Something had to be done yes but it doesn't solve the problem, just gives more time for a better solution to be found. Oh yes Joel will use the technical terms (being the economics guru he is
). Would be surprised if curtis didn't grace us with his presence and post a page full post
Well how can I say no to that!
I've just written this thing and it's not that long but it sure took me a really, really long time to write for some reason. So I better get some readers because it won't take nearly as much time to read as it took me to write it.
There's too much to respond to here and the last half of the thread has been on the British military (this thread is about America, get over yourselves you self-centered Brits, no one cares about your former empire's lack of capability to project itself!
), so I'm going to add a new post and you can respond if you like. I will respond to the two posts that ****** me off the most:
The deficit is 1.6$ trillion. Knocking 200$ billion will help, but it's a drop in the ocean when it comes the debt (14$ trillion). Let's look at history though. In 1937 FDR raised taxes and increased spending in an attempt get out of the Great Depression, after a period of recovery (does this sound familiar at all?). This resulted in a double dip. Woop-de-*******-doo.
This is such revisionist history it's not even funny. FDR's New Deal began to pull us out of the Depression from 1933-1937. It was then that he tried to balance the budget and reduced the deficit spending, which reduced consumption and brought back the effects of the Depression. Then during World War II we increased our governmental spending exponentially and ran the biggest deficits (per capita) in our history, and in order to stave off inflation we converted to a war-time socialist economy with price-controls and rationing. We completely pulled ourselves out of the Great Depression and into the most prosperous period of American history. It's amazing that you can ignore the New Deal and FDR's policies from 33-45 that got us out of the worst depression in history, point to the one time there was a set-back during the time period (when he actually reversed his own policies), and then use it to say that the New Deal didn't work and that government spending is inherently bad. You sometimes raise good points in your posts but then other times you undermine your credibility by sounding like a Randian libertarian ideologue.
One of the downfalls of the USA was running those "fatcats" out of the nation!
Raising taxes on businesses (which is different from the individual) has proved to be a bad idea. It's hard to compete with China and now Mexico with their low costs, but the US certainly hasn't done much to encourage business. I've heard some awful stories about my state alone regarding preventing business growth.
Add the fact that our culture has turned lazy as **** and very few people are willing to work for less pay (but actually have a job) and you've got the makings of a **** economy. Instead these people take government jobs and get paid with my money. It's a perpetual cluster ****.
Do you know that illegal and legal mexicans are actually crossing the USA border...............back into Mexico for jobs!
This all boils down to a combination of US citizen mentality and fiscal policies of our government. It's as if it'll take even higher unemployment rates and hyper inflation to make the citizens snap out of their arrogant trance.
It's amazing that you can identify the difference between taxes on businesses and individuals yet actually believe the debate over tax cuts were about taxes on businesses. The issue of taxes was whether or not to let the tax cuts on the wealthiest individuals made during the Bush years expire. In other words, whether or not we should bring taxes to the 90's levels. It was NOT about increasing the payroll tax or taxes on firms. Businesses create jobs, NOT wealthy individuals (the only jobs they create are maybe illegal immigrants they use as maids). In other words, the Tea Partiers want to cut public sector jobs so that we can pad the wealthiest individuals' incomes in hopes that they MIGHT spend it in a way that increases employment (which is of course ridiculous, in this economy wealthy people are saving their money or at best putting it investing it in semi-risky assets, neither of which does anything for job creation). But what's worse is that these people were foaming at the mouth at reducing the deficit (not bad in itself) but they absolutely refused to be sensible about it. They would not compromise at all and refused to make an obvious measure towards reducing it (slightly raising taxes alongside huge spending cuts).
Also, who are the fat cats that have been "driven out" of the country? And as for the US not encouraging business, the pendulum has been swinging towards marketization for 30 years now, since the Reagan revolution. Every constantly talked about how the success of the 90's and 00's was because of that push towards marketization. None of the gains were sustainable, however, and now that we're in a financial crisis, everyone is pointing the finger at big bad government for causing the crisis. It's amazing. That is the "US citizen mentality" that caused the crisis to begin with.
