Does John Boehner know what paychecks are made of?

By Felix Salmon
July 8, 2011
jobs report.

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It’s incredibly difficult to work out what is the most depressing part of today’s truly gruesome jobs report. The shrinking number of people in the labor force? The rise in U-6, broad underemployment, to 16.2%? The sharp spike in the newly unemployed? The downward revisions to April and May? The downtick in total hours worked? Maybe it’s the way that people leaving government jobs, for whatever reason, are finding it impossible to find new jobs in the private sector.

For me, it’s none of these things — it’s not, in fact, anything inside the report at all. Instead, it’s the reaction to the report from John Boehner:

“The American people are still asking the question: where are the jobs? Today’s report is more evidence that the misguided ‘stimulus’ spending binge, excessive regulations, and an overwhelming national debt continue to hold back private-sector job creation in our country. Legislation that raises taxes on small business job creators, fails to cut spending by a larger amount than a debt limit hike, or fails to restrain future spending will only make things worse – and won’t pass the House. Republicans are focused on jobs, and are ready to stop Washington from spending money it doesn’t have and make serious changes to the way we spend taxpayer dollars. We hope our Democratic counterparts will join us and seize this opportunity to do something big for our economy and our future, and help get Americans back to work.”

Opinions of the budget deficit and the national debt differ — some people think they’re a huge and important issue which needs to be dealt with in an urgent and serious way, while others think that the whole issue is overblown and that the debt is doing little if any harm at all to the US economy. But whichever side you stand on that debate, it’s downright bonkers to think that, at the margin, government spending reduces job creation, while pushing for ever-larger spending cuts is the way to be “focused on jobs”.

As Paul Krugman has explained extremely well, the economics of the deficit are not entirely obvious, and the president is no natural Keynsian.

The president just doesn’t like the kind of people who tell him counterintuitive things, who say that the government is not like a family, that it’s not right for the government to tighten its belt when Americans are tightening theirs, that unemployment is not caused by lack of the right skills. Certainly just about all the people who might have tried to make that argument have left the administration or are leaving soon…

To commenters saying that I need to have dinner with the president, or vice versa — been there, done that, didn’t help.

But if Krugman’s Keynsianism is unintuitive, the Republican stance on jobs is downright incomprehensible. Paychecks are made of money: they’re spending. If you spend less, you get fewer and smaller paychecks.

“Spend less money, create more jobs” is the kind of world one normally finds only in Woody Allen movies, and it’s a profoundly unserious stance for any politician to take. Spending cuts, whether they’re implemented by the public sector or the private sector, are never going to create jobs. And there’s simply no magical ju-jitsu whereby government spending cuts get reversed and amplified, becoming larger private-sector spending increases.

Boehner’s rhetoric, here, is a cynical play on our nation’s economic illiteracy. But the jobs crisis is far too big and too important to become a tactical political football. Now more than ever, it’s the job of government to come together and to do something constructive to create high-quality, long-term employment. Fast. Instead, the House majority is giving us aggressively harmful stupidity. Today’s a bad day in the annals of job statistics. But it’s equally bad in the annals of public service.

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Comments
53 comments so far

Well, Felix, you’re right that the situation is dire, you’re right that its insane to play on the suffering of the 16.2% of Americans who are unemployed, you’re right that cutting spending cuts more jobs.

But it doesn’t matter how many times you are correct. The GOP is on a jihad. Facts are things to be fought against as they represent the evils of liberalism. Only faith in a free market – one that is failing, at least in the short term, but no matter – faith in the free market is above all else.

Or faith in the rich who pay their servant-Representatives. Take your pick.

Posted by RalfW | Report as abusive

The Republican stance is the source of all spending are the wealthy, and seeing less government spending, they will conclude their future taxes will be less, and they will be more than happy to make up the difference and then some. That they already have more money than they ever had and may not have anything to spend it on never occurs to them as they are always ready to accept more contributions from them.

Posted by MyLord | Report as abusive

Felix, you’re taking a political position here, not an economic one. While you may reasonably argue that they are one in the same, I would like to believe that there is some part of the dismal science that has not been sullied by politics.

I could argue in response “been there, done that,” and it’s not at all clear that the greatly increased government spending over the last two years has made any difference in the availability of employment.

I could argue that the higher per capita government spending of some European countries has not translated into lower unemployment, over a period of decades.

