It appears that the Reinhart-Rogoff battles over their faulty data about government debt have flamed out. Even the inventors of the 90% debt cliff are now anxious to portray themselves of cautious supporters of expansionary fiscal policy. This should mean that sober policy types everywhere can turn to the immediate problem of reducing unemployment with more expansionary fiscal policy.
Unfortunately, this does not appear likely to happen. Even though the case against stimulative fiscal policy has been blown to hell, there is little impetus in the United States or Europe to change course. The counter-argument appears to have two sides. First, growth has picked up so that we don’t really need it. Second, we really wouldn’t know what to spend money on in any case.
Both of these arguments deserve to be called what they are–bullshit.
Why Do So Many People Believe Such Crap?
Take the case of why so many believe the federal budget should be managed just like our household finances for example.
This old stinking pile of dung is routinely trotted out by politicians looking to give themselves cover when they are talking about cutting – oops, I mean “saving” – programs most of us hold dear, like Social Security or Medicare.
The Romney campaign said it. Paul Ryan claimed it, as recently as a little more than a week ago. It’s not– you can all but hear them saying–that we want grandma eating cat food when she’s 90, but gosh damn it, we need to restore some integrity to our federal finances. After all, you, John and Jane Q. Voter, reconcile your family accounts regularly and can’t spend a penny more than what is coming in. Why should those big spenders in Washington, DC get away with doing something you mere Americans cannot?
“Every family in America has to balance their budget,” recently thundered Speaker of the House John Boehner.
I guess that’s why an online poll last year found 69% of us never reconcile our checkbook and another 10% rarely bother.
So what can be the appeal of this less than truthful analogy? The sad truth is it is a product of our profound financial ignorance.
- First, the comparison sounds good. We don’t like debtors in this country, even if those debtors are ourselves. This is why former bankrupt turned anti-bankruptcy personal finance guru Dave Ramsey has a career. (Ramsey, if you are wondering, also promotes the canard that the federal budget is like a household budget.) We think we should be punished for debt, like a small child who has misbehaved. Then all will be well.
Actually debt is much more complicated than that. Take a look at the popular home mortgage. Many of us don’t see it as a negative drain on our resources. We seem to believe that as long as we can make the monthly payments without difficulty, we are not in hock. This is not true, as anyone who has ever done a net worth statement can attest. Net worth is determined by subtracting the debt owed from assets.
But as long as you can afford the monthly tab, most financial experts would tell you a mortgage is a good thing to have. Why? Well, owning a home is a long-term investment, ultimately a good thing for your household bottom line.
Now, of course you could say a certain percentage of government spending is also a long-term investment. Just look at the economic stimulus plan enacted by the Obama administration. Not only does issuing debt and using it to build bridges and educate children offer an economic stimulus in the short term, it also boosts our prospects in the long run, as these investments ultimately improve our productivity for years to come.
Yet this nation of current and former mortgage holders just can’t seem to make the 3rd-grade level cognitive stretch to believe it. Internal Republican party polling obtained by the online publication Politico revealed that a majority of voters believe balancing the federal budget would “significantly increase economic growth and create millions of American jobs.” And it’s just plain horse shit.
- It isn’t working in Britain it isn’t working in Europe, it isn’t working anywhere in the whole damn world!!
Oh yeahhhh. That austerity thing is working out just great for them. The more they cut, the worse the hole their economies face. That’s why Britain is likely entering its third recession in less than five years.
You cannot contract your way to economic growth. It takes money to make money. This is why personal finance gurus like Ramit Sethi, for example, tell their minions that if they believe they need more in the way of funds, they need to figure out a way to bring more in.
And this is where governments and households are very, very different from one another.
When individuals are short of money or run into a financial emergency, our options are not great unless we have generous friends or relatives. If we are lucky, we can turn to credit cards. Sometimes we can start up a small eBay business, and bring a little bit of extra cash in. But for those of us who are really in financial trouble, we will seek out the services of payday loan lenders, where interest rates can run as high as 30% for a mere two-week cash advance.
The United States government, when it needs some cash, is in a much better situation. It can issue bonds to raise money – federal IOUs with very low interest rates. (The interest on the 10-year Treasury note is currently 1.91%, for instance). The government can raise taxes. As a last resort, it can even print money.