You both really should read this:
Keynes, John Maynard - General Theory of Employment (1936)
A couple things: I will preface this by saying I'm not a Democrat and I think Obama's economic policy has been pretty poor and I can't stand the people who surround him in regards to economics (advisers and people he has appointed). I also don't like the idea of running up huge deficits but I don't feel too strongly about that part of the issue.
First of all, a lack of cuts did NOT lead to our downgrade to AA+, like some (such as Joel) are claiming. I do not know how high the US can run its deficit safely, and I don't think anyone knows either. Economists completely disagree, some have been very worried about US deficit levels since the Bush years, others think that we can sustain huge deficits (like during the World War II era) without any problems. I'm not sure exactly where I stand, but we're not at the point yet where we're incapable of paying our debts. The only reason we risked default and hence were downgraded by Standard and Poor's is the amount of bickering in Congress and how unstable it made us look. People don't have confidence in our government to come to consensuses and make sensible economic decisions, and with the rabid right-wing willing to risk default rather than increase the deficit, a default doesn't seem all that likely in the future. The US is capable of running its deficit higher and paying it back no doubt, it's just an issue of whether or not political opportunism prevents us from doing so and destroys us in the process.
Second, although it is obvious we need to move toward reducing the deficit and US debt (in the short-term, medium-term, and long-term, because the Obama administration has done little to address the medium-term and only looked to the short-term). But rigid fiscal austerity, which is what many of the Republicans are advocating for (and I think Joel is in this category although he hasn't been too specific) is definitely not the solution either. It would reduce consumption and cut too many jobs too quickly. These have to happen gradually rather than instantly less we create a big shock that destroys everyone's confidence (consumers, investors, firms). Even the most anti-government people out there should realize this. Moreover, we already know from historical example that this does not work. The rigid fiscal austerity imposed by the IMF on countries during the Latin American debt crises and the East Asian financial crises was nothing short of a disaster, and even the IMF weakened its stand on fiscal austerity after that. So I find it amazing that people think we should just try to pay back all of our debt as soon as possible. It will only make things worse.
Third, what has bothered me most about the whole thing is the pathetic joke that American politics has become. American politics has be more and more characterized as competitive than anything else. Politics in a liberal democracy is (in theory) supposed to be about compromise and reconciling the interests of different groups, businesses, constituencies, etc., but now it is more and more a competition between our two parties (another **** result of the winner-takes all, two party system we have in the US). In politics as competition, the main objective of a party is to win and defeat the other party. Passing legislation or working for the good of the country is not the primary objective. And when the other party's president is in power, there is an incentive to make a mess of things. With Obama in power, the Republicans do not mind playing chicken with the deficit because whatever negative outcomes happen on the other party's president's watch. If the US defaults and the economy goes haywire, Obama will suffer the blame since Americans tend to vote on the economy (and kick out of office whoever happens to be the president during a recession). It makes more sense in this competitive politics to stand firm, because whatever bad things happen due to lack of action happen on your opponent's watch, and you can always blame him for it. And if your opponent concedes, it makes them look weak, and of course you get what you want. It's one of the reasons our political environment is so polarized even though our parties are so close together. I'm not picking on Republicans; I don't believe that Democrats would not do the same if their positions were reversed. But I believe our politics is failing us and I don't have confidence in our government to effectively manage things.
[Note: In this case it doesn't really have to do with ideology: the debt ceiling was raised many times. Reagan, Bush I, and Bush II raised the deficit to unprecedented levels yet no one in the Republican party cared. They left Democrats to clean up the budget mess, and now they have the audacity to blame them for unnecessary spending and are so intent on stopping the deficit spending they're willing to risk default. It's simply the fact that an opponent is in power, and they'd like the economy to do poorly on his watch, they want to make him look bad, and they want to prevent him from enacting the policies he chooses.]
I also think the climate of political polarization will only continue to get worse. Americans will be unable to handle a lack of prosperity. We haven't known hard times since the World War II era and we feel more entitled than we ever have since everyone has been so well off. I think the American public will only continue to get crazier and more desperate as the crisis worsens, and the right wing will become even more hard-core. I could see our government taking drastic measures within the next few years that make things even worse.
