovery Act indeed was NOT paid for, but it was only one-time spending, so it only raised the deficit once, contrary to what structural deficits do. And of course, as it turned around the economy, whereas a -8% GDP strongly reduces government income and as such, regardless of any spending, increases the deficit, you can argue that overall, his Recovery Act increased the debt MUCH less than if, as the GOP wanted, no Stimulus would have been passed.
Conclusion: to know who does what here, it's not enough to see how the debt evolves. You have to look at who's passing which kind of bills. Yes, the debt went up under Obama, but not through HIS bills/fault at all. The debt would have gone up under Trump too (because of the Bush structural deficit), but his tax cuts are HIS fault.
6
To those who don't understand the graph here, or believe it is inaccurate: it isn't.
It's only when you imagine that the horizontal axis (indicating the unemployment rate) is SIMULTANEOUSLY a time axis, with its left end indicating both the years 2000 (for the bleu line) and 2009 (for the red line) and its right end indicating 2009 (blue) and 2018 (red), that all of a sudden the graph is both incoherent and not corresponding to reality.
As thanks to Obama's stimulus in early 2009 the unemployment rate did evolve in a linear way, and constantly went down, adding time to the red line would be possible, but then you have to read it from right to left.
From 2008 to 2009, however, the unemployment rate did not evolve in a linear way, and was highest in 2009, so for the blue line, from an unemployment rate of 6.5% on you can again read the blue line as an evolution in time, but then you have to follow it going to the right, instead of the left. And one single graph cannot indicate two opposite time directions simultaneously.
Krugman's point, however, is not about a CAUSAL link between stimulus and unemployment rate. If that was the case, he should (and would ... ;-)) have added time as a third parameter and as a consequence axis.
He merely wants to show that before 2009 (e.g during the 2000-2009 period), high unemployment was "met with fiscal expansion", whereas after 2009 (= when the GOP took over, under Obama), the exact opposite happened: high unemployment + austerity.
6
@Ana Luisa
Neither axis portrays time, so yes, you are right, the blue line does proceed time-wise from left to right while the red line proceeds right to left.
2
The Fed started tightening for the first time in 10 years in response to current economic boom and fairy loose fiscal policy. Also most economic experts were predicting severe recession after Trump was elected. Therefore some fiscal stimulus was needed to counteract bearish expectations. Not to mention that fiscal austerity during trade wars is a recipe for disaster.
1
I would be willing to bet that if you ask 100 Trump voters the following questions, nine out of ten times you will get the wrong answer to every single one:
— Have Trump and the Republican Party balanced the federal budget since Trump was elected?
— Has the U.S. trade deficit with China increased since Trump began to impose tariffs on Chinese goods?
— Have American corporations dramatically increased investment since Trump was inaugurated?
— How much have wages increased since Republican tax cuts were enacted, adjusted for inflation? Corporate profits?
— Has the price of a barrel of oil doubled over the past year?
— Have residential real estate sales declined over the past year?
— Are new coal mines being opened, and has coal mining employment seen a significant increase since Trump’s inauguration?
What you’ll hear is that everything is fabulous. We’re in the midst of a miraculous economic recovery that has never before been seen in American history. Times were tough before; everything is just grand now.
What you won’t hear are questions like ‘where is the health care for everyone Trump promised?’ and ‘where is the trillion dollar infrastructure program Trump promised?’ and ‘why does everyone laugh when the President opens his mouth to speak at the U.N.?’
Fiscal policy is way too abstract and subtle to pierce the delusional fog in which these people live. Tax cuts have given corporations and the rich a big sugar rush; everyone else is just getting a contact high.
9
Once the Democrats take control of the House Of Representatives they will insist on an austere budget.
When a family needs to borrow to meet the expenses, they will be able to borrow based on their ability to pay back. A sensible thing to do when their income goes up, is pay down the debt rather than borrow more and spend more. If the income takes a hit, the debt destroys the family finances and will be subjected to hardships. This is what Keynes theory at family level, borrow when you need, save when you don’t need. Of course, there will be partisan arguments at family level, but we hope good sense will prevail. Otherwise, seek solution in divorce. At national level, we are bounded, short of leaving the country. The elections are where we make decisions of our future, Trump said he is on the ballot and Dr. Paul Krugman says ‘hate’ is on the ballot. I would say fiscal policy is on the ballot.
1
The obliviousness, or indifference, to what the combination of supply-side economics and negative credit actually result in makes me want to self-immolate out of frustration.
Adam Smith was a bit more qualified on this subject than Ayn Rand. The former was a rational individual, the latter was a covetous social climber.
15
Republicans have convinced us they are the fiscally responsible party. Is it fiscally responsible to alienate all of our trading partners at once, forcing them to enter agreements with each other, putting ourselves on the sidelines and giving up the leverage we could have had on China?? Is it fiscally responsible to adopt a centrally planned economy, after Russia's model and promote dying industries such as coal, thus letting other countries take over our leadership position in emerging energy sources? How many other not-so-fiscally-responsible examples can you think of?
13
Quantitative easing was the only stimulus to the economy that the Republicans would allow after 2010. Republicans hated it because it was outside their control and counter acted their austerity program which was mainly directly at making Obama a one term president.
14
@c harris: The time value of money does not affect government entities like the Federal Reserve Bank that can afford to hold debt securities it buys below par to maturity.
@c harris Not entirely true, easing involved drastically monetizing the debt by flooding the markets with liquidity, which also still has not been withdrawn from the markets...thus creating price rises for assets and those who own them at the expense of those who rent and gain their value through income (wages, salaries, non-stock benefits). That excess in the money supply is why the stock market is three times what it was then, it went into increasing value far beyond any potential inflation, while shifting that increase in value heavily toward those who own companies, banks, investment firms, hedge funds, owners in general, while deflating the value of earnings and wages (income).
5
@marek pyka
"[Quantitative] easing involved drastically monetizing the debt by flooding the markets with liquidity, which also still has not been withdrawn from the markets..."
QE consisted of the Fed's buying of poor-quality, or non-performing, mortgages (formerly known as "toxic assets") from banks that had bought the mortgages during the housing mania. The Fed's QE money went directly into the banks, not into the economy. The banks subsequently used their QE money to buy stocks, real estate and other assets, thus driving up their prices (this is why house prices rise even as real incomes remain flat). The "Fed," which is privately owned by a group of big banks, intends QE primarily to save the banks, not the economy.
2
And what happens when we have the next recession? Increasing the deficit will be nearly impossible so the slump will be much worse.
12
@fjwels
It's perfect for the Republicans, because it provides a reason for gutting: SSI, Medicare,Medicaid,SNAP and TANF.
2
Approximately a third of the country doesn't have the education or capacity to grasp basic math concepts, and is skeptical at best of science. Economics is advanced conceptually - and well beyond anything that portion of the population can handle - or want to. They will accept anything that is told to them, by their preacher or favorite politician, about "the economy". The also understand being stuck on their rung of social and economic ladder - but have no idea why - and as such, are able to be told that it is one or the other party's fault for something happening at the moment that may have been created and pushed over the cliff by a different group than is currently in power. Which we will see after 2020, when the slowdown starts to become very real - the democrats will be blamed, despite this being the effect of horrendous policy and politics by the right.
25
@David: Math is a self-organizing language built on relationships of contiguous logic. That's why it works so well to describe physical processes, which also self-organize.
1
@David
I've Ph.D. in a math related field and I can't begin to understand economics.
Physics is easier, it seems, because there is less unsettled science except perhaps at the cutting edge of the field.
Also, in some fields cause and effect can be represented by an arrow. In economics it seems to be a network of spirals.
2
With all the disinformation I've seen coming out of the current administration, how would I know whether the economic reports are accurate or yet another lie? Is unemployment actually low? Is the economy really booming? Is low unemployment good if people need 2~3 part time jobs with no benefits to not quite be able to pay the rent, food, and medications?
11
@Philip Bowser
The Bureau of Labor Statistics is still providing reliable information. It's the interpretation of that information that can include totally false or not proven elements, or not.
The BLS's unemployment graphs correspond to those of independent organizations monitoring the economy.
They all show a very clear trend: Obama inherited a -8% GDP and an economy that was shedding 700,000 jobs a month. As the CBO had calculated and predicted, his Recovery Act, combined with the bipartisan bank bailout, turned around the economy in less than a year, and created decade-long economic growth and the longest period of uninterrupted job creation in decades.
When you look at those graphs, you also don't see ANY Trump dent at all. The economy continues to grow and the unemployment rate continues to go down, just like it did during the 6 years before Trump came in.
At the same time, many Americans indeed have to combine two jobs. Many teachers, for instance, teach full-time, and then still have to accept a part-time job at night in order to make ends meet.
What Democrats (and they alone) claim is that this is not right at all. And the solution is obvious: increasing the minimum wage, all while continuing to make health insurance and education more affordable.
The GOP never even starts denouncing this kind of situations, and what's even worse, opposes all those science-based solutions.
Conclusion: VOTE!!
11
@Philip Bowser: The "labor participation rate" is the datum least subject to massage. It simply counts the ratio of those employed to the total number of people in their own age group.
2
@Steve Bolger
Actually, the LFPR does not factor in age.
"You calculate the labor force participation rate by dividing the number of people actively participating in the labor force by the total number of people eligible to participate in the labor force. You can then multiply the resulting quotient by 100 to get the percentage."
1
"The boom, not the slump, is the right time for austerity.”
Then why was Obama caving to Republican austerity demands as president?
"We cut our deficits by more than half."
— Barack Obama on Monday, September 1st, 2014 in a speech in Milwaukee
Obama's economic policies were center-right - more circa 1980s Republican than Democrat.
3
@Ed Watters
By 2014 the economy was well into recovery.
However, it is well to note that the GOP congress would not spend as much as Obama want to spend early on in the recession. Timing is important.
8
That's only the case if you imagine that fiscal responsibility and cutting deficits when the economy grows would be a Republican policy, rather than a leftist or even just common sense policy.
As Krugman shows, this kind of imaginations is what the GOP hopes you'll believe, whereas in real life, they systematically do the exact opposite.
So Obama wasn't "caving to Republicans" when he cut the deficit, as he and most Democrats have always found it important to increase it during economic crises and then cut it as much as possible as soon as GDP is positive again.
What Republicans did impose under Obama, once "we the people" gave them both the Senate and House (either by voting for the GOP or by staying home during the mid-terms), was the "sequester", a stop on spending, EVEN when Democrats systematically apply (and the GOP systematically abandons) the pay-as-you-go rule, in other words don't pass any non-emergency bills that aren't fully paid for and would add to the deficit.
Obama HAD to accept this as part of a compromise bill that allowed him to keep the government open and to extend some of the middle class tax credits of the Recovery Act (extension that the GOP vehemently opposed, because they've never been serious about helping the middle class in the first place).
But a compromise is exactly that: a bill that does NOT entirely correspond to your own idea(l)s. It's absurd to start imagining that a compromise would actually reflect those ideas, as you're doing here.
7
As they say in some parts, the Republican's plan to kill entitlements by blowing up the deficit was as obvious as gender on a tall dog. They've figured out that even though insanity is doing the same thing over and over and expecting different results, that's okay, because there's a significant part of the voting citizenry that will happily reward them for that insanity.
Thus, the repeated offering of tax cuts that will pay for themselves. Economic insanity, rewarded by re-election.
15
The quality of money usage within the economy is as important as quantity. You can add money as a stimulus but it's specific use determines the effect.
5
The politicians have no doubt provided themselves with cushy retirement and healthcare plans. If they had to rely on Social Security and Medicare like the rest of us the Republican's plan to slash those programs would magically go away.
16
Republicans use fiscal policy to win elections, not to help people. They fought Obama's stimulus when we were in what the average person would call a depression. Now that the economy is back on track, they use fiscal policy to juice it even more so that they can run on a good economy. If I used the credit card to by my kids lots of video games for Christmas, took them on expensive vacations, and bought them new cars on credit, they would love it. But when the bills came due and we couldn't afford our rent, it wouldn't feel so good when we were living in the new car. The bills for Trump's stimulus will come due, but it's our kids who will be paying for it.