I could argue that the amount of debt we have taken on in the last decade puts us dangerously close to a point where the world will decline to finance that debt in the future, but I just don’t know. Neither do you, but it seems just as foolish to continue that path and take the chance.

But I simply don’t think that your case is nearly as clear-cut as you seem to believe it is.

Posted by Curmudgeon | Report as abusive

Boehner says:

‘stimulus’ spending holds back job creation – there is absolutely no truth, as I have never heard of a company that doesn’t hire people because the government is spending more. If anything, the more the government spends, the more money there is for businesses and consumers to buy things. The big Republican objection to stimulus spending is that it could be inflationary, but the prospect of inflation doesn’t prevent hiring.

excessive regulations holds back job creation – another myth. If you are a big company with billions or even hundreds of millions of dollars in cash earning 0.2%, a few regulations will not stop you from investing in new jobs if you believe they will yield a profit. The problem is that lack of faith, no penalty for hoarding, and risk averse execs, not regulations, discourages investment.

Overwhelming national debt holds back job creation – nonsense. There is no direct or indirect mechanism for the debt to stifle job creation, especially when there is no repercussions (like a devalued currency, which would actually be good) for increasing national debt).

Republicans are focused on jobs – mainly their own. They only part about jobs for Americans that they care about is that they want as many as possible to pay as little as possible.

Posted by KenG_CA | Report as abusive

It’s Economic Theology.

Posted by GRRR | Report as abusive

Felix, government spending crowds out private sector spending, by keeping interest rates high. If the government would just stop spending, interest rates would be much lower than the current 0.00%.

Posted by FCBonanno | Report as abusive

Increased spending definitely increases employment. No question about that. But is the increased employment in the US or in China? And can we truly ignore the secondary effects of our policies?

The essential problem with macroeconomics is that its practitioners like to assume that the pieces move independently, or in a predictable fashion. I fear that the truth is rather more chaotic.

Stimulus doesn’t necessarily increase spending in a dollar-for-dollar ratio. If you ship us an $800 stimulus check, our spending will increase by $0 as we aren’t budget constrained. Other households will spend some of the stimulus and use half of it to pay down debt. Others will spend the whole amount. The spending impact of the stimulus depends largely on who gets the money, but also on how it is distributed. “Stealth stimulus”, such as a cut in payroll taxes, is probably less likely to result in new spending.

Moreover, stimulus spending creates debt. Debt presumably has some influence on exchange rates. Exchange rates largely determine the cost of imported oil. How much does this undermine the “wealth effect” of the stimulus?

Finally, the most significant point was glossed over earlier. Our entire economic system is a shared delusion. We pretend that these green pieces of paper (and electronic notations entitling us to more green pieces of paper) are actually worth something. (A hard currency is equally delusional. You can’t eat gold, and it isn’t good for much at present prices.)

If the government actions increase consumer confidence and business confidence in the shared delusion, then the economy functions smoothly and expands. If people lose confidence, then their natural reaction is to refrain from investment and spending.

Right now, would a new stimulus package increase or decrease confidence in the system? That matters far more to the ultimate direction of the economy than a trillion dollars here or there.

Posted by TFF | Report as abusive

Excellent Post. Boehner couldn’t possibly be more wrong about the economy unless he started hailing the benefits of tax cuts for unicorns and reduced regulations on rainbows.

I’m glad that QE2 is done, since hopefully we can stop looking towards the Fed for solutions (they have none), and start pressing Congress to act.

Posted by djiddish98 | Report as abusive

I agree completely.

Right or wrong on the issues, the Republicans have taken the President’s measure. As long as they can scare him — or force him to reason himself — into meeting them halfway, they can lay any failure of his policy to not meeting them the whole way!

For the public this is becoming a question of political body language. Obama just doesn’t look or sound convinced of what he says. Boehner does. The public has caught on, and they do not forgive indecisiveness or confuse it with nuance.

Posted by jbernar | Report as abusive

@TFF

“Other households will spend some of the stimulus and use half of it to pay down debt”

This isn’t a bad thing for the economy in the medium term. Households have mountains of debt they need to pay off before they can start spending again. While debt payment doesn’t juice the economy at all in the short term, it could lead to further gains down the road.

“Debt presumably has some influence on exchange rates”

Japan would disagree with the direction of your statement.

However, I agree with your final point about fiat being an issue of trust. Although the fact that this sentence

“If people lose confidence, then their natural reaction is to refrain from investment and spending.” should end with

“and move their money in treasuries” seems to belie your point a little bit.

