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We Decided as broad government policy to not have an Economic Recovery
Last edited Wed Sep 25, 2013, 04:19 PM - Edit history (4)
The orange line is where total American government spending (combined federal, state, local) would be if we had spent, 2008-2013, at the rate we did beginning in 2001. The blue line is what we really did.
If the blue line was where the orange line is we could be seeing the edge of the woods we're in by now. Unemployment a couple points lower, GDP a few points higher. Our economic crisis is, at this point in time, almost entirely the product of low government spending. (combined federal, state, local) We decided, as a political matter, nationally, to not recover.
We CUT government spending (combined federal, state, local) in response to the greatest collapse of demand since the Great Depression. Cut. Reduced. We added cuts in GDP from austerity to cuts in GDP from the private economy collapsing. We laid people off to fight unemployment. It is unthinkable, impossible, insane... but we did it. And we continue to do it.
We, America, DECIDED not to recover, primarily by electing Republicans to control government spending (House of Representatives and State Houses) but also to a smaller degree by supporting deficit-fearing, inflation-hawking, bond-bubble imagining stances on the Democratic side. The rightward shift of the center on fiscal policy affects both parties. (How many elected officials have stated that the federal deficit needs to be higher? It is an economic fact, and behind closed doors some Dems must get it, but who, outside the hippie camp, even has the nerve to say it out loud? And with reason, since voters would punish them.)
And we are somewhat trapped, politically. The practical politics of arguing that the economy is okay, in order to make Obama look good, have blinded many to the biggest political/economic story of our lives, and white-washed a Republican crime (state, federal, local) on the scale of invading Iraq; the decision, as broad policy, to not recover from an economic calamity.
This is not a new story. It is a distressingly old story that most people (including a fair number of Democrats) refuse to see. Fortunately, Doctor Krugman remains on the case:
So, how much of our depressed economy can be explained by the bad fiscal policy? To a first approximation, all of it. By that I mean that to have something that would arguably look like full employment, at this point we wouldn’t need a continuation of actual stimulus; all we’d need is for government spending to have grown normally, instead of shrinking.
Here’s a comparison of two series. One is actual government purchases of goods and services since the Great Recession began (this is at all levels; most of the fall has been state and local, but the Federal government could have prevented that with revenue sharing). The other is what would have happened if those purchases had grown as fast as they did starting in the first quarter of 2001, i.e., in the Bush years.
As you can see, the gap is large and has been growing rapidly; it’s currently at about 400 billion 2009 dollars, or more than 2 1/2 percent of GDP. Given reasonable multipliers, this suggests that real GDP is somewhere between 3 and 3.75 percent lower than it would have been without the austerity. And given the usual Okun’s Law rule of half a point of unemployment per point of GDP, this in turn says that without the austerity we’d have an unemployment rate well under 6 percent, maybe even under 5.5 percent.
I don’t want to pretend to spurious precision here. Instead, I just want to make the point that given what we know and have learned about macro these past five years — and given the modest recovery that has taken place — we’re now at a point where, to repeat, to a first approximation the depressed state of the economy is entirely due to destructive fiscal policy.
http://krugman.blogs.nytimes.com/2013/09/24/the-depressed-economy-is-all-about-austerity/
Here’s a comparison of two series. One is actual government purchases of goods and services since the Great Recession began (this is at all levels; most of the fall has been state and local, but the Federal government could have prevented that with revenue sharing). The other is what would have happened if those purchases had grown as fast as they did starting in the first quarter of 2001, i.e., in the Bush years.
As you can see, the gap is large and has been growing rapidly; it’s currently at about 400 billion 2009 dollars, or more than 2 1/2 percent of GDP. Given reasonable multipliers, this suggests that real GDP is somewhere between 3 and 3.75 percent lower than it would have been without the austerity. And given the usual Okun’s Law rule of half a point of unemployment per point of GDP, this in turn says that without the austerity we’d have an unemployment rate well under 6 percent, maybe even under 5.5 percent.