Here's a quote from Joel's VM: "Inflation is rising due to oil, China's surging food demand among other things, there's not much risk of deflation. Unemployment is going to take a hit no matter what, as I said in the thread, I'd rather cut some jobs now than wait for the debt to get worse and cut even more later. We're not going to become impoverished by a long shot, such hyperbole. There's a real risk of EU countries losing their sovereignty though, can see Germany/France taking control of the EU and managing the fiscal sides of countries like Ireland/Greece if they keep dragging the EU through the ****. I'm much more fearful for the EU than the UK right now."
I don't disagree that there are inflationary pressures but there is no possible way you can ignore the deflationary pressures in the global economy at the moment. Our federal government and central bank can do everything it wants to devalue our currency and print money, but asset prices just won't rise past their ceiling (they've been inflated for decades now) and consumer goods won't get too expensive thanks to free trade and a lack of demand. Not to mention all of the government's efforts to extend credit are failing and will continue to do so because no one wants any. Many economists from all over the spectrum agree that deflation is a serious problem and that the debt-deflation spiral is a real possibility (whether or not you think it'll be a major problem in the future, it's near impossible to deny that it already hasn't happened and was at the root of the financial crisis). Of course there's Krugman (and other quasi-Keynesians who are actually monetarists in disguise), who I'm not a big fan of, and the hardcore monetarists like Bernanke. I don't like a lot of this guys views but here are some great articles on why we're in deflation:
Mish's Global Economic Trend Analysis: Humpty Dumpty On Inflation
Mish's Global Economic Trend Analysis: Bernanke's Deflation Preventing Scorecard
Mish's Global Economic Trend Analysis: Are we "Trending Towards Deflation" or in It?
Those articles are pretty out of date but the concepts still apply and you can look at his newer stuff for more recent evidence. One glaring piece of evidence against the hyperinflation position is that the demand for cash is extremely high, which absolutely does not happen during or before hyperinflation.
It is interesting to consider what happens to an economy when it simultaneously experiences inflationary pressures (such as the government running huge deficits and a central bank that prints money like crazy and tries to debase the currency) combined with huge deflationary pressures (the recession/depression) and a ton of debt (from financialization). And if you have this occur in a country with barriers to trade as low as ever and foreign competition as stiff as ever. What do you think it means? It sounds like a shitstorm to me, which is why I'm not too optimistic about things.
As far as unemployment taking a hit, yes I'd like to cut jobs now too, and more later, but doing too much too soon will have a very destabilizing effect on an extremely weak private sector.
As far as the impoverished bit, it depends on how you define impoverished, but I'll respond to it later. If anyone told you in 07 or 08 where the economy would be right now they would have laughed at your face. Not to mention that throughout the crisis, the people with some of the worst forecasts have been continually proven right, while those who have been optimistic have been constantly wrong. Oh and education certainly won't save us, people from other countries attending our universities doesn't mean our economies are necessarily in good shape. Of course I do think that the wealthy and professional classes taking advantage of our few elite schools will do fine, but I don't think the rest of us will be so well off. And as far as "us" goes, I think the US is better off than the UK, since the latter's economy is so tied to finance and its real economy is pretty weak (compared to say, Germany).