Posted by djiddish98 | Report as abusive

You have to understand that from Boehner’s perspective, this is the best jobs report imaginable. It shows private sector expansion and government shrinking. This says to him he should double down, that if only we shrink government more, the private sector will grow faster. He can meanwhile use the bad numbers to beat on Obama.

“Being focused on jobs” is code for eliminating the government. The ideology is that government holds America back.

Posted by jomiku | Report as abusive

TFF, you say that:

Moreover, stimulus spending creates debt. Debt presumably has some influence on exchange rates.

It’s supposed to work that way, and almost always does, but it’s not now. Nobody is holding the US accountable for its deficit spending. There are four other currencies with enough liquidity to impact the value of the dollar: the euro, the pound, the yen, and renminbi. The EU, the UK, and Japan are all running big deficits themselves, which prevents the dollar from declining in value relative to them. And China won’t accurately value their currency because, well, they don’t want to. They have their reasons, and it’s their call, but the net effect is that there is no pain inflicted on the US for printing all those dollars. They whine about our spending, but they are unwilling to pay the price of reduced exports to the US by floating their currency. In almost any other time, our massive debts would be met with a devaluation, but it isn’t happening.

So we have two choices: reduce our deficit, and shrink our economy, or keep spending until our currency gets appropriately valued. If I had a vote, I’d choose the latter.

Posted by KenG_CA | Report as abusive

Getting sick and tired of the confidence fairy tales. How about this: if the government (yes, the government), went ahead and hired 4-5 million people to construct the national high-speed rail network over the next 3 years (and maybe fix up some bridges too, but that’s boring), employment situation would improve dramatically, confidence be damned. Can you argue with that?

No, you can’t. You can say: this would be an inefficient way to spend money or tha we just don’t have enough money. Well, we can debate those points of economics and monetary theory: from where I am sitting (i) it’s more inefficient to have massive idleness that persists over the years and (ii) we don’t use gold coin as currency anymore precisely because we don’t want to literally run out of money.

But you absolutely cannot argue that employment would not improve by a government hiring spree.

And yet people, GOP mostly but others too, have taken it to heard that government cannot create jobs. Tell that to the teachers, policemen, firemen and highway construction crews.

Posted by Y.Alekseyev | Report as abusive

“Mere parsimony is not economy. Expense, and great expense, may be an essential part in true economy…Economy is a distributive virtue, and consists not in saving but selection. Parsimony requires no providence, no sagacity, no powers of combination, no comparison, no judgment.”

Edmund Burke Letter to a Noble Lord

Posted by DonthelibertDem | Report as abusive

Excellent post.

I’m really tired of hearing the Republican mantra that higher taxes will kill job creation. That is an article of faith, not objective data. The other piece of objective data is that if taxes are set at a level below government spending, the government runs a deficit. What really bothers me though, is that while the inane musings of idiots like Boehner, Cantor, and McConnell are plastered all over the popular press, countervailing musings are largely missing in action. Why is this? I can think of three possible reasons:

- Democrats/non-Republicans don’t have an alternate economic vision.

- Democrats/non-Republicans secretly agree with Boehner et al. and so are keeping their mouths shut.

- The popular press, far from being liberal, is, in fact, in the Republican’s pocket.

Posted by majkmushrm | Report as abusive

I agree with the point about increasing infrastructure spending. It’s long overdue. But I don’t think you should overestimate the number of jobs that will be produced by construction infrastructure projects. This is not the 1930s, and a lot of mechanization has taken place. The days of lots of guys with shovels have passed.

There is an enormous amount of new construction or simple repair that must be done, but labor-intensity is an equally crucial consideration. Infrastructure, broadly conceived to reduce unemployment, would also mean increasing spending on education, scientific and medical research, and other more labor-intensive occupations.

Posted by jbernar | Report as abusive

Remember, the World War II posters “CAN DO!” Well, America is now the “Can’t Do Nation.”

We can’t build a tunnel between NYC and NJ. We can’t build a 2nd bridge between Detroit and Canada. The list of what we can’t build is long.

We can’t provide healthcare for our people. We can’t. We can’t. We are “Can’t Do Nation”

Posted by jomiku | Report as abusive

Boehner is either terribly stupid or terribly clever. Either he doesn’t know a thing about economics or he is spouting what he knows is nonsense in hopes the economy will stay depressed so Obama can’t win in 2012. My guess is that he is simply terribly stupid.