I don’t want to pretend to spurious precision here. Instead, I just want to make the point that given what we know and have learned about macro these past five years — and given the modest recovery that has taken place — we’re now at a point where, to repeat, to a first approximation the depressed state of the economy is entirely due to destructive fiscal policy.
http://krugman.blogs.nytimes.com/2013/09/24/the-depressed-economy-is-all-about-austerity/
31 replies
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for the 1%.
Other than that, Dr Krugman is on point, as usual.
Just because ON THIS ISSUE they voted the correct way, does not mean they normally lean Democratic on other important issues. On issues like Wall Street, Big Banks and even wars, they quite often vote for the 1% over the 99%. Extending bu$h's tax breaks for the 1%? bailing Wall Street and not Main street? Not getting behind and correcting the real reasons why unemployment is still so high? Government spending to get money circulating in the economy in this country is what gets us out of recessions. Not allowing the exporting of Living-Wage-Jobs is what gets us out of recessions.
Spying on American citizens? Appointing Republicans to head agencies?
You are correct, enabling is not the same as being Republican.
We need to elect more Center and Left of Center Liberals to fix the wrongs in this country. Saying, or implying the DLC and DINO's are somehow not part of the problem is being selective blind.
The DLC and DINO's are on the wrong side of Center. That, in large part, is why the recovery has been so slow. And is, in no small way, all the Republicans fault.
States of Depression
By PAUL KRUGMAN
The economic news is looking better lately. But after previous false starts — remember “green shoots”? — it would be foolish to assume that all is well. And in any case, it’s still a very slow economic recovery by historical standards.
There are several reasons for this slowness, with the most important being the overhang of household debt that is a legacy of the housing bubble. But one significant factor in our continuing economic weakness is the fact that government in America is doing exactly what both theory and history say it shouldn’t: slashing spending in the face of a depressed economy...if it weren’t for this destructive fiscal austerity, our unemployment rate would almost certainly be lower now than it was at a comparable stage of the “Morning in America” recovery during the Reagan era.
Notice that I said “government in America,” not “the federal government.” The federal government has been pursuing what amount to contractionary policies as the last vestiges of the Obama stimulus fade out, but the big cuts have come at the state and local level...We’re talking big numbers here. If government employment under Mr. Obama had grown at Reagan-era rates, 1.3 million more Americans would be working as schoolteachers, firefighters, police officers, etc., than are currently employed in such jobs.
And once you take the effects of public spending on private employment into account, a rough estimate is that the unemployment rate would be 1.5 percentage points lower than it is, or below 7 percent — significantly better than the Reagan economy at this stage.
- more -
http://www.nytimes.com/2012/03/05/opinion/krugman-states-of-depression.html
By PAUL KRUGMAN
The economic news is looking better lately. But after previous false starts — remember “green shoots”? — it would be foolish to assume that all is well. And in any case, it’s still a very slow economic recovery by historical standards.
There are several reasons for this slowness, with the most important being the overhang of household debt that is a legacy of the housing bubble. But one significant factor in our continuing economic weakness is the fact that government in America is doing exactly what both theory and history say it shouldn’t: slashing spending in the face of a depressed economy...if it weren’t for this destructive fiscal austerity, our unemployment rate would almost certainly be lower now than it was at a comparable stage of the “Morning in America” recovery during the Reagan era.
Notice that I said “government in America,” not “the federal government.” The federal government has been pursuing what amount to contractionary policies as the last vestiges of the Obama stimulus fade out, but the big cuts have come at the state and local level...We’re talking big numbers here. If government employment under Mr. Obama had grown at Reagan-era rates, 1.3 million more Americans would be working as schoolteachers, firefighters, police officers, etc., than are currently employed in such jobs.
And once you take the effects of public spending on private employment into account, a rough estimate is that the unemployment rate would be 1.5 percentage points lower than it is, or below 7 percent — significantly better than the Reagan economy at this stage.