As far as the Euro goes, I think you're spot on. The European Union will collapse within the next few years. The economies interests of these countries are too diverse to pin down to one currency. If you look at what's happened to Europe I think it really resembles what happened during the Great Depression. Some countries are experiencing very strong deflationary effects (Greece, Portugal, Ireland, etc.) thanks to the conditions of the global economy (in their case, their economies were entirely built upon the global credit glut propping up asset values and tourism from consumers who had money to spend, and equally as important, the trade surpluses of countries like Germany) and since they are on the same currency they can do nothing about it. Germany's export surplus means these countries must run a deficit since their monetary union means the two must cancel out. Euros are virtually leaving these nations and heading to places like Germany, and they must drive down the prices of their own goods and cut jobs to compete and keep currency from leaving. It's very, very similar to what happened to Germany during the Depression, but they responded by printing marks. These countries can't do that until they leave the Euro. They have no way to correct the trade imbalances because they can't adjust the value of the currency. The EU, with its single currency and free trade, has led to huge imbalances in many of these countries, and they can do nothing to stop it until they abandon the currency. I did a very poor job of explaining my views here because it's late and I really need to move on to my next points, but here are three articles written on July 20 that sum up my thoughts exactly:
“Trade Imbalances Lead to Debt Imbalances” or Why Mercantilist Nations Shouldn’t Beef About Their “Profligate” Customers « naked capitalism
Marshall Auerback: The European Monetary Union is the Titanic « naked capitalism
Satyajit Das: Europe
Now for some of my thoughts in general on the crisis: first of all, the conditions in the global economy mean bad news for many countries (especially the US and Britain, although we're not the worst off out there). Here is what I think of the crisis in one sentence: this is not simply a financial crisis, it is a global crisis of overproduction which began in the 1970's; financialization (and the credit glut, though the two go hand in hand) created (unsustainable) bubbles that kept us from seeing this and gave us temporary prosperity, but the asset boom reached its ceiling and now it's over (this is the financial crisis part, which does have very negative effects on the real economy, and for me it's a classic financial crisis that thinkers like Hyman Minsky have written about, but this time it's coupled with industrial overproduction and only a small part of the problem), leaving us to pay down a poopload of private (as well as government) debt with a depressed real economy. In most places in the developing world (the US and UK have it pretty bad), a recession or depression is unavoidable. Economic policy, then, should focus on the long-term plan of changing the structural conditions in the economy that led to this crisis to the best of its ability, rather than try to prop up the unsustainable conditions and practices that led to it to begin with (which is exactly what the monetarists are trying to do).
It also should seek to manage the effects of the crisis and make sure that the burden does not fall too harshly on those who will truly be hurt by this crisis: the poor and unemployed. This is why I am not opposed to large deficits and why I don't want to see cuts in social spending. Funding the deficit should primarily come from increasing taxes for the wealthy as opposed to cutting the jobs and social services the average person needs. This will not hurt the economy or job-creation the way free-marketeers think it will, first for the obvious reason that the wealthy don't hire people with their personal incomes, and second because the wealthy tend to be saving the money or even investing in assets (which was the problem to begin with). I am a Keynesian in many respects and believe deficit spending must be used at the moment. The private sector is certainly too weak to be hiring and we need to increase consumption to keep the real economy going. The crisis is disproportionately effecting the poor and unemployed, so government spending (which in part should be funded by taxes on those who are OK, the wealthy) is needed to shift the burden from the poor to the wealthy. And not to mention, of course, that since the Reagan revolution we have moved too far from our middle class society with a robust state and towards marketization, a trend that should be reversed. The wealthy have enjoyed too many tax cuts over the past few decades (especially the tax cuts of the Bush years), and a recent survey in the New York times showed that executives are paid 23% higher than they were in 2009! They really haven't been hurt by the crisis, yet it's the poor and middle class who has to pay for a crisis that they did not cause.
This is good for the economy, since a)it shifts resources away from assets (what the wealthy use their money for) and towards consumption in the real economy, and b)we need deficit spending to increase aggregate demand while the private sector recovers. The anti-government crowd just does not understand that the shifting of cost away from the collective and onto the individual will only hurt the poorest and actually costs more in the long run (when a huge group collectively negotiates for something the cost is driven down). Though it's not the most high-brow site, I found an easy-to-read article the other day that summed up my belief in that very well (
Dave Johnson: Government Spending Cuts Don't Cut, They Shift Costs To US).