Posted by Chris08 | Report as abusive

This headline should read: “Liberal Democrats don’t know where paychecks come from.”

Private enterprise, unfettered by overly aggressive governmental regulations, can and will always pull an economy upward. There is literally no limit to what people can create. However, when government bureaucrats stifle creativity and freedom, you get what we’ve got. And what Greece, UK, et. al. have.

It’s time for new thinking from everyone. No rational person is calling for absolute freedom in the marketplace without any governmental protections for consumers, employees, etc. However, the pendulum has swung way too far in the wrong direction toward governmental intervention.

Paychecks come from individuals and corporations who are making enough money & who feel confident enough about the future to hire other people.

Posted by FriendlyTxn | Report as abusive

Boehner, the republiCANT CONS, and the teabaggers need to STOP LYING to the public! We see through all of it and they are seriously damaging what credibility they may have left. We KNOW they are lying about the country being broke. The rich greedy republicons are stuffing their pockets with money from the treasury and telling us the money is all gone. They would just as soon see the COUNTRY GO INTO A DEPRESSION THAN TO WORK WITH THAT BLACK MAN! Well GOD IS WATCHING AND HE WILL PREVAIL! It’s a cinch THEY don’t believe in GOD because if they did, they wouldn’t be doing all of these mean, hateful deeds: lying, stealing, killing, bearing false witness, coveting other people’s wives, oil, and other resources.

STOP LYING, STEALING, AND CHEATING! GET TO WORK, CREATE THOSE JOBS, GET AN AGREEMENT ON THE BUDGET, THE DEBT CEILING, (WHICH YOU RAISED AT LEAST 7 TIMES DURING THE BUSH YEARS), AND DO SOME REAL WORK! Otherwise YOU WILL be out of office next election!

Posted by sensiblethots4u | Report as abusive

This is just common sense. You spend more there’s more business. You hire more there’s more people working.

You spend less there’s less business. You fire more there’s fewer jobs.

When the private market fires 11 million people there’s less business and fewer jobs. At those times it’s the government’s job to hire people in proportion.

That said the government is about a fifth of the private economy, so it runs a big deficit compensating. Get over it. Next time we have a strong economy, put some surpluses aside instead of cutting taxes and leaving zip in the cigar box to help when times go sour.

Lord, a fifth grader could understand this.

Posted by Beezer | Report as abusive

I think Boehner’s point more is that the government is primarily financed through the private sector and that if we want to improve the economy, we need to grow the private sector and allow the supply side to function better.

Posted by Kirkum | Report as abusive

Eric Cantor sure looks stupid getting on tv talking about how broke we are, then insisting on INCREASING THE BUDGET DEFICIT WITH TAX CUTS FOR HIMSELF AND HIS RICH BUDDIES! They don’t seem to be talking about that though! They sure will have Hell to pay if they succeed with this hateful agenda they have going!

Posted by sensiblethots4u | Report as abusive

@FriendlyTxn: When Krugman talks about Confidence Fairy Tales, he’s talking about your entire line of thinking. Full Ricardian Equivalence is a myth made up by economists who think people won’t spend money today, even if it makes financial sense, because they’re saving it for a future tax increases 20 years from now. Homo Economicus Rationalus does not exist, stop basing your fundamental economic theories on the idea that such creatures exist.

There is no, none, ZERO indication across business surveys that “lack of confidence” is keeping businesses from hiring and investing. The #1 concern, by far, of businesses is: lack of customer demand.

There is low end demand (lower sales), plenty of available productive capacity (no real need for new plants & equipment), and corporations don’t have much liquidity constraints (they have all the cash they need).

And they’re not hiring or spending because they’re concerned about Social Security spending or the US Gov’t DIP financing of General Motors? Absurd, and dangerous.

Posted by SteveHamlin | Report as abusive

Lots of answers and suppositions. There were lots of promises made to corporations, including GE, who were going to be part of this new world economy and it was all going to be just ducky. Now the economy plane crash, of the paper airplane in a hurricane, has occurred. Nobody in Washington wants to change the big world economy program because we are this “World Power”. This is another plane crash that is coming up when we have to bring all the troops home and about half of our embassy staffs. We are broke people, and the sooner we realize it the sooner we can begin to get moving again. Oh, by the way, the US is morally broke also.