- more -
http://www.nytimes.com/2012/03/05/opinion/krugman-states-of-depression.html
This is why Republicans in Congress and State Governorships have been working hard to sabotage the recovery.
http://www.democraticunderground.com/1002322208
Obstruct and Exploit
By PAUL KRUGMAN
Does anyone remember the American Jobs Act? A year ago President Obama proposed boosting the economy with a combination of tax cuts and spending increases, aimed in particular at sustaining state and local government employment. Independent analysts reacted favorably. For example, the consulting firm Macroeconomic Advisers estimated that the act would add 1.3 million jobs by the end of 2012.
There were good reasons for these positive assessments. Although you’d never know it from political debate, worldwide experience since the financial crisis struck in 2008 has overwhelmingly confirmed the proposition that fiscal policy “works,” that temporary increases in spending boost employment in a depressed economy (and that spending cuts increase unemployment). The Jobs Act would have been just what the doctor ordered.
But the bill went nowhere, of course, blocked by Republicans in Congress. And now, having prevented Mr. Obama from implementing any of his policies, those same Republicans are pointing to disappointing job numbers and declaring that the president’s policies have failed.
Think of it as a two-part strategy. First, obstruct any and all efforts to strengthen the economy, then exploit the economy’s weakness for political gain. If this strategy sounds cynical, that’s because it is. Yet it’s the G.O.P.’s best chance for victory in November.
- more -
http://www.nytimes.com/2012/09/10/opinion/krugman-obstruct-and-exploit.html
By PAUL KRUGMAN
Does anyone remember the American Jobs Act? A year ago President Obama proposed boosting the economy with a combination of tax cuts and spending increases, aimed in particular at sustaining state and local government employment. Independent analysts reacted favorably. For example, the consulting firm Macroeconomic Advisers estimated that the act would add 1.3 million jobs by the end of 2012.
There were good reasons for these positive assessments. Although you’d never know it from political debate, worldwide experience since the financial crisis struck in 2008 has overwhelmingly confirmed the proposition that fiscal policy “works,” that temporary increases in spending boost employment in a depressed economy (and that spending cuts increase unemployment). The Jobs Act would have been just what the doctor ordered.
But the bill went nowhere, of course, blocked by Republicans in Congress. And now, having prevented Mr. Obama from implementing any of his policies, those same Republicans are pointing to disappointing job numbers and declaring that the president’s policies have failed.
Think of it as a two-part strategy. First, obstruct any and all efforts to strengthen the economy, then exploit the economy’s weakness for political gain. If this strategy sounds cynical, that’s because it is. Yet it’s the G.O.P.’s best chance for victory in November.
- more -
http://www.nytimes.com/2012/09/10/opinion/krugman-obstruct-and-exploit.html
The Jobs Program That Wasn’t
Macroeconomic Advisers on the American Jobs Act, proposed a year ago:
Of course, it that had happened, Obama would be more or less a lock for reelection. Instead, having blocked the president’s economic plans, Republicans can point to weak job growth and claim that the president’s policies have failed.
http://krugman.blogs.nytimes.com/2012/09/08/the-jobs-program-that-wasnt/
Macroeconomic Advisers on the American Jobs Act, proposed a year ago:
We estimate that the American Jobs Act (AJA), if enacted, would give a significant boost to GDP and employment over the near-term.
-The various tax cuts aimed at raising workers’ after-tax income and encouraging hiring and investing, combined with the spending increases aimed at maintaining state & local employment and funding infrastructure modernization, would:
-Boost the level of GDP by 1.3% by the end of 2012, and by 0.2% by the end of 2013.
-Raise nonfarm establishment employment by 1.3 million by the end of 2012 and 0.8 million by the end of 2013, relative to the baseline
Of course, it that had happened, Obama would be more or less a lock for reelection. Instead, having blocked the president’s economic plans, Republicans can point to weak job growth and claim that the president’s policies have failed.
http://krugman.blogs.nytimes.com/2012/09/08/the-jobs-program-that-wasnt/