Note: This where most Gold Standard fanatics say the Federal Reserve is going to cause rampant inflation…yet it NEVER COMES!!! Any country the size of teeny tiny Cyprus could bankrupt America if were on the Gold Standard by simply dumping enough gold into the market as to crash the price…which is precisely what happened a few weeks ago when Cyprus merely mentioned the possibility it was going to sell gold to pay some of it’s debts. The price of gold plummeted only $200 an ounce (on a current price of $1,600 an ounce) but just that small percentage drop would have added $1.5 trillion dollars to out federal deficit OVERNIGHT! Think about what Russia, China, any Arab country, virtually any country on the planet could do to our economy by dumping sufficient gold on the market to crash our economy. GREAT PLAN THERE RON-MYOPIC PAUL!!!
There is Really No Optimism to Derive From Our Current Economic Momentum
Furthermore there are good reasons that job growth may prove much slower going forward. Excluding inventory fluctuations, the economy grew at just a 1.5% annual rate in the fourth quarter. It has grown at less than a 1.8% rate over the last year. This is well below the pace that would ordinarily be needed to keep the unemployment rate from rising. Investment has slowed sharply in recent months and federal government cutbacks are just now being felt. It is absurd to think that the economy has enough momentum to make any substantial dent in unemployment in the foreseeable future. Any analyst who can look beyond a single report should know this.
If we want to have a real impact on unemployment in the near future, the government will have to take action. The calls for patience on this issue are absolutely infuriating. Invariably such calls come from people who have jobs, generally very well paying jobs.
I cannot for the life of me understand why Democrats are NOT screaming at the top of their lungs at the bullshit the GOP continues to pull at the expense of the poor and the middle class. Just once I’d like to see Obama lose his damn “ain’t I cool” demeanor and get up in the GOP’s face and call them what they are. Obstructionists hell bent on destroying everything that used to make America great. One nation, under god kinda stuff, instead of this sit back and wait to see what the GOP will let us have!
The prolonged periods of unemployment that millions are enduring are in fact a crisis for the people affected. They are ruining the lives of the unemployed and their families. In fact, there was a disturbing study highlighted in the New York Times last week about the surge in suicides among baby boomers approaching retirement age.
For these people this stretch of high unemployment is not a short-term problem that we have to tough out. Why can’t the damn people we elect represent some faint resemblance of a spine? Is that just too damn much to ask? While the GOP is free to lie, cheat, steal and dismantle every protection put in place after the Great Depression, all we get from Obama and the Democrats are more milquetoast proclamations followed NOT ONE GOT-DAMMED THING HAPPENING!
What Ever Happened to the Priority of Creating Jobs?
This brings us to the second complaint, that we don’t know how to spend money to create jobs—or is it all just political platitudes? This argument is every bit as far from the mark as the first one. For beginners, we have just cut well over $100bn from annual spending by state and local governments. This has hit everything from pre-school education to police and fire services. If the federal government restored the funding, many of these cuts could be quickly reversed. It would be great to just once have some damn wimpy-assed Democrat stand up for spending money in areas that would have lasting benefits, even if many of the items would have longer lead times.
At the top of this list would be funding for the retrofitting of homes and businesses to make them more energy efficient. The Obama administration had funding in the original stimulus for this purpose, but most of the spending and credits have expired. There is still much to be done; these should be brought back. We also can do much more to improve infrastructure, especially to build 21st century train and urban transit systems. And, we can enhance funding for research and education in a wide variety of areas.
We should also be taking measures to directly address the problem of long-term unemployment. Recent research has revealed the extent of discrimination against the long-term unemployed. In a labor market where there are dozens of applicants for every job opening employers don’t feel they have to consider anyone who has been out of work for a substantial period of time.
This should not be a partisan issue; we all can recognize that the long-term unemployed need a hand to get back on their feet. Kevin Hassett, a prominent conservative economist and top adviser to Governor Mitt Romney in his presidential campaign, recently argued for employment programs specifically targeting the long-term unemployed. Hassett wisely proposed a set of competing approaches, involving both public jobs and incentives for private employers. There are enough long-term unemployed that we can afford to experiment with different approaches and see which produces the best results.
But idiot Republicans and spineless Democrats do nothing. NOTHING. President Obama makes yet another speech. Eloquent as it may be, we don’t need any more got-dammed speeches. Twist some damn arms. Kick up some shit. Do something before Boehner makes another stinking drunken talking point. And all the while, people go on with their suffering while the millionaires in Congress work their 3-day work weeks and rehire the Sequestered Air Traffic Controllers so they won’t miss their Thursday morning tee time. What a bunch of bullshit.
Harvey A. Gold