17
As a non-economist, I find this chart very hard to read. Having time on the X-axis, with a trend line each for stimulus and employment, would help.
12
@jnc
I am also having trouble with graph and have degrees in mathematics.
6
@jnc: I agree that it would be interesting to see a plot of those values over time, and it's hard not to try to interpret the chart with respect to time. But the chart is intended to show the relationship of fiscal stimulus to unemployment--just what it plots. With the data in blue, you can see that the level of stimulus tends to be positively correlated with the level of unemployment--higher values of one associated with higher values of the other. With the data in red, you can see that overall the level of stimulus bears no particular relationship to the level of unemployment. I believe that this directly supports the main point that Krugman wants to make. But it might have been clearer for more people if both the stimulus level and unemployment rate were plotted (on one chart) over time.
2
@jnc
I believe there is a mistake in the graph. As described by Krugman, the red line should be looping back to the left as unemployment declines and fiscal stimulus increases. Instead, the line is headed upwards as if unemployment were stuck at 9 percent.
1
Dr. Krugman,
I have a great deal of regard and respect for you, and I truly appreciate the ways in which you bring economics to the man on the street while still providing other economists with details and insights about what is really happening in our world.
I agree wholeheartedly that fiscal policy has been off the rails for years, but I would trace it back to the Reagan administration . . . supply-side economics, indeed. Thank God that Paul Volker was able to short-circuit the rampant inflation that we had then, in spite of the effect on employment; it was an extremely dirty job that had to be done. But where was the fiscal side of economic policy then? Or now?
You emphasize 2010 as a starting point, but in 2009 you insisted that the $800 billion "Obama" stimulus was only about half of what was needed. I agreed then, and I agree now.
Since then it has only become worse, with deficits mounting mightily during a period where fiscal restraint would be most appropriate. They can say what they want about Keynesian policy, but it has repeatedly proven its efficacy. Actually, it is pretty simple and straightforward, if one looks at a basic flow-of-funds model.
What is being done now in terms of the fiscal health of the United States is not policy at all. I think the headline of your article said it well: What we are seeing and what we have seen from a Republican-controlled government in terms of taxation and expenditures is a travesty . . . it is, indeed, perverted.
9
The economic perversion is intentional by the Grover Norquist-influenced "starve the beast" crowd. They serve their plutocratic masters by angling to gut Social Security and Medicare as now "unaffordable" and return America to a robber baron's dream.
17
The effect of Republican economic policy is to enrich those able to profit most from the boom - which are disproportionately big business, investors and speculators - and to impoverish the poor and the middle class, who subsist on wages or public assistance. During a bust, people lose jobs, can't pay their mortgages, etc. There is a selloff of assets by those who need income to survive. These assets are bought up by those who still have the money - i.e. the rich. On paper their assets go down in value, like everyone else's, but they have acquired at fire sale prices new assets that are undervalued, and will go up once again at the end of the recession. They end up wealthier than before.
At the same time, the government functions badly, because tax revenue declines. It is forced to borrow money, which then has to be paid off with interest down the line. So once the recession is over, the government has to cut back on services to the public, thus lending support to the Republican view that government functions badly and should be replaced by private enterprise.
It's a win-win for the wealthy. They win during the recession, by acquiring additional assets, then they win during the recovery, as those cheap assets regain their value. Meanwhile, government is blamed for functioning badly for those in need of help - even though it was the Republicans who ensured that it would not function well.
12
@Robert Crosman
"At the same time [in recessions], the government functions badly, because tax revenue declines. It is forced to borrow money, which then has to be paid off with interest down the line."
Interest has become a problem for the government, in the form of a steeply rising national debt, because it borrows from private lenders (mainly banks) and pays interest to them. Prior to the 1970s, the government borrowed from itself and paid the interest back to itself, thus keeping the national debt more or less flat over the decades. Government borrowing is now privatized, and the interest is owed to external creditors. The rising debt is used as a pretext for imposing "austerity," that is, to slash the social welfare system.
6
Mr. Krugman calls Trumpian economic policy perverse and that is truly so, but it is only an extension of his win at all costs perversion of the presidency which has nothing to do with the good of the country. In the short term Trump needs to look good to win elections and that means ballooning the economy out of all proportions. And Trump never cares about the future only how he looks now. His claim to care about people or the economy is as fake as his current hair coloring and eye liner.
12
Republican's mottoes of small government and fiscally responsible spending are big lies. Our Social Security, Medicare, and Medicaid will be on the chopping block in the near future if the Republicans continue their march. Starve the Beasts is no longer a slogan, but a coming reality. The 2017 tax revision provided benefits to big corporations. The 3rd quarter earnings reflect that effectiveness. Why Trump provided further benefits to high income earners is very questionable. The inconvenient truth of trillion dollars budget shortfall was hidden in plain sight. Nobody cares and nobody likes to hear about it. How long can we prolong the inevitable reality check will be coming sooner than we think. A trade friction with China already caused people to speculate dumping of Treasury is a warning sign to our country and her citizen. Please cast your vote based on facts not rhetoric.
10
I thought the role of the press was to make difficult things and concepts clear to your readers. These words are not easy but I sort of get it, however the chart is nonsensical to me.
5
@RB For those of you who like RB found the graph disconcerting, take a look at the explanation that Ana Luisa from Belgium provided about 4 hours after his expression of exasperation. I too was confused by the portion of Krugman's graph covering the period from 2009-2018 when he described it as counter-clockwise. But as Luisa explains, the confusion occurs because this reader is consciously imposing a time line even though none exists. The two variables are unemployment and a measure of fiscal stimulus. The stated dates are only important because the data are gathered from those two particular time periods so they can be superimposed on one another and contrasted. They provide the evidence fo what Krugman is describing in words. For RB and many others the gist of the words was much easier to understand than the significance of the two graphs. What's interesting to me is how our previous experience with newspapers makes a unique graph difficult to comprehend. As a rule, newspapers display data along a time line. When they don't, we may still try to impose that schema even if it doesn't exist. It shows you why expert arguments can be difficult to follow. I'm sure in his research Krugman confronts graphs all the time that ignore the flow of time because it's not crucial to the relationship that's being evaluated. But even for a well-schooled NY Times reader such a graph can be a rare occurrence. And confusion results.
@Seth Finn A correction: Krugman said the graph "made a clockwise loop," not counter-clockwise. That's when I realized that I was confused, since if you thought the graph had a time line from left to right, it was counter-clockwise. Curiously, "clockwise" might have been an unfortunate term since it supports the inference that one is looking at a time line in this graph when it doesn't exist. By the way, Ana Luisa has made many thoughtful comments about this article. It's worth reading all of them until you finally find the way I'm citing.
There is no policy. There is a binding principle that taxes and government are evil, except to the extent government can loot on behalf large-scale GOP donors and serve as an instrument of force and oppression of the GOP's chosen enemies, including minorities.
8
Econ 101
Keynes’ approach, 90 years ago, was formulated for a closed, national, economy. You could claim, that running up the national debt, by spending money to pay people burying bottles and others to dig them out would revitalize the economy. Once the economy hums again, you pay back the debt
In a global economy where the national economy competes with other national economies that would be folly. Any country, spending money created more efficiently than your own, would soon eat your lunch
Alas, even if done right, as Drucker observed in 1942, it is incompatible with Western Democracy . That is because during the depression, voters will request politicians to hand out money to save t jobs. After a recovery, when the economy hums (hey, the government has plenty money!) they will request to spend it, on their pet projects - not spending it on paying back the debt. Politicians, bent on being reelected will obey
Boom and bust cycles occurring more often in democracies than in authoritarian regimes backs up Drucker's model
Most damaging of all to Keynesian economics , is that in a global society the money created to fight the depression is increasingly captured by the rich (via political control on how it is handed out) Mark Zuckerberg used the money printed by the Fed to refinance his home at Palo Alto at 1%. Home owners with underwater mortgages could not get their hands on it.
Time to abandon a 90 year old model
1
@Woof Actually, it is Not time to abandon said model, but to get the politicians to stop mucking and tinkering with it so as to improve their own fortunes. Since it takes mass wealth to get into Office these days, only the Wealthy hold office, which means that 95% of Real America is not at all represented in our Government nor are the poor able to play in the Rich Man's stock market other than providing the money soon taken by the unscrupulous banks who charge more to play than the poor have to begin with.
Keneyes work meane that ample money needs go to The People (not the banks, business holders or governments) so that they can make it through the hard financial times that the other institutions will survive due to size. Families cannot compete with Corporations due to factors of scale. But it is not Corporations that feed families, it is the workers from other families that do the labor that ends up being accounted to the corporations.
And when Governments seek to protect their high profit levels by diverting funding away from families in poor times, also refuse to give the families raises in the good times when all should profit.
Instead, the rich get richer, the poor get poorer AND do the work that makes the money which ends up in the Rich Man's Pocket, while the family has to worry day to day about food, shelter, clothing, transport and health concern.
Rich politicians are the farthest thing from real Representation possible, America needs better than this, and soon!
8
@Woof
Goodness! A model's being 90 years old is no problem at all. Euclidian Geometry, and several economic models from Adam Smith's eighteenth century work, and Darwin's Theory of Natural Selection, and the 1905 Special Theory of Relativity, are still quite robust.
Woof seems not to have read the article, the point of which is that since 2010 Keynesian principles have been abandoned.
6
I wonder how this actually looks when normalized for inflation?
Real inflation, also counting food, energy, rents, etc.
Remember, Reaganomics? GDP growth was correlated with inflation.
1
@Texan: The amount of money there is represents the wealth of the nation. As it grows wealthier, it can create more money, which is the ultimate source of "interest" representing the future value of money.
@Steve Bolger: "The amount of money" as it was in Germany early 30s and Venezuela now where 1 million of their currencies equal 1 dollar. Is that what you call "Wealth".
What I know about economics, not my major, or sound fiscal policy could fill out one short paragraph.
What I do know is sense, common or otherwise, and I agree that austerity should happen during a boom period in order to prepare for the bust period. Both are as inevitable as the wages of sin.
4
@Andrea Landry: Chaos theory shows that negative feedback generally stabilizes complex system even when the details of how the systems work are not fully understood. In economics, negative feedback can be applied through fiscal policy, which can retard or accelerate the spending of tax revenues.
@Steve Bolger is right about negative feedback. Note that the role of negative feedback long precedes chaos theory and is independent of it.
1
To put it succinctly, "Keynesian economics" applies Ohm's law to the exchange of money with monetary policy that regulates the amount of money and fiscal policy that regulates how fast money changes hands.
1
Actually we're not getting much real fiscal stimulus now - just tax giveaways for the rich. It should be obvious that there is no lack of capital for investment as the money from the cut went into stock buybacks, but demand is not growing fast enough to justify strong investment in new production. Trump promised infrastructure, and although his proposal was also largely a giveaway to private industry the promise was apparently completely phony.
Even during and just after the 2008-9 crash the problem was not lack of capital that could have been corrected with supply-side stimulus - once the big banks had been bailed out. And this applies to setting interest rates very low. If free money from tax cuts is not being used constructively in investment, why should free money from low interest rates be different? Yes, there is actually free money now in Europe, where short- and mid-term interest rates are negative. It is clearly not doing any good.
5
@skeptonomist: all economics ultimately depends upon consumers who want things and services, and have money to pay for them.
5
@Steve Bolger
I would agree, which is why "supply side" is a fallacy, it's really "demand side". If lots of people want to buy a product, the investment money will find its way to the firm that will provide it.
8
The two curves are TRAJECTORIES. Look at the blue curve, which shows the behavior of the economy from 2000 to 2009. It is a curve, but we don't exactly know what the points on the curve correspond to in time. Since around 2000, the unemployment (and presumably stimulus) are low, so we must be at the left, bottom side of the blue curve. We also know that at 2009, the unemployment was high, therefore we can conclude that as the time evolves from 2000 to 2009, the economy is moving more or less from LEFT to RIGHT along the blue curve.