Posted by fred5407 | Report as abusive

While the Republicans do not seem bright enough to figure out that if you cut market demand in half (by job loss both planned and unplanned), you are not going to get economic expansion or more decent jobs, the Democrats seem no better.

We need to export goods and services rather than export jobs and capital while increasing imports.

Pretty elementary.

Posted by txgadfly | Report as abusive

Business credit was devastated in 2008, and killed the auto industry, commercial finance, and lots of other industries.
Fix that, and the jobs come back.

Posted by socalactuary | Report as abusive

@jbenar: I should clarify that I am actually arguing for the hiring of 4-5 million people to do some kind of work, period. If mechanization stands in the way of that goal, I would just more use shovels instead of mechanical excavators. At times of mass unemployment, efficiency is actually damaging for precisely the reasons you mention. Back to 1930s, in other words. Procurement laws would probably preclude this as a practical matter, but my point is as simple as this: hiring 4-5 million people by the government to do something – anything – would actually improve the employment situation. If it so happens that these workers can leave something marginally useful behind, so much the better.

You could also mobilize people to – I dunno – research how to make more efficient cars, make a trial run of a few thousand of said cars, blow them up to bits, and then research some more, make some more, and then blow up some more. After all, that’s what we did in WWII, when we had a bunch of people working for the government making bombs, bullets and airplanes, the bulk of which were then destroyed. That was massively inefficient. But we had full employment and the knowledge base and skill base of the workforce grew, which was a tremendous positive externality that generated continued prosperity for a few decades after the war mobilization was over. Needless to say, you don’t get those kinds of spillover effects with people sitting idle.

Posted by Y.Alekseyev | Report as abusive

I find the most disturbing thing to be this article and the degree to which socialism has obviously permeated our system. As Von Mises (who is generations ahead of that Keynesian Krugman) proved long ago, socialism misallocates capital. It turns out 537 lawyers in DC cannot effectively discern the collective demands of 300M+ for goods and services in the country – and they are a poor source of innovation in either products or services. If we would have simply reinstated Glass Steagall and skipped Obamacare, Dood-Frank, NLRB and the EPA, we surely would have already turned the corner economically, and been far less in debt as a nation – with NOTHING to show for it.

Posted by Barkingrat | Report as abusive

To jo… the “can’t do” poster:
The Pentagon was built in under 2 years, below budget, without all the silliness that govt currently demands.
Cut out all the excessive govt bullying and the private sector would do just fine.
Oh, and affordable education programs would help. Less expensive higher education that grows to meet our huge demand would make the next generation a lot more productive.

Posted by socalactuary | Report as abusive

FriendlyTxn wrote:
Private enterprise, unfettered by overly aggressive governmental regulations, can and will always pull an economy upward.

It was private enterprise, financial markets and big banks unfettered by regulations or ethics that put the U.S. economy in a tailspin.

Tax those pricks who are still making excessive gains on the cheap dollars given to them by the Fed. Tax the million/billionaires and Hedge Funds back to pre-Clinton levels, get out of Afghanistan now while cutting all, all foreign aid (hear that Pakistan & Israel), stop all subsidies and close all tax loopholes, and cut the defense budget. Then we can talk about fixing something that isn’t broken, like Social Security.

Posted by Andvari | Report as abusive

Barkingrat, by all means bring back Glass Steagall! I agree with a Republican!

But why put the tired old overcoat back on about Socialism? If you don’t already live in Pennsylvania, please move here. That way you can fully benefit from the lack of EPA oversight on the Marcellus Shale industry. You too can have increasing amounts of benzene, bromides and radioactive elements in your water supply without the benefit of a tax base on said industry.

Posted by Andvari | Report as abusive

THEY created this deficit when THEY RAIDED THE TREASURY WITH THE BUSH TAX CUTS. NOW THEY are trying to raid Social Security and kill it and Medicare at the same time. They have a hateful, hidden even though it’s not so hidden now, agenda that involves them raiding all the country’s coffers and keeping the money for themselves. How are they going to have people buying anything FROM THE COMPANIES THEY OWN, when NO ONE will have any money since they don’t have any JOBS! RepubliCONS need to STOP LYING AND STEALING TO AND FROM EVERYONE!

Posted by sensiblethots4u | Report as abusive

socalactuary,

The Pentagon is the most bloated department of the government. Let’s start by cutting the excess there, and put the generals back in their place, subservient to the people, not the directors of foreign policy that they’ve become.