Now, you're probably yelling at the computer screen at this point saying "they already did that in the US and UK during the 00's and the boom!" This is true, but it is because the structural conditions in the global economy that created this depression were rearing their ugly heads right at the end of the 90's and early 00's when the stock market hit its peak. Bush responded (and then Labour in the UK did the same) by deficit spending to prop up consumption and keep the real economy going while (combined with financialization in this sector) blowing another asset bubble, this time in real estate. The conditions in the global economy did not allow for prosperity in the real economy, but we kept the illusion and financial bubble going so we didn't have to feel the effects of this while Bush was president (and Brown in the UK's case). This is another problem with our political systems, the incentive is there to maintain unsustainable financial practices as long as the economy seems to be doing fine, leaving the successors to have to clean up the mess. Now the deficits are already extremely high and we're unable to pursue much Keynesian tempering of the business cycle. I believe we can and should allow federal debt to grow, but I don't want to see the deficit increased much more. This can be done by greatly cutting back on defense spending (and I mean drastically cutting back on defense spending) as well as increasing taxes on the wealthy. We then spend this money on social services and infrastructure while our private sector pays down debt and tries to recover. Once that has happened, we will have a very large federal deficit to pay back and a private sector that (hopefully) will have shed enough of its debt to start spending again and is successful enough that we can reduce government spending and increase taxes, which combined with the increased revenue from an improved economy, will slowly pay this deficit off over time.
Of course the real economy will never be all that prosperous again due to the problem of overproduction and competition from abroad and thus, this process won't be easy. The developed world can't expect to have the prosperity of the earlier decades since it hasn't been sustainable since the 70's. The outlook is bleak for us, although I don't think we'll see a debt-deflation spiral like the last Great Depression since we're not on the gold standard but on fiat currencies. Instead, the future is a lack of growth, and I firmly believe that at best we're heading down the route Japan has taken: after industry (in the 70's) and financialization (in the 80's) hit their ceilings, there has been no growth (the 90's and 00's). There is no good or service that they can make that will bring them the same prosperity as before. The OECD countries, for the most part, industrialized during a different era, while they were ahead of the rest of the world and while there was less global competition (this meant they were exploiting the rest of the world for its resources and raw labor and using it as markets for their goods). After industrialization peaked and we reached global industrial overproduction, they financialized, which was very profitable since their financial sectors were much more developed than the rest of the world, and led to unsustainable gains that covered up the problems in the real economy. But the rest of the world has caught up, and thus we can't enjoy the prosperity of the post-World War II era until now. These conditions, combined with the rest of the world catching up, means that even once we pay down the debt caused by financialization, our growth rates will only become smaller and smaller. We have to accept the fact that the rest of the world has caught up and we're no longer the imperial powers we used to be, which will mean less prosperity. We'll stick around thanks to inertia, but it's only going to get worse and worse.
I hope we realize all of this and that it isn't the end of the world, especially if we make sure that the wealthy pay the burden more than the poor, but we have become so greedy I am afraid that we won't accept it. This is mainly Americans I am worried about: Europeans have a lot of history and live more in the real world and I think they will be OK with being poorer again. But I fear that Americans are so greedy that they will panic and seriously **** things up with crazy economic policy. I also think there's a good chance that not too far in the future this will lead us to electing a warhawk right-winger who will be the most extreme president in American history and try to restore our empire (similar to what happened to Germany in the 30's, although obviously not as extreme). We as a people not to accept the fact that economic growth is not guaranteed, that our own financial gain is not all that important, and that we are part of a community that must take care of each other rather than succumb to the Randian individualism that has corrupted humanity. We must take care of those in need with the wealth of those who have too much. At this point in time in places like America, the distribution of wealth is truly disgusting, and the crisis is an opportunity (and hopefully a call to action) to address that problem, which was related to what caused the 'crisis' to begin with.
Good god, I don't know how I could go on about this so long and not even mention the fact that all of this in some ways ultimately comes down to globalization and neoliberalism and the resulting imbalances caused by this trend in the world in the past few decades (the financial crisis and our bloated financial sectors, the US trade and federal deficits, China's surplus and huge stash of our debt, the EU's problems, among so many other imbalances), but I did, and I am too tired and have to wake up too early tomorrow to go on, and I'll probably be too lazy to continue at another point in time. This should be enough to digest for now anyway.
By that I mean open for more free trading and easing regulations between the EU/EEC and US/Canada. 