Now let's look not the orange curve. At 2009, the orange curve should pick up where the blue one left off, at the high point for stimulus and unemployment, namely at the top right of the orange curve . As time evolves from 2009 to 2018, the unemployment rate goes down so we must be moving along the orange curve from RIGHT to LEFT.
To understand what is happening from 2000 to 2018, we have to flip the orange curve, and lay it end-to-end beside the blue curve, with the high point of the blue curve on the right matching the high point of the orange curve but with the orange curve reversed.
As we go from 2000 to 2018, unemployment starts off low at 2000, (blue), climbs to a peak around 2009, as does stimulus. After 2009, (orange) the effect of the stimulus causes the unemployment to reduce with a consequent reduction of the stimulus. A classic lesson in Keynesian economics.
Now imagine if all Keynesians were laid end-to-end....
1
@Peter O'Neill's grandson: The "participation rate" of employment remains lower than it was prior to the crash of 2008.
1
@Peter O'Neill's grandson, flipping a curve without flipping the coordinates is a recipe for a fallen cake.
@Steve Bolger
Indeed. It's at its lowest point since about 1980.
1
The point isn't to make the economy work, it is to deliver what remains to the wealthy. Seen from that perspective, the Republican economic program is working exactly as planned.
- Deliver millions of houses to the likes of Blackstone and the Kushners. Check.
- Monitize government services such as schools, prisons and roads (FastTrac lanes are being built as we speak). Check.
- Decrease taxes on the wealthy. Check.
- Extract the resources from public lands. Check.
- Loot Medicare and Social Security. Wait. It's coming, soon if we don't take the house.
Ownership of the country is being delivered to the aristocracy. The rest is smoke and mirrors.
36
I haven't seen anything about the impact of the Trump tariffs on the deficit. But they are taxes, and do involve collecting additional money. If Trump really imposes nearly $500 billion in tariffs, sure this should offset the fiscal effect of any tax cuts?
I can only suppose that economists think that the tariffs will be short-lived, and that the Chinese will come negotiate with Trump. That may or may not turn out to be the case. In the meantime, the overall tax burden has gone up, not down.
4
@Jonathan The $500 billion figure refers to the amount of trade to be taxed, not the revenue produced by the tax.
4
@Steve Bolger Still, this looks like an attempt to shift at least some of the tax burden from corporations and the wealthy to the working/middle classes and consumers.
2
@Jonathan
The point of tariffs is not to raise money, but to cut down on imports, by making the price of imported goods higher than that of domestic goods.
The supposed goal is to stimulate local production and employment. In reality, the higher prices actually cut demand, resulting in the opposite effect from that supposedly intended.
But we know that Trump has no intent to stimulate the economy. His tariffs are just political bluster to fool his base and massage the xenophobes.
It was Nancy Pelosi’s pork laden stimulus package that lost the house majority for Obama. No vision, no coherence, no message. A grab bag of favors. It could have been an echo of FDR’s New Deal, but instead guaranteed a Republican Congress. Note how the midterms are still in question despite a racist, sexist, lying sack of rabble rousing garbage in the White House. What’s the constant factor in grabbing defeat from the jaws of victory?
The hapless Democratic leadership.
3
@Luke Ridiculous idea. The stimulus included 1/3 tax cuts, what the GOP wanted, 1/3 support for state and local governments who HAVE to balance their budgets and were getting hammered by deeply recessed revenues, and 1/3 infrastructure projects, which spending we still desperately need. The single most important factor in the '10 election was the 10% unemployment, caused almost exclusively by the Great Recession. All other factors pale in comparison.
6
@Luke: The metro NYC region will be lucky to escape a serious economic disruption from failure to build new trans-Hudson train tunnels, a project that was already under way when the Republicans killed it.
6
This is an ineffective chart. Very hard to read and understand. What do the markers mean? Why does the article refer to the big red loop, when none exists in the chart. This is a crummy way to make an unoriginal argument. I'm not pretending I get it.
10
Simplistically childish. Republicans had to destroy Obama, even if that meant destroying America. They had to slow economic recovery so obama would look bad. Fox News went 24-7 on austerity and the evils of deficits. The minute republicans get into office they give a massive stimulus. They wanted the credit. Unfortunately the economy did not need the stimulus and we did not need the increase deficits. So stupid and so childish. The bedrock principle of the GOP lie, lie, and lie.
And you know if they had acted responsibly during the Obama years they still would have won the White House in 2016. But without Trump. These people are crazy.
20
@BillC: Truth is the only thing that works in engineering.
@BillC
What "stimulus" was that?
The tax cuts to the working people were not enough to meaningfully stimulate demand.
The word "massive" applies only to the tax cuts to the wealthy and corporations, which do nothing to stimulate the economy.
Quoting Lloyd Bentsen in the 1988 vice-presidential debate: ''If you let me write $200 billion of hot checks every year, I could give you an illusion of prosperity, too.''
(At least for a while, especially if you convince millions of people -erroneusly -that it is a benefit the will receive on a regular basis for the rest of their live).
2
When/if the Dems take over, roll back tax cuts, and grab back previous tax cuts. Eliminate ax brakes for luxury items, 2nd homes, airplanes etc. Outlaw pack money and start an investigation into Trump corruption. An idiot can see most of his cabinet belongs in jail with the rest of his family. JUSTICE IS COMING!
10
Im concerned that future Presidents and Congresses will have fewer tools in coming economic downturns, as rising interest rates, revenues lost to tax cuts we didnt need and a return of deficits as a potent issue take away options.
5
@Dave Scott: The wise always leave margin for error. The honest know that lying to cover up error only makes things worse.
3
Anybody who spends a modicum of time following politics knows that the Republicans' use their concern over deficits and the national debt as their reason for trying to gut Social Security, Medicare and Medicaid.
What is truly amazing is that Mitch McConnell, who engineered the tax cut that will add substantially to the debt, is now openly talking about the need to make huge cuts to entitlement programs to tame that debt.
He apparently believes that too few people will connect the dots to negatively impact the GOP.
Sometimes, in spite of polls that consistently confirm Americans' support for entitlement programs, I wonder if he is correct in his assessment.
15
@Michael Roush: American public character assessment functions at about the same level as its understanding of physics.
7
@Michael Roush And Bush said he was going to privatize part of Social Security. I don't doubt Republicans are cruel enough to take away health care and cut SS. I do suspect that when push comes to shove, the public reaction to that will turn a lot of self-avowed deficit hawks into cynics who just loot for the rich and leave deficits for someone else to deal with.
@Michael Roush: An "entitlement program" is something one has paid taxes for. The corruption of language by Republicans knows no limits.
7
When I look at this as "Robbing Hoodlums", making the rich richer, the fiscal policy of the GOP makes sense. There is money to loot from the treasury now - not about saving the country and its citizens in economic lean times.
13
It's not just that we are getting fiscal stimulus now when it's not needed. Interest rates are going up rapidly. The cost of the fiscal stimulus is much higher. The stimulus has mostly been used to build up corporate balance sheets instead of building up public infrastructure, public institutions and the public safety net.
It's not just stimulus that isn't needed. It's a complete rip-off of the American public.
12
@HL: Corporate managements have been taking their companies private with stock buybacks since Trump's tax "reform". The stock market rises as the supply of stocks diminishes.
1
@Steve Bolger
Stock buybacks is a sign that US businesses don't believe investing capital in their business has more value than reducing shares on the market. Less shares doesn't guarantee a higher price to earnings going forward. It may well be a sign that management doesn't believe investing in their business is sufficiently profitable to sustain long term PE ratios. By itself it is not a buy signal and may well be a sell signal.
2
@HL, buybacks may be less indicative than that. They are a means of raising executive compensation.
1
The Rep always do this. Bit they’re aided by the average American. The average American lives WAY beyond their means with the encouragement of the monied class who don’t. The monied class includes the credit cards companies, the banks who loan to those who can afford the loan (if that was the only monthly payment) and the rich which includes (sometimes, not always) they’re boss.
Trump has been in office less than 24 months yet he’s taking credit for 96 months of growth???? But the American public who acts more and more like bratty children can’t stand to take the squeeze themselves and the GOP is always at the ready to squeeze the convenient usual suspects - SD, Medicaid, Medicare, Healthcare
7
I would point out that the always brilliant Paul Krugman did not emphasize that this self destructive fiscal policy was not by accident, but was by design. Since the success of the New Deal, the GOP has always been about destroying the welfare state. The slickest way to do this was to blow up the federal budget with tax cuts for the .01 percent and then say there is no money left for social programs. Once you accept that the GOP has always wanted a plutocracy, this fiscal policy was really an effective way to realize these goals.
What I find most impressive about the GOP elite is that they have hoodwinked the white, under educated, mostly rural population to actually support their own economic demise. They gave them racism, religion and guns and that got the white lower class to vote GOP. Donald Trump came along and gave GOP voters the same racism, religion and guns but added authoritarianism. I would point out to the few members GOP who still might believe in facts and science, that in the 20th century men like Donald Trump had a disastrous effect on their own countries as well as the rest of the world. I should also mention that, there are NO moderate republican politicians because in the end every one of them will lick Donald Trumps boots.
126
This may be the best description of the modern Republican Party, and it's m.o., that I have ever read.
27
@Robbiesimon
It's standard liberal doctrine without nuance. The mirror image of conservative doctrine without nuance.
When people can see there isn't just one view, or even two, but many ways to govern, America might have a chance.
3
@Son Of Liberty, I believe Krugman has often said this.
1
The only time either party is truly concerned about fiscal policy and its effects on the economy is in times of recessions. At both the state and federal levels, politicians on both sides of the aisle are concerned with improving economic conditions to help with their reelection prospects.
The rest of the time they have no concern for government debt or deficits, only on promoting their own policies with no regard for the fiscal consequences.
@J. Mike Miller: Fiscal policy that retards the exchange of money is a better way to manage inflation than boosting interest rates with monetary policy.
1
@J. Mike Miller, I disagree. As the economy improved, Obama adopted a policy of reducing the deficit. That's Keynesian economics, and sound fiscal policy. In California Gov. Brown and the Democratic-controlled legislature restored the state's credit rating.
I think the Democratic incentive to tame deficits on the national level is an attempt to protect entitlement programs from cuts and/or privatization. New Deal and Great Society programs are important to most Democrats. We could also add protections for preexisting conditions to the list of things endangered by a GOP Congress.
3
@J. Mike Miller
The GOP's agenda is not to improve the economy, but to appropriate as much wealth as possible.
They have no concept of stimulating the economy to help working people.
1
I have been making this point for months, it's really simple.
Austerity when unemployment exceeds 8% followed by stimulus when unemployment is at 4% is just plain perverted.
GDP is about 20 trillion and between the tax cut and increased spending the GOP has added 300 billion to the deficit. That's stimulus to the tune of 1.5% of GDP.
4
@Paul '52: Trump is an extreme present hedonist with a time horizon just beyond the election next Tuesday. The next election to finesse after that will be two years into the future. No doubt whatever bad that happens in the meantime will be attributed to people defying the divine will of God to govern through Trump.
2
Politics TRUMPS economics. The liberals say we need deficits when in a recession, but when there is a surplus, then we need new programs. The conservatives say when in a recession tighten your belts, but when a surplus arises, cut taxes.
The Keynesian concept made and still makes economic sense, but neither liberals nor conservatives find it to be compelling politics.
1
@San Ta, and yet all modern Democratic presidents, from Carter to Clinton to Obama, have rigorously cut national deficits, while all modern Republican presidents, from Reagan to Bush Sr. to Bush Jr. to Trump, have blown them up. Your theory doesn't stand up to reality, although it is true that both Clinton and Obama expanded access to healthcare (Clinton through CHIP, Obama through the ACA). However, both of these programs were self-funded.