Also, higher education is another bloated free enterprise system now highly dependent on the dollars of foreign students from India, Pakistan, Korea, China, etc. Good luck taming that leviathan while they still have Non-profit [sic] status! (Penn State Univ. and the Univ. of Pittsburgh are the two most expensive publicly funded universities in the U.S.!?! And they both essentially own the cities that surround them.)

Posted by Andvari | Report as abusive

to barkingrat, once upon a time we could TRUST people to do what’s right. HOWEVER, that day ia GONE! We can’t trust the companies in charge, the politicians in charge, or the regulators in charge to do what’s RIGHT! The republiCONS messed with the regulations/regulators giving them and the companies power to police themselves. Well, they proved they couldn’t be trusted, now things are a mess. The same is true of the banking/Wall street people in charge. The politicians are proving that they need to be replaced since they don’t want to do their jobs and get work done. The republiCONS are a JOKE IF THEY THINK PEOPLE BELIEVE THE LINE THEY’RE FEEDING US! THEY need to be replaced, recalled, impeached, fired or whatever needs to be done to get rid of them! The Democrats need to grow up and stand up to them and do what ‘s right for America and stop worrying about their jobs.

Posted by sensiblethots4u | Report as abusive

Have you ever felt so incredibly ill, that you finally just stick your finger down your throat? Our global economy is beyond that point.

Boehner isn’t ignorant, he is owned. As is every other legislative representative in Washington and in the states, the POTUS, and the federal judiciary. Their power and their position depends upon balancing between two competing constituencies: the neo-liberal capitalist elites (read “Keynsians”), and the dependent segment of the population that depends on government largesse. Managing the latter is fairly simple, or has been historically. It is getting more difficult. The former constituency is not managed, but rather does the managing. It is those elites from whom Boehner and Obama get their marching orders.

The elites have manipulated the government to their benefit since they were re-set by the First Great Depression. The regulations, the judicial holdings, the legislation, all are constructed so as to create an economy in which the “wealth” of the nation flows one way; into the pockets of those elites. Sure, there is a kickback in the form of entitlements to keep the dependents from raising a ruckus, but that is just a cost of doing business.

The middle class — the productive segment of the population — is where the real “wealth” comes from. The problem we face now stems from the fact that the elites have over-exploited that source of “wealth.” The reason “wealth” is highlighted here is because it is distinct from “production.” See, ideally, no economy should “spend” more than is produced — ever. But when you conceptualize real production as the abstraction “wealth,” then you can justify using various economic tricks and subterfuges to “create” wealth that is divorced from a true underpinning in production and real assets.

Thus, they could take 100 risky mortgages and package them into a securitized debt instrument. (Risky mortgages are more “profitable” because they carry a higher interest rate, and the risk of default gets thrown out.) But they’re not stupid, so the new instrument is insured against default (a credit default swap). JP Morgan thus pays AIG a premium, and AIG, based upon its reputation alone (and no adequate reserves) promises to reimburse the insured party if the asset goes south (which they did in ’08). Now they have an insured instrument that Moody’s will rate AAA, and it can be resold (and resold) at a premium to any number of other market players.

Because this scheme is so profitable, it becomes desirable to enable large numbers of the populace to borrow easily, and so the elites worked to ensure easy credit policies and lax regulation at the point of attack, through their control of government. That easy money (actually debt) created a huge (and unsupported) demand for housing, and we all know what happens when demand outstrips supply: prices rise. Thus, the real collateral (housing) was inflated across the board, which served only to further fuel this machine.

The problem now is that this scheme was never sustainable, and in its collapse, we find vast quantities of illusory “wealth” floating around in the system, and no one wants to be under roof when it collapses. The Fed’s (which is really the club for the really really wealthy elites) response is to create additional liquidity in the markets. (There is an entire discussion here on how that liquidity has been re-directed into commodities; another day.) TARP I and II, and QE I and II, were all about ensuring that there was coverage for the losses that AIG, et al, could never actually insure. Those funds went straight into the capital accounts of the banks and hedge funds that had been betting on these bogus instruments.

And who pays for that coverage? We do. It is our “money,” fresh off the presses. Or rather, our “national debt.” And none of the “wealth” thus created went to build an automobile, television, road or tractor.

