TraneWreck said:
Well, not countless, but quite a few, I agree with you. But then moral hazard raises its ugly head. You can only bail someone out so many times before you run out of money.
So many times? How about once?
Allowing states to establish balanced budgets going forward by eliminating commitments made before the economic collapse would have significantly improved the state of the country. By not doing so they essentially guaranteed that state level cuts would counteract the stimulus.
TARP repayments total about $180 billion. TARP was originally a $700 billion bailout. But let's supposed we make money on the whole thing. You still have the moral hazard of financial institutions knowing that, if they're too big to fail, however bad their investments are, the govt. will be there to pick up the tab. Is that a road we want to go down? What will TARP II cost us?
There's some confusion in the numbers here.
TARP purchased or insured up to $700 billion of troubled assets. The initial expected cost to the government was $356 billion, and the actual cost, so far, has been $89 billion. Significantly smaller in relation to GDP than the savings and loans bailouts in the 80's.
Of the $245 billion invested in U.S. banks, over $169 billion has been paid back...
http://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program
Additionally, we don't need another TARP, we need another stimulus.
And a huge addition to the national debt. States are having to behave like cash-strapped households that have run up their credit-cards: some belt-tightening is an order. This is not necessarily a bad thing. California, for example, was on an unsustainable path of govt. largesse. Better we deal with it now than ten years down the road. Look to Greece if you want an example of governments lying about and papering over fiscal crises. It never works in the long run.
This is just a wrong view of economics based on nothing in particular. Find the model that shows how austerity measures will lower the debt ten years down the road.
Please read this post again. You can whine about Krugman, but you can't wave away the actual numbers:
The key thing you need to realize is that eliminating stimulus spending, while it would inflict severe economic harm, would do almost nothing to reduce future debt problems.
http://krugman.blogs.nytimes.com/2010/06/07/madmen-in-authority/
If you want to argue in favor of austerity, you have to do more than shake your head and rely on tired, long disproven conventional wisdom.
Come now, you can't honetly believe that. I vote Democrat across the board and even I know this health care bill will cost us big.
This is just a purely nihilistic view of our ability to learn things through study. Thousands, even millions, of labor hours were invested in constructing a bill and studying the outcomes to insure that it was deficit neutral and cut the debt over the long term.
If you have some evidence to explain why getting health care costs under control WON'T do those things, please share them. But you can't just say, "come on...no, seriously
coooome on."
Well, we need something. The status quo doesn't seem to be working too well.
I agree. We need more stimulus.
Krugman never met a deficit he didn't like.
Yet he opposed the tax cuts, the unfunded wars, and the irresponsible prescription drug plan.
Krugman does not alway argue for increased spending. We are currently in a liquidity trap with private spending almost nil. Additionally we are at the zero bound, meaning we can't lower interest rates any further to stimulate the economy. When this happens, stimulus measures are necessary.
That doesn't mean deficits should be run up during more secure economic times. You're taking his prescription for a response to a crisis and bizarrely accusing him of recommending similar measures at all times.
It's not irrational. Fitch has already threatened us with a possible credit downgrade if we don't get our budget deficit under control. Moody's credit rating of Greece depends on their austerity measures.
Greece has a very special set of circumstances that do not apply to us:
But what about Greece and all that? Look, right now sovereign debt problems are taking place in countries with a very specific problem: they’re part of the euro zone, AND they’re badly overvalued thanks to huge capital inflows in the good years; as a result they’re facing years of grinding deflation. Countries not in that situation are not facing any pressure from the markets for immediate cuts; as of this morning, 10-year bonds were yielding 3.51 in Britain, 3.21 in the US, 1.27 in Japan.
http://krugman.blogs.nytimes.com/2010/06/06/lost-decade-here-we-come/
They can threaten all they want, but the economic indicators show we have nothing to worry about. As Brad Delong said:
...we have a bigger problem right now: 10% unemployment, five percentage points higher than it needs to be, something like $120 billion every month of wealth thrown away via unusued capacity and idle workers. Failing to do everything you can to solve a big problem now because the solution might--but probably won't--set us up for a smaller problem later does not seem to me to be wise policy. My answer would be different if the yield curve were flashing red, or even yellow. But it isn't.
http://delong.typepad.com/sdj/2010/06/deficit-arithmetic-henry-blodget-needs-to-do-the-math.html
Maybe it helped. If you spend that much, you'd be hard pressed not to see some kind of benefit from it. I would like to see us bring back the CCC and other work programs.
Agreed.
But back to the moral hazard problem. At some point you have to cut the states off from the federal tit. There's a limit to how many institutions we can bailout.
Bailouts are different from stimulus programs. If you notice the latest job numbers, almost all added jobs were from temporary census positions. That means the private sector is just not creating jobs. The moral hazard of government crowding out private enterprise is currently non-existant.
But I agree with you that eventually it has to end. This is something that has been studied and discussed a great deal. The proponents of stimulus are even giving clear indicators for when government should pull back:
Thus it is a no-brainer that we ought to be doing more fiscal stimulus. Each dollar of missing production and each unemployed worker right now is much, much more painful to the country and a much greater loss to human welfare than a dollar of missed production and an unemployed worker in normal times.
The argument for more spending is airtight as long as the arithmetic holds out. That is, until:
further increases in the deficit lead to rising expectations of inflation, leading the Federal Reserve to raise short-term interest rates, which then crowds out private-sector investment spending;
or:
further increases in the deficit lead to pressure on the federal government’s debt capacity, so that we can no longer finance additional federal government debt at such extraordinarily advantageous interest rates.
Back in December 2008 the incoming Obama National Economic Council feared that an increase in the proposed size of the Obama stimulus program, the ARRA, from $800 billion to $1.2 trillion would bring these factors into play. It is now clear that they were overly pessimistic, in large part because they were overly optimistic about the state of the economy.
Right now, bad politics is undermining good policy, hurting the American economy and legions of unemployed workers. It is long past time for another stimulus package.
http://delong.typepad.com/sdj/2010/06/we-need-bigger-deficits-now.html
I would once again recommend reading this whole post. He lays out the difference between proper behavior in fiscal crises and normal times as clearly as can be done.
If it's spend in the right way, it can pay dividends down the road. We also have to address the problem of why private sector job growth has been so sluggish.
This is well understood. It's a liquidity trap. The economy contracts, people stop spending, businesses lay off workers, that leads to even less spending, which leads to even more lay offs...and so on.
The government is the only entity with the power to break that cycle. The ARRA was supposed to do this but it was too small.
Not sure what you mean here. Governments are run by people.
I don't know how else to explain it. The analogy between a federal budget and a household budget is comically flawed. The relationship between lenders and borrowers is completely different, nations exist for centuries and can borrow against their future then grow out of debt.
The world understands this, which is why there's no panic concerning our financial situation.
We would never pay down the debt. We haven't in decades. Even during the Clinton years, the debt increased. We could hope to grow our way out of it so it becomes more manageable. Failing that, we could inflate our way out of it, but that's not a road I think we want to go down.
One way to insure we don't improve the situation is to impose austerity measures.
Not when ratings agencies make austerity contingent on their rating. Eventually, you have to pay all those bond holders back.
They will not downgrade the US's rating, especially when people are so anxious to lend us money, as they are right now.
Because they know intuitively they could never take on that kind of debt and remain solvent.
I don't undertand this response. All economic indicators show that we can take on more short term debt.