We need to return to pay-as-you-go.
1
The deficit and debt only counts when the Democrats are in power, otherwise, it is spendy-spend-spend-spend time with the Republicans in charge. We are right now repeating the same profligate spending during the economic expansion of 2003 to 2007 of the Republican Bush-Cheney era. How did that turn out?
The Great Recession would have ended much earlier and we would be in a much sounder financial position today if the lawmakers instead of sitting on their hands had gone on an old fashioned spending spree, especially an infrastructure spending spree. Republicans who complained about the Fed policy of lower rates and bond buying while refusing to do anything fiscally to help (including extending unemployment benefits) deserve all of our scorn and judgement.
Now, most of those same rocket scientists have voted for massive tax cuts while also voting for new massive spending , especially the military (just like 2003 to 2007), and some Republicans are now even openly criticizing the Fed for raising rates, and appear completely oblivious to the deficit and debt. Their number one issue is illegal (and legal truth be told) immigration.
We really do live in Bizarro-World, or maybe not, we are just replaying what has always been the case, a fiscally irresponsible, lying bunch of hypocrites doing exactly what they did the last time they were in power - setting us up for disaster to come. Thank the GOP.
10
The graph eventually made sense to me, but initially I found it very hard to understand. It would be most helpful if the data points were labeled with their years. (And the units should be indicated on the axes, or somewhere.)
10
Well at least Mr K has returned to economics. That’s a start on the long road back from Trump Derangement Syndrome. I applaud his nascent recovery. I anticipate more of these rational columns now that he has found himself again. Possibly, he can help the others at the Times. Lord knows, they need it.
@Tim Dowd Trump Derangement Syndrome (TDS) is a mental condition in which a person has been driven effectively insane due to their love of Donald Trump, to the point they will abandon all logic and reason.
2
Republicans used to brag that the government should be run like a business.
Implying efficiency and innovation.
What we got instead is false claims, misleading labeling, reckless spending, and a bait-and-switch con.
Run like a business you want to bankrupt!
Who'd have guessed with only a fifty year track record of the same old shish-kabob.
7
@Robert FL: Business simply does not undertake investments whose payouts are so distant into the future that their discounted present value is close to zero, like the public school system. Only enduring government is in a position to reap the rewards of such investments continuously over time.
6
The incapacity of Congress to conduct fiscal policy scientifically accounts for most of the mysterious dysfunction of the US economy. The Federal Reserve Bank can't address unemployment with monetary policy without changing the underlying value of money, so the "dual mandate" to manage both employment levels and money value with monetary policy alone has only made conventional banking an untenable business.
2
I know I sound like a broken record, but what changed in 2010? Citizens United. "The Math" now gives politicians who line their donors' pockets with more money a huge advantage since they can benefit directly by skimming off a portion of that money in the form of Constitutionally protected free speech. Every dollar that goes into some wealth person's bank account is ten cents to a politician. Every dollar that goes to stimulate spending by the middle class is spent by the middle class--with nothing left over for the politician. So, yes, we are now in Alice's Wonderland where we stimulate a boom economy with the least stimulating kind of federal money--tax breaks. And we do not stimulate a bust economy with more heath and education spending, the most effective kind of federal money--because the ones who vote on our budget do so to line their own pockets, and health and education spending net them nothing.
8
@McCamy Taylor: Trump's "tax cut" is actually a tax hike on the wealthy of the left and right coasts. Next April promises to be a howl.
3
@Steve Bolger, the "tax cut" does hike taxes on the affluent in high tax states, but only on wage-earners like doctors and engineers. It doesn't have a negative effect on the truly wealthy who live off their portfolios.
You could call it a tax hike on earned income, part of the GOP playbook since Reagan. Tax "simplification" means elimination of middle-class deductions like the deductions for state and property taxes. By 2027 that tax hike will apply to all wage earners as the expanded standard deduction expires and everyone is hit by loss of the personal exemption and the new chained-CPI method of calculating income brackets.
The wealthy will never howl under GOP tax "reform," unless with delight.
That chart is a mess. However, after a few passes, I get it. It points out that the GOP has violated the number 1 axiom of fiscal policy ala Keynes and Kalecki. That is borrow and spend at the bottom. Then retire the debt and contract spending at the top. Surely this has to be a recipe for disaster. But when? The answer, when you least expect it. I think a scatter plot without the lines would have been better. Just saying.
6
@Paul: Monetary policy manages how much money there is. Fiscal policy manages how fast money changes hands. "Economic product" is the amount of money there is, divided by the average residency time of a unit of money in an account. It works just like Ohm's Law in physics.
The Republican tax plan is not an example of fiscal policy run amuck. It is an example of rampant self-dealing that extravagantly benefits those in the Congress who voted for it. All of them Republicans.
12
"What you can see in the chart is"...nothing, really. You have access to illustrators, certainly. There have been huge advances in user-friendly data display techniques since you went to school. Illustrate--don't obfuscate--and you won't need the word "wonkish".
4
The Republican Party is the captive of the American Rich.
Resulting worker depravity is not recognized. Negative external ecological costs are not recognized. Only price points that generate wealth are. Maximizing total financial return is. A big salary is. Stock bonuses are.
And here is the one that will take us all under.
Negative external ecological costs, immediate and future, that need to be built into investment decisions; costs that will serve to mitigate the ecological dark side of human nature, a side that is now damaging not just many humans but the biosphere itself and may bring an end to our species are ignored.
www.InquiryAbraham.com
5
It is shocking when politics enters into sacrosanct areas like law, science or economics. In 2010, Obama was fearful of Republican opposition and their using economic stimulus as a cudgel against Democrats. By European standards, Obama was throwing money from a blimp. Trump is just being Trump; bribing voters by appearing to give them money while stuffing his pockets and those of his friends. Trump will use anything real or imaginary to con the greedy and fearful. He understands people have short memories and constantly need to be enticed.
4
It's called greed, and the Republicans specialize in it. The fact that the country was in such poor fiscal shape going in to the Great Recession was the result of incredible deceit on the part of Republicans causing an incredible mess, which the Democrats were left to clean up. And they did. Now we see the same thing happening all over again
This article makes a very important point, which I think is often overlooked that the Recession was made worse by the fact that States were over extended, too, and had to cut budgets, which meant cutting jobs. Frankly, if it was not for the good planning by Obama, many states would not have been able to keep their schools open to the end of the year. Much of the stimulus was directed towards that end.
This time around it has the potential for being much worse than 2008. What the chart suggests is that the Republicans will take their profits and run, leaving the nation holding the bag. There will be little to no money to stimulate the economy, and the Republicans can then win re-election because the Democrats are unable to clean up the mess fast enough. The fact that the country is filled with economic dunces is a huge contributing factor to this cycle of stupidity that we have been witnessing, whether it be clockwise or counter clockwise.
6
Quantitative easing had little macroeconomic effect because it was a straight up asset swap. It was nothing more than free money, AKA Ben's keystrokes, that made sure the bonus extravaganza on Wall Street continued unabated even if they happened to crash the entire economy for the rest of us. Or as they put it, "who could have known?"
8
@Steve Bruns: "Quantitative easing" is just central bankers eating their own government's sins.
Krugman is certainly right in theory.
Obama was certainly forced into an austerity that prolonged the Great Recession, not least because what inadequate stimulus was allowed was in the least effective form, as tax breaks aimed at the wealthy least likely to spend it instead of spending stimulus.
The Republicans certainly claim now that we have a boom going. Their response of yet more tax breaks aimed at the wealthy is perverse.
This betrays that no matter what is going on, they just want tax breaks for the wealthy.
However, I dispute that Republicans are right about there even being a boom now. Labor participation is still down, and long term unemployment dropped out of the labor market is extremely high. Only profits are up; wages have barely responded at all. That is not what a true recovery looks like.
Only profits are up. Now there is a surprise?
The vaunted expansion is quite average. After ten years of poor performance, there ought to be room for some real growth beyond long term US averages, to which at our best we have barely staggered up. Again, not much of a recovery.
Republicans are thus doing it wrong if they correctly describe the economy, but they don't even do that.
The real economy still staggering is due to Republican refusal to fix the Great Recovery. They still won't.
Too many Democrats accept this as the new normal. That's wrong.
We should be seeing a boom. Infrastructure, green energy, energy efficiency, there is much undone.
23
@Mark Thomason: We're spending on the credit card for weapons at a wartime rate.
4
@Steve Bolger -- More than just weapons. Estimates run $1 million/yr for each man in the combat zone as extra operational expenses. That is things like fuel that costs $400/gallon as delivered to our guys deployed in Afghanistan -- trucked through Pakistan then helicoptered in the rest of the way.
We keep adding wars, and never quit spending on them.
3
The simplest way to 'unwonk' this article is to point out that the Trump presidency is motivate solely and only by his desire to fill his own pockets. The tax cut may have coincidentally benefited other Americans of various demographics, but is was solely and only about filling Trump's pockets. Which, of course, it will continue to do long after his term is over. Unless of course, Cohen has spilled the beans about the Russian money laundering.
38
John Maynard Keynes lived in an era when tariffs, not income taxes were the main source of revenue for the US Treasury. Big difference.
3
@hawk A tariff is another form of a tax on the citizens. What's the big difference?
1
@hawk - I am asking in good faith. How does this affect what Paul wrote?
2
The GOP is following the orders from the Kochs, Singer, De Vos, Mercers & other billionaire families that they issued 40 years agao. They want zero taxes on themselves and their businesses. Zero. That means the middle-class are the only tax payers left in the U.S. because the very wealthy and the very poor pay little to no taxes. So when the middle-class taxpayers can no longer support government functions, it is the middle-class safety net which gets cut. Say good-bye to Social Security and Medicare.
40
The premise here is that the only role of fiscal action should be to follow the Keynesian recipe of stimulating (or not) the economy to pick up slack when the private sector is not performing. I'll grant that Repulican opposition to Obama's attempts at stimulus seemed ruthlessly backward when the US economy began slumping in 2008, but one might still ask whether other considerations might not trump (no pun intended) a stimulatory effect in importance, in particular investing in infrastructure and education. What seems offensive regarding the present fiscal situation is that it would seem reasonable to use deficits to finance education and infrastructure, which are apparently badly needed, and not merely to enrich the already wealthy.
A fiscal stimulus can be achieved by increasing government spending or cutting taxes (both of which might increase debt if not offset by tax "trickle down" effects). The plot presented may in this sense fail to illustrate the tragedy of the current situation, since it does not indicate what underlied a particular level of stimulus (higher expenditures or less taxes). I should also add: the current fiscal stimulus seems historically small (<=0.5%). Is this really worth complaining about, other than to bring attention to Republican hypocrisy?
6
Is anyone having trouble understanding Krugman's chart and how that chart supports his logic?
Krugman says, "What you can see in the chart is that during the first period (the blue line) high unemployment was met with fiscal expansion."
Krugman says, "But then fiscal policy went off track, which you can see by the big red clockwise loop." I just don't see a "big red clockwise loop". However, I do see a blue clockwise loop.
It seems to me that the chart shows that the federal government pursued fiscal expansion during 2001 recession and again during the 2008 recession. However, the fiscal response in 2001 was proportionately greater (fiscal stimulus that peaked at about 2.3 vs unemployment that peaked at about 6.1%) than in 2008 (fiscal stimulus that peaked at about 2.7 vs unemployment that peaked at about 9.9%). The chart suggests that a stronger fiscal response would have been appropriate to combat the very high unemployment rate experienced during, and continuing after the recession technically ended in 2009.
4
@OldBoatMan
I can't read it either. He is display three quantities on a two dimensional chart which can only display two. The vertical axis is stimulus, the horizontal axis is unemployment and then he modulates both with time. Then he overlays two succeeding time periods over each other. The chart needs a Z axis which is really hard to draw and it needs the successive time periods to be drawn in succession, not overlaid.