So now we have a colossal debt, busted consumers, and no jobs. And the propaganda in the MSM and the gaming in Washington that supports the system will continue until the merry-go-round stops, because they really have no other options, unless JP Morgan wants to give back all of the wealth it helped create. Yah, right. Boehner is just doing what he’s told.

We won’t have to stick our finger down our collective throat. Better run to the bathroom right now. This is all coming down. Or back up, however you want to look at it.

Posted by BowMtnSpirit | Report as abusive

Felix, I think you are partly right and partly wrong. Government cutbacks hurt in the short term and we are in a rut.

The thing is, it is extremely crucial *what* government is spending on. Keynes said that if government pays some people to dig holes and other people to fill them back up, this would be good, and I suppose there is a little truth to this if inflation is running at -30%. But mostly this was terrible advice.

Japan’s experience over the last 20 years needs to be taken deeply to heart. They are in the same economic place as they were 20 years ago, only now with a mountain of debt and a much-aged population.

Right now, entitlements and direct transfer payments are equal to 100% of incoming government revenue. This astonishing and unprecedented in history. Between this and ongoing government operations, we are going into massive debt for present consumption and this bodes poorly for our future.

So what is the answer?

Government spending could help but it must be directed to things that will have substantial positive returns in the future. Examples:
(1) Fundamental energy research
(2) Energy infrastructure expansion of all kinds
(3) Research in various areas including particularly those areas that are too long-term or expensive for
(4) Education directed toward practical areas (STEM) to improve our human capital
(5) Build out infrastructure for electric cars.

The great crisis on the horizon that will dwarf present problems is oil limitation and meanwhile everyone is mucking about looking for something to do. If ever there was a perfect fit time for a modern Manhattan project or three to switch away from oil, this is it.

Posted by DanHess | Report as abusive

Friendly TXN knows about as much economics as does Boehner. I doubt reading Krugman would enlighten him since I suspect he could not understand Krugman. It’s widespread ignorance of basic economics that allows the plutocracy to dupe so many millions.

Posted by Chris08 | Report as abusive

DanHess, those are great suggestions. Unfortunately, not only would none of them ever get out of a house sub-committee, but any candidate for a Republican nomination for Congress would feel compelled to make a vitriolic argument against those suggestions just to win the nomination.

From reading your past comments, I actually thought you were a Republican, but now I’m guessing you’re an independent who doesn’t like paying taxes. :-)

Posted by KenG_CA | Report as abusive

The economic issues facing our economy right now are almost larger than anyone can completely grasp. We are at a point where our government has to do something. The problem is that neither side knows what to do. It is a case of “If we can’t propose a viable solution, we certainly can’t let ‘the other side’ get the credit for proposing one!” And I chose the word ‘side’ purposely – our politians have forgotten who they are working for. The should be working for the People, but today they are working for the Party!

Posted by icfman | Report as abusive

The religious fervor of the republicans lusting for power in a whole new manner. The power is now needed across the entire social spectrum from birth to death and if truth be told who will give birth and participate in this new utopia of serious and committed jihadists for the american way.Capitalism unfettered all citizens in its service with a breath of discourse asking a question negated as terrorist activity. Fully Formed Fascism at its phoenix

Posted by structurequity | Report as abusive

The next obvious logical step is John Boehner and Mitch McConnell and the entire Republican propaganda machine, (Fox News and the right wing blogosphere ) have been focusing on the deficit as a way to defectively sabotage any Federal government recovery efforts. Why do that, as Mitch McConnell said just after Pres. Obama’s inauguration, our first job is to make him a one term President. Not get the country out of the hole the Republicans put us in, but to defeat the President, so why is it surprising or hard to believe they are doing everything they can to undercut any efforts to revive our economy?

Posted by jonradin | Report as abusive

Obama and his administration might very well go down in history as perhaps the President that Bankrupt the USA.

Posted by ElitistNot | Report as abusive

@ElitistNot It seem to me that the Republicans withdrew from talks a few days back, and Republicans that are publically saying they won’t budge in negotiations. With that in hand, maybe you should consider Speaker Boehner as the Congressional Leader that bankrupted America, or any of the Tea Party troglodites that forced his hand.

Posted by CDN_Rebel | Report as abusive

I just checked!

My paycheck is made out of the money I earn minus the taxes the government takes away, often to spend on things of dubious value or entitlement programs that will be broke long before I benefit from them. I also set up an automatic deduction to a savings account to cover my $125,000+ and quickly growing share of the national debt.