2
@OldBoatMan
The graph could have been better done, but I think it is fairly clear (after a bit of head-scratching) what it’s getting at. It’s a curve parametrized by time. What is missing is some arrows to tell how to follow the curve as time progresses. I am sure you start with the blue at the bottom left, go up to the right, then back down to the lower left corner, then up to the far right, then follow the yellow curve down and back left. Specifying that the dots correspond to three-month intervals (or whatever they actually correspond to) and giving some time markers along the curve would have helped.
2
@OldBoatMan Absolutely. Will the Op Ed department point this out to Dr. Krugman?
More interesting, perhaps, would be a (slightly wonkish) analysis of why it is that traditional fiscal policy has led so predictably to regular recessions, both shallow and profound – or at least have been so plainly ineffective at preventing them. We’re now in a boom that despite its maturity at lower levels of energy appears to be gathering steam under Trump and Republicans. It might be worthwhile to consider what effect NON-traditional fiscal policy will have on that boom. A sustained boom for longer than we’re accustomed before a major correction? Given our past experience, what’s the danger in TRYING to break the cycle of historical experience? That we unchain ourselves from comfortable theory and that economists be encouraged to come up with NEW theories that are materially more useful to our shared interests?
Of course, I suppose it’s POSSIBLE that the Brookings Institution already knows everything there is to be known about economic cycles and the factors that influence them. But that suggests, as long as fiscal policy is guided by such old theories, that future outcomes are unlikely to be different from past ones.
3
@Richard Luettgen
Traditional fiscal policy is not the cause of recessions.
4
@Richard Luettgen Well, at least he got it in one post. The answer to King Richards question: because true True Keynesian/Kalecki fiscal policy has really never been tried. The borrow and spend at the bottom has been used. However, the contract the borrowing and spending at the top not so. This recovery has one aspect that has just begun to be discussed, that is monopsony. The perverse outcome in monopsony is that fewer workers are hired at a lower wage. You say, but the unemployment rate is so low!!! The army of labor force dropouts are the surplus labor poised by the theory. Throw them in and the picture changes. And the "new" theories you seek. Like gravity there really aren't any, except Says Law, aka supply side and we know how that works, e.g., it doesn't.
6
@Richard Luettgen says " A sustained boom for longer than we’re accustomed before a major correction? Given our past experience, what’s the danger in TRYING to break the cycle of historical experience?"
So is RL's theory that there won't be a correction? The correction will be less? Or experiment for experiment's sake - just get the data, so what about real people.
My guess is that, as in most multivariate systems, a larger deviation from "normal" or "average" or "natural" or "expected" before a correction; the bigger and deeper the correction will be. We are currently seeing signs of the top.
2
I agree "the perversion of fiscal policy" is the correct descriptor for the tax cut that thus far has not produced a return on the efficiency of the economy or in any public works that could have broadly benefitted American families.
However, economists Stephen Moore and Arthur Laffer are on the networks in praise of the Trump strategy of the corporate tax cut, deregulation, new trade deals. They claim that the economy has turned into a high growth economy and given a decade of high growth, the deficit, and the rapidly growing interest payment on the national debt, which I believe is the fastest growing item in the budget, will eventually end.
I know you know that Arthur Laffer seems to subscribe to the William Jenning Bryan school described in his 1896 "Cross of Gold" speech, "There are two ideas of government. There are those who believe that if you will only legislate to make the well-to-do prosperous their prosperity will leak through on those below. The Democratic idea, however, has been that if you legislate to make the masses prosperous their prosperity will find its way up through every class which rests upon them."
Historically, a massive tax cut in flush times, like the one Calvin Coolidge pushed through in 1926 have been judged to have significantly contributed to the Great Depression.
Ronald Reagan praised Coolidge for cutting "taxes four times" and said, "we had probably the greatest growth in prosperity that we've ever known." Of course, it didn't.
21
@james jordan " economists Stephen Moore and Arthur Laffer"
Needed a good laugh this morning. Thanks.
3
@cec
Thanks for reading. I agree. I don't know Mr. Moore but I saw him on CBS morning and he calls himself an economist and I am one of the older people who was in a policy staff job before and after Ronald Reagan came to town, so when the "Reagan Revolution" introduced Arthur Laffer and his "curve" to justify the Reagan tax cut, which was also huge. I was skeptical and the run-up of the deficit convinced me that Dr. Laffer was ignoring economic history and the outcome was not one to write home about.
Paul Krugman, I believe, knows his stuff and is an excellent writer. I wish he had more exposure. I have been reading the NYTimes since college because one of my favorite professors at UNC at Chapel Hill suggested it, my wife and I still like the paper, she reads the home delivery copy and I read the electronic version on a PC screen or a cell phone when I am working. At 81, and still working, I am fully aware from working with much younger colleagues that I am outside the demographic.
I got hooked on energy and its role in the world economy and transportation, especially logistics, and health. I worry that the U.S. and international policy communities are not ready for the realities of global warming. I am an advocate of Maglev transport and using Maglev launch to build a system of solar energy collecting satellites in orbit to beam energy to Earth.
Currently, I am trying to absorb the policy and political thinking that led to Bretton Woods and how they came into being.
4
Many states in the US are bound to have a balanced budget. Thus the cutbacks after the Dubya 2008 meltdown. This continues to this day, in the sense that state universities want a LOT more for tuition. The students borrow and graduate having lots of debt. This has hurt the economy, and the students.
Trump and the GOP were buying votes with the "Trump Tax Cut". Trump and the GOP slanted this to help the real estate people and the corporations. They appreciate this. The normal worker who has to file a W2 form and not live from clipping bond cupons, may not.
Bottom line: if you clip cupons, go and vote GOP. If you have to earn a salary to live, vote Dem on Nov 6. It is that simple.
Oh, maybe you need health care or a retirement you can live on. Then vote Dem. The GOP believe everyone will never get old, sick or poor. But if you do, there is always a bridge to sleep under, or maybe an empty gutter.
14
@toom
The states and the federal government have different roles. I would want each state to have some form of balanced budget rule to limit waste and abuse. State-level officials have less oversight and often have a desire to seek a "higher" office, and this can create bad incentives.
The federal government should respond not by calling on states to act like a mini-federal government, but to subsidize state-level spending more in the lean years and less in the good years.
2
Krugman has many times quoted Keynes, “The boom, not the slump, is the right time for austerity at the Treasury” and does so again here. This is usually taken to mean that we should run federal deficits & thus increase the debt when times are bad, but when times are good we should run federal surpluses & pay the debt down. For years I believed this was correct.
I was surprised to learn in a speech by Hillary Clinton, that during the Great Prosperity of 1946 to 1973, not only did we not pay down the debt, but we increased it 75%. I thought this has something to do with the effects of the war on Europe. I was surprised to learn that these effects have been greatly exaggerated. (Recently in Piletty's book, I found a chart that showed clearly shows this. http://piketty.pse.ens.fr/files/capital21c/en/pdf/F1.1.pdf ).
I had never really thought about economics, but I thought I just didn't understand what was going on. I continued to believe Krugman's word was gospel.
Then I saw a comment to an article made by someone called Stephanie Kelton who pointed out the history I since posted many times. Every time we followed Keynes' & Krugman's advice & paid down the debt significantly, we fell into a depression. This happened 6 times & has accounted for all of our depressions. At this point I thought this is too much. Now I no longer believe in everything Krugman writes.
3
Here are the facts about the 6 periods we ollowed Keynes' & Krugman's advice & paid down the debt significantly.
The federal government has balanced the budget, eliminated deficits for more than three years, and paid down the debt more than 10% in just six periods since 1776, bringing in enough revenue to cover all of its spending during 1817-21, 1823-36, 1852-57, 1867-73, 1880-93, and 1920-30. The debt was paid down 29%. 100%, 59%, 27%, 57%, and 38% respectively. A depression began in 1819, 1837, 1857, 1873, 1893 and 1929.
2
@Len Charlap I don't think any of us should believe all of what anyone writes. That said, where in this article does Krugman say we should payoff the debt?
That could be his opinion, though I don't remember him ever writing that in a blog post.
@Len Charlap Curiously enough, the facts you assert are simply wrong. The debt was paid down in that time frame. Piketty says nothing like what you assert and the chart you link to has nothing to do with this topic.
1
The level of spending seems related to who is in the White House. The magnitude of the deficit may be related to Trump's decision to govern like an aging dictator instead of an American president. Trump has no concern for what happens when the bill comes due, to either the American people or the party dumb enough to enable him.
23
@Alan Neither did Obama who added $1 trillion to baseline spending. Neither did Bush or for that matter Clinton. A big reason that Clinton had balanced budgets was due to the gusher of capital gains tax revenues that spun off from stock option exercises at the peak of the dot.com bubble. Your implication that only Trump is a dangerous deficit spender - after he just demanded 5% spending cuts from all departments - is very wide of the mark.
@Alan
There are plenty of good reasons to have a federal deficit - a recession, a major war (hopefully a last resort), even a fleet of new nuclear power plants to fight global warming. Dr. Krugman is explaining that none of those reasons apply to 2018 America as governed by Trump and the Republicans, but here we are with a giant deficit anyway.
As far as calls from the president to reduce budgets, who will be held accountable if it does not happen? If the answer is "no one", it is likely just noise.
4
@Alan, which of Obama's policies added $1 trillion to baseline spending? I'm genuinely curious.
Are you talking about the $700 billion stimulus to avoid another depression? And you do realize that we would have lost a lot more than $700 billion if the economy had continued to tailspin?
1
All reflecting the fact that American political balance is off the rails. Will we ever get it back? I don't think so; I think we're in for a very long period of snarling politics with a hard right-wing tilt, and economic policy that ALWAYS serves the wealthy.
That began with Reagan, continued with Gingrich and crowd, and the "flywheel effect" kept on with 'W' and now, bigtime and most corrosively, with Total Control under Trump, McConnell / Ryan, and now the court--completing the right's "dream trifecta."
The ancient conservative fear, of course, is that the plebes and proles, leveraging the tool of open-access democracy, can take control over much smaller elite groups. What we've found is that in a media and marketing culture, strategic use of money can convince enough voters to vote against their own interests. The question is whether that particular phenomenon has legs, and I think it does.
Bread, circuses--and enough low-cost entertainment, enough broadcasting of Big Lies, and adequate (though not well-paid) employment--and the good times will roll for the wealthy.
And it shows that the elite listen to your economist colleagues only with von Mises, Friedman, Hayek, and Randian ears--using what fits their mood when it does so, and completely ignoring the parts that don't.
Ecce homo economicus.
15
@Robert I wonder if the elite is really listening even to Friedman and Hayek any more. I do not shae their general policies but I mention them to show how extreme the GOP has become. As regards Hayek, they have read little more than the title of his "The Road to Serfdom". Written against a command economy of central planning, Hayek defends welfare for providing a minimum of economic survival and regulating the economy in order to ascertain market competition and ─ quelle horreur! ─ protecting the environment.
Friedman had some thoughts about alleviating poverty by government action that some in the GOP today call "socialist" and the whole idea of manipulating the money supply is also seen as an assault on "liberty". You are misled if you take GP hagiography of their icons at face value, they turn out to be far more nuanced than the zealots would have it.
3
@Robert Em uoy era? And from the same neck of the woods, too. I might have written exactly what you did.
Bread and circuses worked for a century or two. Eventually the Roman elite got so corrupt the empire fell apart. It appeared the financial and political elite ultimately were greedier than they were smart. It appears also that has not changed.
It is patently obvious that a large and secure middle class is content to abide extreme wealth. A struggling middle and large insecure lower class will only for a short while. The smart capitalist keeps the workers secure and content. The masses have to be able to buy stuff for the economy to work. The concentration of wealth we have now is itself a drag on the economy.
The von Mises -Chicago School - Rand - Libertarian crowd are essentially NeoFeudalists. A new feudalism with a financial elite who own everything and then everyone else who just lives here will be the result of their "freedom" policies. The reason is fundamental and yet they never state it. Wealth Is Power. The only peaceful counter to wealth as power is political power. I can't overstate the underappreciated significant of that reality. The NeoFeudalists all aim to diminish political power and promote the concentration of wealth as Power.
We have to understand where the real fight is. The financial elite are killing us in the class war; the fight that matters most. NO other progressive policy can be won unless that one is won by the 99%.
6
@IAdmitIAmCrazy I agree with you. The economic justifications are now less important than the "philosophical" ones from the extreme Libertarian playbook in the Randian vein. As you say "Road to Serfdom" was primarily an anti-communist screed. It seemed to waffle back and forth on what seemed reasonable self governance safety net propositions and what was dangerously toward communism. A somewhat schizophrenic and entirely unconvincing little work. But certainly Not a completely Libertarian world view.
But the economists are just window dressing to the big picture of actual intent being manifested by the Financial Elite. All of the Koch machine astroturf academia is window dressing to make their designs seem palatable. They aim to create a NeoFeudalist world in which wealth accelerates its concentration, to them. They are working assiduously and, so far, successfully to undermine popular understanding of what they are doing through ownership of the media and ownership of the political parties. Wealth is Power. NeoFeudalist is not too strong a label for the results the current Libertarian based policies would lead to.
2
Let's look at the idea that "The boom... is the right time for austerity." Both post WWI and post WWII were booms.
After WWI, following Keynes, we had 10 years of balanced budgets. Here are the debt figures:
07/01/1920 $25,952,456,406.16
06/30/1930 $16,185,309,831.43
In 1929, the debt was only 16% of GDP
AND THEN WHAT HAPPENED !?
BTW History shows us that every time we embraced austerity and balanced the budget for a while, we got a depression and every depression followed a period of such surpluses.
After WWII we had even more debt as a percent of GDP, but we had mostly deficits for 27 years,
Here are the debt figures:
06/28/1946 $269,422,099,173.26
06/30/1973 $458,141,605,312.09
As you can see, the debt almost doubled, but we got the interstate highway system, Medicare. a median real household income that was 74% larger, and a GDP that grew 3.8% on average during these 27 years.
(If you want to raise the "Europe was Rubble Myth,". look at http://piketty.pse.ens.fr/files/capital21c/en/pdf/F1.1.pdf which shows that the out put of Europe was about the same as the US in the Great Prosperity 1946 - 1973.)
So after WWI we did as Krugman and Keynes proposed and the economy fell off a cliff. After WWII we did the opposite and had 27 years of Great Prosperity.
@Len Charlap Truman cut federal spending after WW-II by more than 60%. Sooner or later the bill is coming due. Servicing our $21 trillion in federal debt will be much harder if 10-year Treasuries are yielding 4.5% to 5% as they have historically done.
3
@Alan, do you know that $3 TRILLION of that $21 TRILLION debt is owed to the FED which returns the interest on it to the Treasury?
Do you realize that about 5 TRILLION of it is owed to other branches of the federal gov, so that that debt is merely an accounting fiction. (Actually the whole debt is merely an accounting fiction since we can create as much money as we want, but I won't live long enough to explain that to you.)
Alan, do you realize that a million dollars in today's economy means a lot less than a million in 1946 or 1835? If you want to impress us with how big the debt is, you have to look at the debt ratio, debt/GDP. The debt ratio outside the federal gov is about 78%.
It was 109% in 1946. 40% higher than today's.
Alan, federal debt service is currently 1.36% of GDP. https://fred.stlouisfed. org/series/FYOIGDA188S
But that does not account for the fact that the FED returns the profit it makes to the Treasury. This includes the interest paid in the
Treasury bonds it holds. This has been running at a little less than $100 Billion each year. http://www.latimes. com/business/la-fi-
federal-reserve- profit-20160111-story.html
When you take this into consideration, this brings the cost of federal debt service well below 1% of GDP, which is not only trivial, but
which is very low by historical standards.
The interest on the debt is not a red herring; it is a large purple tuna.
2
@Len Charlap, are you proposing your own economic theory? That paying down the debt during prosperous times results in depressions?
Nice try, but I don't think many will buy it. Meanwhile, you're oversimplifying Keynesian theory, which is much more than a simple (although important) dictum. Nowhere does Paul Krugman (or would Keynes) say that infrastructure spending isn't a good idea right now.
The intended "stimulus" of the tax cuts was lied about just as the lie that it was a "Christmas Gift". The tax cuts were as simple as buying votes and paying back the wealthy for financing the Republican campaigns. It was never intended as a stimulus, just simple payola.
18
@Shakinspear Bingo!
2
Really! This has got to be the most unintelligible chart ever,
6
It isn't about fiscal stewardship; it has always been about providing more wealth for the wealthy. It is frightening and shameful as the majority are economically marginalized more and more.
13
Fiscal policy has been perverted most of my adult life by Administrations and legislators from both parties. Trumps deficit spending today is no more perverted than Obama's was. Keynes advocated for stimulative government spending during recessions but austerity during expansions. Fine. But that then indicts most of the Obama years as perverted too since the NBER identified June 2009 as the official end of the last recession. Even if we allowed for Keynesian fiscal stimulus all the way through 2010, by Krugman's argument, Obama should have been practicing austerity during 2011-2016 inclusive.
The reality is that neither Party has the stomach for fiscal responsibility. Demanding and enforcing austerity makes re-election campaigning mighty difficult. Too, since the majority of government spending is non-discretionary, the room to cut is minimal.
If Krugman is serious about this, then stand up for term limits and for the repeal of the Democrat's disastrous 1974 Congressional Budget and Impoundment Control Act. The latter ended the ability of the Executive Branch to strike wasteful spending from budgets and it created the leviathan known today as 'baseline budgeting'.
And oh by the way.... get the Fed out of the business of 'managing' the economy.
2
@Alan "Get the Fed out of the business of 'managing' the economy. "
How were those recessions in the late 1800's? I understand those were horrible. Maybe that's not true.
3
@Q They happened, yes, but they were rapid on the way down and the recoveries were also rapid. A great example of a bank panic problem being managed without a central bank was the Panic of 1907. Most don't know about it because its history is not taught. JP Morgan himself and the large NY bankers sorted the problem out themselves. It was over almost as fast as it began with virtually zero government intervention.
@Alan, I have read that there were far worse depressions that lasted years, in the late 1800's.
2
Oh my
If you plot the GDP change per capita 2008 -2016 for Germany (austerity) vs the US (stimulus) you find that the German economy recovered faster and more complete than the US economy
Contrary to the 2010 prediction of Professor Krugman who slammed Germany's switch to Austerity
http://www.spiegel.de/international/business/trans-atlantic-turbulence-nobel-economist-krugman-slams-german-austerity-a-701894.html
Professor Krugman has never understood that economics is a subset of culture, and austerity works well in some countries (e.g. Nordic) and not in others.
See, e.g. his diatribes against Denmark in 2015
"My interpretation is that Denmark is paying a high price for shadowing the euro — it hasn’t joined, but it runs monetary policy as if it had — and also, for the past few years, for imposing a lot of fiscal austerity despite very low borrowing costs."
The Danes knew perfectly well what they were doing
Let's see how Danish austerity worked out
GDP per capita , latest available data 2017
Denmark 61582.17 USD
US 53128.54 USD
Behavioral economics, the school headed by Noble Memorial Prize Robert Shiller, does understand this
Swedes, e.g. have an entirely different response to austerity than Greeks
1
@Woof Austerity worked for lots of non-Nordic countries too. Ireland and Spain had some of the deepest austerity in Europe and are now among the fastest growing.
1
@G.K & Woof: If you collapse your economy, you might (purely coincidentally) find a very high subsequent growth rate but a smaller economy, at the *same time*!!
4
The markets are on a "sugar high". Flush with cash, which companies spend buying back their own stock. Since this is unsustainable with massive increases to the debt, someone is going to get hurt when the crash comes. Do you think it will be banks and defense contractors and corporations? Or do you think austerity will be imposed on the poor and the middle class?
6
@Tim There is no sugar high. QE created money to buy so-called 'toxic' assets at a discount from banks which then matured at par and with handsome profits to the US Treasury. Banks then turned around and placed this newfound cash back at the Fed in the form of excess reserves on which the Fed paid interest. Simply look at the Fed's excess reserve levels throughout QE and also check M2 money supply. M2 growth rates are little different today from what they were in the 1990's.
The middle class will suffer the most though when austerity is forced upon them. When the interest on federal debt doubles or triples in the next few years, austerity will be the most harsh on the people deriving the most government benefits & entitlements. Right now, 55% of all Americans receive some sort of government economic support. These recipients will feel the pain the most.
2
@Alan, you're including Social Security and Medicare as "government economic support." These are earned benefits, not welfare programs.
I find it telling that you support the 2017 GOP tax cut for the wealthy, yet seem sanguine about cutting earned benefits for ordinary Americans.
1
The pro cyclical fiscal policy debate is ignited once more, but the evidence is all around. There are more countries, including the developing ones, who have taken this route that when the economic boom is at its height, they chose to reduce taxes and increase government spending whereas conventional logic would rather suggest the opposite.
But think of it, take a firm example. Firms spend and acquire businesses not when the economic boom has ebbed, they follow pro cyclical investment and spending. The reason why recession happens is because firms lack the credit they sailed on and supply cannot find the right demand, which dwindles because there is already a surplus capacity in the economy. When such surplus abounds there is little chance for firms to acquire additional assets.
Perhaps only the Japanese do it at firm level as well as in the country level, acquiring assets at the peak of a boom are rare, rather they wait for the time when the bust has fully taken shape and the prices are low enough to create value. The government spending also happens when private spending is low during a downturn. This requires a different financial macro and micro environment, when all debt is privately held in the economy, this is possible.
1
It turns out that politicians of both parties like to borrow and spend.
So it is not surprising that Trump provided a huge tax break to corporations which helped the stock market soar and increased the illusion that the economy is better than it is. The problem is that we have gone further down the road towards unsustainable debt, but that won't be noticed until a crisis. Of course, fiscal probity would bring the stock market down to more sustainable levels, but don't count on it.
How does government survive when fiscal policy is irresponsible? Why, by lying just a little about inflation. The Boskin Commission changed the way the CPI is measured in 1996 as a mechanism for "saving" social security. The new measure of inflation is about 1% lower than the old, giving us the illusion that inflation is less of a problem. Meanwhile inflation enables the government to borrow at negative real interest rates. In fact, bondholders pay taxes on the NOMINAL rate, thus providing even more income to the government.
Trump has compounded fiscal irresponsibility with a trade war and tariffs, which in the long run would cut prosperity. But perhaps the tariffs will be negotiated away (let's hope so).
Thus in spite of making serious mistakes, Trump seems to be bungling his way through, and his base doesn't really notice.
In the long run, population growth driven by immigration produces serious economic problems, which Trump should describe but hasn't.
1
@Jake Wagner — why does population growth fueled by immigration cause serious economic problems?
2
@Jake Wagner Actually, population growth fueled by immigration is a major source of economic growth, and always has been.
Perhaps the Republican plan is to increase the severity of the boom-bust cycle so that the economy gets broken enough to force a rollback of the New Deal.
5
@sdavidc9
YOU Got It Mon! Actually, probably more accurate to state the Gang Of Pirates deliberately passed the tax cuts to additionally destroy the federal budget making it necessary to make severe cuts in the social programs. After all, McConnell wasted no time and cold bloodedly stated they were going to address the social safety net programs we are "Entitled to" because WE paid for them. They "Will shrink the government". Too bad the Republicans aren't intellectual enough to know the government has to grow along with the population to provide for "The General Welfare" as directed by the Constitution.
4
@sdavidc9. Nailed it. This is Grover Nordquist's playbook. This is exactly how you drown government in the bathtub and starve the beast as Grover is fond of saying by cutting taxes so severely and increasing spending in the short run that government has no choice but to slash spending on Entitlement programs. Nordquist realized that the only way to destroy or starve the government was to counterintuitively, overfeed it in the short term. The Republicans' tax cuts for the rich and massive defense spending are just as much intended to get rid of social security, Medicare, and Medicaid. The GOP tax cuts are really ultimately intended to get rid of the New Deal by spending the government into a terrible hole.