Here’s an idea. Why not balance the budget by forcing government agencies to do more with less; it’s called efficiency. It’s a foreign concept in government but it wouldn’t be that hard to make a dent. Did you know government contractors pay people to make sure they meet or exceed their projected burn rate? This is because the government will actually punish them and reduce their funding if they work faster or more efficiently than they plan. That’s just the tip of the iceberg we’re barreling towards.

Posted by forthgrader | Report as abusive

@KenG_CA

“excessive regulations holds back job creation – another myth. If you are a big company with billions or even hundreds of millions of dollars in cash earning 0.2%, a few regulations will not stop you from investing in new jobs if you believe they will yield a profit.”

Let me give you some undebatable examples in industries I’m very very familar with: Oil exploration… deep water drilling is down 75% from pre gulf coast spill. Shale gas drilling… insustry lobbiests say we would be drilling wells twice as fast were it not for regulations regarding fracking.

I’m in no way saying that we should disreard the enviroment to drill baby drill. But don’t say that regulation has no or minimal impact on business investment… that’s not a defensable position for any sane person.

Posted by y2kurtus | Report as abusive

“Paychecks are made of money: they’re spending. If you spend less, you get fewer and smaller paycheck”. Oh my goodness! Do you believe someone with a college education would actually write this. What he is saying, when the government adds a job, your spending, but without, your spending less. This is only true in the private sector. Government is for safety and supporting the private sector in a limited way. But when you create government jobs to only boost your political power(unions, democrat voters), we lose. Typical leftwing Reuters story!

Posted by inspector1 | Report as abusive

1. While decreasing spending will probably not increase employment directly, neither will increased spending increase employment: there’s pretty good evidence out there that during periods of economic growth the marginal fiscal multiplier is very close to zero in the U.S.

2. Increased government spending is coincident with increased government size and increased government regulation. Spending is not done in a vacuum; it necessarily entails greater government control of the economy. And while you may not be an anarcho-capitalist, I think you can obviously see how that decreases employment, at least in the long run.

Posted by a.soffronow | Report as abusive

What is this “public service” of which you speak?

Posted by lambertstrether | Report as abusive

Andvari, when exactly was one of the most heavily regulated markets “unregulated”?

Posted by Danny_Black | Report as abusive

Danny, you are the first person in the whole thread to use the word “unregulated”, so I’m not sure which market you’re talking about. Assuming you’re on your usual hobby-horse about the poor unfortunate bankers, you’re right, it was because banks were so regulated that dozens of them failed, causing massive economic damage. The government practically forced them to abandon underwriting standards, spend all their time structuring socially useless derivatives products, and destroy most of their own capital.

If I actually believed that you were a laissez-faire capitalist I would at least find you intellectually honest (although mistaken). But we all know that you want the government to support banks and enable their profiteering without actually subjecting them to regulation. You are a consistent advocate of the worst kind of crony capitalism.

Posted by najdorf | Report as abusive

y2kurtus, when we speak of the environment, BP and fracking, those are issues that should be of concern to everyone, especailly those in the industry. BP’s spill was caused by LESS regulation, as Bush and Cheney were all for giving oil free reign and profit is the only focus.

Everyone in the industry should be more wary of the contempt of the people and the market and environmentally regulate themselves … but they already proved they can’t.

PS: Drilling twice as fast doesn’t necessarily equate to more jobs… just more profit.

May your pipelines be fracked for using that as a basis for argument.

Posted by hsvkitty | Report as abusive

@hsvkitty,

BP and fracking and the enviroment are of concern to everyone, myself included, that’s why oil drilling and shale gas exploration are heavily regulated. I’m not for one instant saying that they should be unregulated.

I was challenging the obvious fallacy that regulations don’t affect investment and employment.

In some instances regulation might actually increase employment. In my state they have reduced the number of lobster traps allowed per lobster licence several times. This has allowed more people to make a living in the lobster business at the expense of the really ambitious hard working lobstermen that use to fish 16 hours a day 6 days a week.

@DanHess total kudos to your ideas. I agree with your assessment that energy scarcity will dwarf all current issues much sooner than many expect. Lets change some regulations and put wind turbines up in all but the most critical envriomental areas of my state and solar farms in all but the most critical areas of the arid southwest.

Posted by y2kurtus | Report as abusive
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