3
I remember back in 2009 period "stimulus" was being proposed and was actually supported by a majority but the question was "how much". I think the bill was said to be $750B ultimately. At that time I suggested local communities could propose projects which they were unable to finance themselves (because State budgets have to balance - the FedReserve will not accommodate them) and the federal government could step in and borrow the money at the record low interest rates. I gave as an example the need for a modern high school in my own community to supplement the 4 existing ones, at a cost of $50M+ which the city just couldn't seem to find - they were all in on a second power utility. Nothing happened of course and last election here in Portland we voted on a huge bond issue to rehabilitate existing high schools with an increase in the property tax to pay for it. Naturally the interest rate is much higher and costs have gone up and there is full employment already, unlike the double digit rate in 2009. One can never recover these wasted dollars.
5
Republicans are supposed to be the party of low deficits and fiscal probity. Those of us who keep abreast of what is going on know that is not true, but it is surprising the number of people that I encounter who say that we need to keep the republicans in office to fight deficit spending. Say what?
A big problem is that many of the republicans lie about republican policies; but there is also a big problem because many republicans and The Con Don faithful are ill informed and think that they are still living in the 1950's.
I often think about the future of this great country. It seems to me that we are being divided every more so into two distinct countries. The urban areas which welcome diversity and encourage education/training are prospering and this prosperity begets more prosperity and attracts the educated and talented. The rural areas which discourage diversity (that is they don't like immigrants or people who are not like themselves) and are not supportive of education/training will continue to fall behind. The smart students go to off to school and don't come back.
But back to the economy -- the republicans will run the national economy into the ditch in time for the democrats to take back the White House -- remember President Obama went into office during the financial crisis of 2007/08 and cleaned up what W left. Whoever follows The Con Don will get to clean up another mess.
9
@Aubrey Most of your narrative is incorrect except for blaming Republicans for being hypocritical about deficits & debt. In this you are entirely correct but with the caveat that Democrats are even more guilty. Government policy though on housing oversight is what ran the economy into the ditch in 2008 along with FASB's ill-conceived mark-to-market rule FAS 157. Neither of these were Republican policies or creations. Government housing policy is a Democrat invention beginning with Fannie Mae and culminating with disastrous Community Reinvestment Act.
@Alan - Wrong -- sDemocratic housing policy was not the culprit - Republican deregulation of the financial industry which included a huge expansion of sub-prime mortgages was the culprit. See Dr. Krugman's excellent series of columns in this- the CRA did not cover any of the top 20 mortgage companies, those responsible for a huge proportion of the mortgage foreclosures.
But how long is this boom going to last? Here are some reasons why this boom may be short-lived: a) The tax cuts to companies have not translated into new investments in the U.S., but into buying back stocks, 2) No investments in solar and wind power, or in infrastructures ( coal is the preferred industry) 3) No investment in education (college tuition is very expensive and courses in technology are overcrowded), 4) Our health system continues in shambles.
6
We don't get a fair sense of fiscal policy by relativizing it to economic growth, since its largely (?) about public goods (education, social supports, urban development) and national well-being (defense [which is very much a public sector jobs program], energy, homeland security).
I'm rather obsessed by how educational excellence doesn't help Republicans, so I wonder about the relation between running deficits and supporting education—but also relations of deficits and addressing other public goods, which are long-term investments in economic prosperity, but also investments in quality of life.
And quality of life may improve with education that enjoys less cost of living, e.g., enjoying free time for reading, social life, or crafts, such that higher quality lower cost of living detracts from economic indicators (fewer hours of work, less debt, less consumption).
It's creepy to me that policies geared to consumption rates (work to consume, consume to give others wages in order to consume...) dominate our sense of quality of life.
I wonder how a Gross Domestic Happiness Index would look over the decades.
8
@gary e. davis
Actually, there is a Happiness Research Institute that may be helpful--based in Denmark, I believe. See:
https://www.happinessresearchinstitute.com/happinessresearch
I suspect Democrats will heed this wisdom. But first, they must regain control. That's the real trick.
They will not win the midterms in a landslide. That is ominous. But sooner or later the economy will fall apart, because the GOP is working against the natural order.
Then Democrats will return. When that time comes, let's hope they can figure out how to stick around.
8
@Blue Moon. Same story, different time. Republicans take an economy Democrats have responsibly repaired, and run it into ruin, so Democrats can fix it again. Fixing the economy requires sacrifice and discipline, something trickle down Republicans can’t stomach, so voters thank Democrats for fixing the economy by making them lose House control and even the White House, beguiled by the false promises of the GOP. Rinse and repeat.
28
@Blue Moon Democrats will heed this??? When Nancy Pelosi inherited the Speaker's gavel, the deficit was $167 billion and she promised and end to deficit spending. After her first year as House Speaker, the deficit had ballooned back to more than $400 billion and it climbed from there.
Both parties are guilty. You and everyone else here who only blame the GOP and cannot see the fiscal failures of the Democrats as well are myopic and misguided. For evidence of how poor Democrat management has been, one only needs to study Illinois, Chicago, Detroit, much of California and the near bankruptcy of Connecticut. The nutmeg state is such a mess, they're on the verge of electing their first Republican governor in ages.
Be objective in your analysis. Democrats are no role models of prudent financial management.
1
@Alan
False equivalency. A $1.5 trillion tax cut designed to slash Social Security, Medicare, Medicaid, and the ACA is not a Democratic plan, it is the one promoted for decades by the GOP, since Reagan. The GOP eventually figured out they had found their latest stooge in Trump.
Pelosi played a major role in turning back W's attempt to privatize Social Security. She was also the major player in getting the ACA passed. She helped enact financial reform that stabilized the economy and protected us from fraud. She also helped Obama pass the stimulus plan, mitigating job losses and paving the way for a renewable energy boom. And no personal scandals with Pelosi. She is also frequently accused of being "divisive" -- probably because she is a woman. But back to your point: so what if the deficit increased at that time? The point here is that we stimulate during a recession to spur the economy, and save when times are good, so we have that nest egg for later. The GOP was purposely trying to make Obama fail, out of spite, and at the expense of the country.
Illinois is clearly in trouble, but many of the problems have their roots with the Republican governor, Bruce Rauner. Detroit's downturn has been due to historical forces that can't be attributed to either party: e.g., good manufacturing jobs leaving back when GOP mayors were still in charge, and the 1967 riots. Jerry Brown is leaving CA with a multibillion-dollar surplus. CT suffered particularly after the 2008 financial crisis.
4
The US economy is being managed as if the key measure is short term jump in stock price. The CEO gets the votes to continue “ What a good boy am I.” The pain will come after he is gone.
8
Doesn't it seem like there's something wrong with our economic models? After all, who cares if the yearly deficit balloons to $3 trillion if it doesn't cause inflation? How about looking at the twin threats of the millions of non--working people who aren't counted in the government's unemployment stats combined with the promise of robotic replacement of existing workers if they press too hard for wage increases? Could these two factors be keeping inflation in check? Is it possible we are running deficits that are way too LOW? Of course, any sensible fiscal stimulus should increase productive capacity so that we don't simply have many more dollars chasing the same number of goods and services. This means helping working people, not the fat cats.
If we continue to run huge deficits but maintain a low inflation rate, when will economists cry "uncle!" and reevaluate fiscal policy?
2
@WDG Things don't happen instantly. It takes time to move an economy as large as the US. Time for inflation hedges. It is coming if this continues.
5
@Tony Mendoza That's certainly the standard answer. In 2008, the national debt was just over $10 trillion. Now it's about $21.5 trillion. From 2008 to 2017, inflation averaged 1.45%. True, for 2017 the rate increased to 2.1%. And right now it looks like it's somewhere between 2.5 and 3.0%. But is part of this recent rise due to the idiotic $1.5 trillion tax cut that seems to have done very little to increase current productive capacity? It's been said that the Fed's target is a 2% inflation rate, but it's unclear (to me at least) why this should be the holy grail. The non-fictitious unemployment rate is almost certainly closer to 10% than 3.7% (it's also unclear to me why we keep using this low "nominal" unemployment rate when we all know it's wrong), so isn't the Fed failing in its mandate to help keep Americans employed?
1
Paul,
We need units along the X axis, and redline generally looks counterclockwise to me if the X axis is increasing.
6
Trup's tax cut was designed to boost the economy right in time for the midterms, and then to falter off.
And if the economy/Wallstreet do less well in the coming months, Trump and the GOP will blame the democrats for it.
They don't care about economic cycles, they only care about political one.
148
@SJP It’s a shame that the press, which has been busily prattling on about the incredible economy, didn’t have the same understanding of cause and effect.
1
It might seem strange to an economist, but it's consistent with Republican policy. In a deep recession, spending on social programs, like SNAP, unemployment compensation, CHIP, Medicaid, Social Security Disability, etc., go way up. Republicans are against those things, so they cut other parts of the budget as much as they can to offset them.
In an expanding economy, profits are high and Republican donors don't want to pay taxes on them, so they cut taxes.
Also, there is the ever-present philosophy of "starve the beast."
It all makes perfect sense, if you're a Republican.
19
The always apt and erudite Dr. K. deftly reminds of Speaker Boehner bragging in his NYC speech of Sept. 15, 2011:
https://www.huffingtonpost.com/robert-s-mcelvaine/capital-strike_b_965407.html
of a capital strike until the ultra wealthy got their tax cuts - same as the capital strike FDR faced when he made his famous " I welcome their hatred " speech.
In point of fact, since GOP'ers took over in 2001 following serial Clinton surpluses, and Ayn Rander Fed Chairman Alan Greenspan's testimony on the 5th day of Dubya's first term that the U.S. was on a fiscal track to run enough surpluses to entirely pay off the national debt before 2011:
https://www.dailykos.com/stories/2011/7/7/992184/-
with an extra $800 Billion$ left over at the end of 2010, GOP'ers have dispensed with fact-based fiscal policy, same as they have with fact-based climate science, etc, etc.
While everyone agrees that it's not desirable for a huge economy like America's to run $0 debt - we should always be making new 'investments' in citizens and productivity - doubling down on GOPers' Fake fiscal voodoo of trickle-downism is nothing but satisfying the Vulturedom inhabitants which FDR railed against, and Boehner bragged for.
This crowd has always been with us, and Dems must always remember they are ruthless, proffering sham as fiscal policy.
84
"Fiscal policy, like so much of governance in America, has been perverted by right-wing *partisanship."
Rather, *Ideological Worship.
We must face the reality, well, Republican voters must come to grips that their obeisance of the GOP ideology, which more often then not runs counter to their best interests, is beating the heck out of the nation domestically and abroad. All made worse in the disgusting way the party rolled-over for Trump for truly nothing more then an absurd tax-cut. There submission got a long lusted after tax cut. And 2 SCOTUS appointments, that will in only a few years be a bench 50%+ completely out of step with the majority of the nation. They will be ruling like its the 1950's, while the bulk of the US population is running into the future. Where the youth is embracing the future, no matter how scary and unknown it will be.
As far as fiscal policy. We're #&#%$! More so if we allow this Trump dominated Congress more freedom. He has no desire to reign in the debt. He loves debt. He has no desire to balance the books, as he likely never balanced his own. Or kept at least 3 sets of his own. And the GOP has proved they never cared!
The GOP ideological worship is killing us. Its killing innovation across the boards. Killing our already hurting education system. Killing any notion that real infrastructure investment will be enacted any time soon. Killing most of us with health care costs. And as the rich get the tax cuts, the rest of us are paying for it.
40
YEP!
5
As far as “macro,” if you had had been unemployed before Trump, then the economy was weak. It’s also worth pointing out that most of the benefit of the tax reform, especially for individuals, hasn’t even gone into effect in yet.
3
@Ed
What benefit? We are getting slaughtered tax wise with the loss of the SALT deduction, plus the attack on the ACA premiums we pay and the direct attack on the economic sector that pays our bills.
8
"And now, with unemployment very low but a Republican in the White House, we’re getting the fiscal stimulus we desperately needed then – and don’t need now"
Fiscal stimulus is just a side effect. What we're getting now is a massive tax cut for the wealthy that led to soaring deficits. When the economy turns south then of course it won't be time for raising taxes so the deficit will get even worse. The "fix" will be cutting social programs. So win/win for the .1%
28
I'm cool with the "fix" as long as we now define military spending as a social program or entitlement.
9
All of Congress is millionaires, all connected. Republicans, say what you like of the son of a nurse, or a community organizer, but at least they came from real for, not a guy getting 200 k from age 3 on, These Congressmen have daddy issues, and are maxing out daddy's credit card, just like they did when they were millionaire teenagers. For the rest of us, those with $400 in savings total, no retirement savings, and a housing market about to go under, they look like monsters, ready to take away our healthcare, as they have the security of our jobs, our clean air, our water. Their push makes them richer, and pushes us more into the precariat-- one step away from broke. Irresponsible, mean, daddy's boys.
11
Forgotten: The Republicans lie about everything, and their stated agenda is not their real agenda. I do not believe that inflation is low. The cost of most things, including rent and food, and especially what the government charges us, reflects 10% annual inflation since Reagan. I do not believe that unemployment is low. Ageism, bigotry and especially classism, have thrown 10-20% out of the economy permanently. I claim that if the economy were really booming, then wages would be rocketing, after all, we're in the age of technology where productivity has no limits. Yes, of course, someone stole my leisure, my wealth, and all my intellectual property. Last, just because you are a mendacious, scurrilous, robber-baron thug, doesn't mean you are always wrong, every now and again and for all the wrong reasons you may stumble into beneficial behavior. That is, if times are as bad as I say, stimulus may be corrective. Being a cynic, I highly doubt that there is real stimulus going on!
Come on Paul, you called ours a return to the gilded age! We're there, it did not disappear when Trump waved his golden rod!
9
This seems like a graph that shows the country being manipulated by the GOP. They try to squeeze off all the money when dems have power, presumably so things get bad, causing people to then vote GOP, the money turns on, and things magically get better. The only good news is that the correlation between fiscal stimulus and a good economy is apparently so poor or poorly understood, that it doesn't really seem to work that way.
4
@Mike
That graph looks like the tracks a bug left on my windshield one recent dew'y morning...
3
As a lefty i can say it clearly: Dems and you were completely wrong hailing surpluses and scaring people with deficits. In 2004-2005 you predicted skyrocketing rates and US bankruptcy. You disparaged the Sanders plan. GOP gave trillions to the rich and the sky is not falling. But Dems still refuse to give Trillions to the poor. Sanders promised “ponies”, right? Well Trump is giving ponies to billionaires.
Here is your MMT test you mentioned once: big deficit outside recession. MMT prediction: low rates, liw inflation. You will be wrong again.
5
Please continue. If we don’t need the fiscal stimulus now (which we don't) what is the ramification(s) of this perverse policy -- besides running up debt now that can't be applied when we may need it in the future?
4
@Joel Peskoff The ramifications are already clear: pay off the national debt by cutting spending on social services to individuals, families, and . These investments in our quality of living don't show a high enough rate of return on corporate balance sheets.
The only point that can be gleaned from what republicans do, versus what they actually promote, is that when a DEMOCRAT is in power, then tax cuts are the only thing that can ''boost'' an economy.
When a republican is in power, then austerity must rule the day, but this is only usually the case when republicans generally don't have complete control of Congress AND the White House.
When they do, then they just run wild and strip the country bare to ''boost'' only the bottom line and bank accounts of the rich/corporations.
Sorry for the slightly ''wonkish'' explanation. (grins)
25
The striking thing is that they chose "Conservatism" as their label. One could think that Conservatism would be about sticking to classic, sensible economic thought. Enthusiastically embracing new outlandish and unproven economic pseudoscience, and running with it disregarding all evidence and persisting on scorched-earth (quite textually) policies sounds anything but conservative.
32
@Luis Cabo
Nah, conservatism for the GOP has long been about religious conservatism. From Newt on it was all about pleasing the Religiously conservative. Even when they were sinning their fool heads off. Like Newt.
You also left out, careful and judicious use of the military. Which has become a tool for the Repubs. And now a toy for Trump.
For that alone he should be impeached! Abject disregard for the safety and security of those who serve.
17
So, if the government is going to spend in one area when the economy is near full potential, it ought to cut in another--makes perfect sense, but where to cut? How about benefits to the poor? Oh, wait, that subject is totally off the table, period! What did I just say? All economic decisions are really political. Mr. Trump saw a chance to cut top corporate and individual tax rates, something that needed to be done; he did it, knowing that the political opportunity might not come again. In time the effects of this cut will be economically beneficial to everybody, but it will take time to work its way throughout the economy. Patience, patience.
@Ronald B. Duke Certainly corporate taxes needed to be cut, but that needed to be combined with closing loopholes. That way we could have had similar de facto rates without all the games. That didn't really happen. And certainly the money mostly went to stock buybacks, not anything that expanded the economy.
You also claim with no evidence that individual tax rates needed to be cut. Cutting the rates of the well off didn't really accomplish anything but increasing the deficit.
You close with a call for patience. Those in the middle and bottom ranks have been waiting for decades for the trickle to get to them. Just how long should they wait?
34
Corporate tax rates did not need to be cut. the effective rate was practically nil for the biggest corps.
Taxes are an incentive for corporations to spend their revenue on capital improvements, r and d and employees. Small business incentives would have been a better way to stimulate the economy.
The Republicans have done nothing to encourage real business creativity. Trump's stock market is a wild ride into a sand trap. Rhetoric won't fill an empty tank.
11
@Ronald B. Duke
What needed to be done is steeply raise tax rates for the wealthy and corporations to Eisenhower rates and strip out all loop holes, and use the money to invest in slowing and adapting to climate change and recharging an infrastructure that is literally falling apart, and doing so in a way that will be exacerbated by climate change. We also need to fix our health care system to align with the intelligent systems adopted by all other advanced nations and finally turn to education, which has been made impossibly expensive on the higher level and ineffective in grades pre-K through 12 in many public school systems.
And stop telling lies about the benefits of the 2017 Republican tax obscenity. First of all it is already hurting many people in my situation, as those who have not noticed yet will notice when they pay their 2018 taxes. The dribbles in lowering rates a teeny bit come no where near offsetting the huge loss of the SALT deduction. Second there is absolutely NOTHING in it that will benefit people in my situation in the future. Third it will only balloon the debt which we will eventually be on the hook for.
10
Let’s be clear about the Republican end game. It is to kill Social Security, Medicare and Medicaid. That is the ultimate prize for the billionaire class.
The tax cuts were promoted as a job creating endeavor that would pay for itself. That was the cover story.
The real purpose of the tax cuts is to balloon the deficit and eventually create the crisis which justifies the Republican end game.
292
@Mr. Anderson
It is worse than kill. The object is to steal the money taken from wage taxpayers all their working lives for the wealthiest and renege on the promise made in exchange for S.S. and Medicare taxes paid.
70
@Mr. Anderson -- Every Republican tax cut has been "going to pay for itself". Not a single one has; every Republican tax cut has increased the deficit, and from Reagan to Bush to Trump it is all accumulated in the national debt. Every Republican who has touted "pays for themselves" tax cuts has known that it was a lie, a fraud.
Republicans can't say "We know this will blow up the deficit, and cost future generations Trillions more, but we don't care." That would be honesty, and Republican politicians don't do honesty. They would lose if they were honest. Who would vote for a Republican politician who promised "I am going to cut taxes for rich people, blow up the deficits, then use deficits as an excuse to cut out government help for *you*."? The entire Republican party agenda of the last 40 years is founded on this lie, the deceit they have perpetrated over and over.
Republicans get away with it because they find something hot to distract the masses of voters - "Look! Over there! Illegal immigrant invaders, a whole caravan of them!!! Call out the Army!" We see it yet again.
Oh, another promised "middle class" tax cut. Notice they aren't saying much about the 'we need to cut entitlements because of the growing deficit' that slipped out. McConnell was off message there. Distractions and Lies - Republican core principles.
120
Economist Dean Baker has made an argument that emphasizes a related point: the (mostly) Republican failure to pass a stimulus measure in the wake of the 2008 financial crisis led to a depressed rate of economic growth, which led, in turn, to a $1T loss in wages.
http://cepr.net/publications/reports/wage-deficit
95
Well...as Dick Nixon said "We are all Keynesians now.".
What's really scary about current fiscal policy is that we don't really have any post WWII data to determine the impact of these policies on the macro economy. No President or political party has ever done what the GOP and Trump did with their "Make America Broke Again" tax cuts. Will huge fiscal deficits cause a return of the inflation rates we saw in the '70's? Will we have the fiscal resources to spend when the next economic recession hits? Will the counter cyclical spending the GOP is so fond of actually work? No one knows for sure. Historically we are in terra incognita. But basic economic theory - Fischer's economics as well as Keynes' - tells us that what we are doing will not end well. We can already see inflationary expectations showing up in long-term interest rates, but those are expectations. Actual inflation is still relatively quiescent, with unemployment at record lows. But it still feels like we're sitting on the economic equivalent of an IED waiting for the inevitable explosion to happen.
37
@mather
Actually, we do have post WWII data. Look to Argentina.
8
The thing is that the good of the country was never the point for this bought and paid for GOP. The point was always what Milton Friedman called for in Capitalism and Freedom: maximizing profit for the shareholders, even at the cost of razing the communities around the businesses in question. The famous example is that of a polluting factory and whether it has an obligation to the community or shareholders first.
This wasn't the prevalent code of business ethics, as documented in the textbooks that preceded the publication of Friedman's book. But since its publication, one can trace the transformation of business philosophy and the rise of the MBA, in parallel with the rise of inequality to what it is today. https://wp.me/p2KJ3H-1DG
2010 should have seen a fiscal stimulus package to add to what was done in 2008-9. To be honest, it should have been done in tandem. It wasn't and, in part, it was because the Democrats thought they'd get it done later and the push-pull of centrist vs. progressive forces in the party. But, as we know, no one lives forever. The GOP took over the House in 2010 and that was that. The result? Lost generations of workers, housing crises and jobs that don't sustain. Those older workers? They still can't get back "good jobs"
https://www.rimaregas.com/?s=employment
What we have is vulture capitalism with a depression balloon being inflated by the oligarchy through insane fiscal policy.
Next recession will devastate anyone who isn't in the top 10%.
162
@Rima Regas Great analysis!
There is yet another layer of deceit and treachery by the billionaire class that no one thinks about, and they sure won't talk about: They LOVE crashes!
For the merely wealthy, crashes hurt them as they do everyone else - of course if they're wealthy enough they can lose a lot and still remain wealthy. But they do lose nonetheless, so they don't like crashes when they come.
But the uber-wealthy on the other hand, not only can withstand loss, they have the resources to swoop in and buy up assets for pennies on the dollar and wait until the economy begins to recover at which point they can sell these assets for massive gain.
This is why the Republicans - financed and supported by these oligarchs - push for fiscal policies that will enrich their donors in the short term, but will put those returns on steroids when the economy eventually blows up. It's a win-win for the oligarchs!
If the majority could be bothered to pay attention, the pitchforks and tar and feathers brigades would already be amassing.
13
I presume that each of the dots represents the stimulus vs. employment for a given quarter. If so then what strikes me is that generally the GOP was fine with fiscal stimulus when Bush the younger and the orange menace were/are in power but they really didn't want the "other" guy to succeed and they don't really care about what happens to the people of the country, and probably never will. The only reason Obama was able to get his stimulus package was because congress was still in the hands of the democrats.
49