Comments on: Why fiscal problems don’t have fiscal solutions A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: TFF17 Mon, 11 Mar 2013 18:13:44 +0000 @Fifth, I would like to recommend the following article to your attention — it puts my position better than I ever could myself: chs/professor-krugman-and-cru_b_2845773. html

I could and would support a long-term program of spending on infrastructure, education, and public well-being. Unfortunately economists have convinced themselves that it doesn’t matter what the money is spent on — paying people to dig holes and fill them in again is equivalent to paying people to build things that will last for generations. That is obviously false!

Will also note that union rules and corporate profiteering make it exceptionally expensive for the federal government to invest in the future. Federal sector wages/benefits are $10/hr higher than for comparable private sector jobs according to the CBO. I could imagine hiring legions of unemployed at $30k/year to build, clean, landscape, and care for the nation and its citizens. But paying federal wages/benefits of $100k/year, that is no longer financially feasible.

By: FifthDecade Mon, 11 Mar 2013 11:20:05 +0000 I understand what you are saying about timing – certainly in investment markets it is impossible to predict accurately. But with the economy there are a number of leading indicators that can be very helpful – eg unemployment/jobs figures and housing starts.

The danger is people on the right clamouring for tax cuts as soon as they think there is any money coming in to government coffers. That’s the money that should be used to repay the debt.

As for the spending, increase the tax revenues through growth and it shrinks of its own accord as a percentage which is all economists are really concerned about. Furthermore, if one finds it hard to tell the difference between stimulus spending and bailouts on the one hand, and normal and necessary everyday spending on the other… Well, it’s easy to shrink the education budget thinking its a cost when in fact it should be listed as an investment in the future. Ironically it is the private sector that shouts the benefits of “Human Capital” but for some reason governments don’t see it the same way, and see it as a cost – except in places like Germany, Switzerland and the Far East. Guess which economies are doing well right now?

As Felix says, Health spending across most G20 countries costs less per unit when paid for by Governments than when paid for through the private sector – Government spending here is the most efficient. While this cannot be said for defence spending or pork belly spending, these are unlikely to be significantly cut while Washington works the way it does.

By: TFF Sat, 09 Mar 2013 12:54:08 +0000 The danger, Fifth, is that we wait so long to cut back that we haven’t done so by the next recession. The economy might not be booming, certainly isn’t healthy, but it is once again moving in a positive direction. By this point it ought to be able to absorb at least small reductions in the federal spending.

By: FifthDecade Fri, 08 Mar 2013 19:51:23 +0000 I accept the multiplier may be changing, up or down, and it may even vary according to the economic cycle. In fact, we have been living through extraordinary times not seen since the 1920s. The mistake they made then was to increase interest rates in order to try to stop speculative borrowing wiping people out, but we now know they needed to reduce rates. So in the post-2008 world we’ve copied the solution we didn’t use back then (lower interest rates) but failed initially to do anything about the credit crunch which is the real problem.

With the government being pretty much the only entity feeding liquidity into the market, cutting that *now* can only harm growth, jobs, and future government revenues. Wait until the economy is back on its feet and then cut back the debt.

By: TFF Fri, 08 Mar 2013 13:56:43 +0000 Good points, Fifth, but a drain anywhere in the economy still limits the power of recycling economic activity. Government spending may be the most efficient form, since it gets spent once in the US before its effects spread globally, but I still see signs that the multiplier is declining.

By: Woltmann Fri, 08 Mar 2013 10:20:55 +0000 The major problem facing democracy in America is the wholesale corruption of the US Congress. Every elected rep needs to be investigated. Charges need to be filed. It’s time to out the true criminals. Only way to save America …

By: FifthDecade Fri, 08 Mar 2013 03:19:34 +0000 TFF, be careful when comparing credit (which can include consumer credit and corporate credit, naturally) and debt (which I assume you are associating here with Government debt). Since consumers in the US love buying cheap imports from China on credit, a lot of the boost from the manufacture of those same goods – although borrowed in the US – actually increases Chinese GDP. Government spending on the other hand is mostly spent in the economy where it originates, so may actually be the debt sector with the best ratings for GDP creation. After all, if the government pays for healthcare, the Doctors and nurses and cooks and chefs and cleaners and admin staff et c do not do those jobs in China – they do them in the US.

By: TFF Thu, 07 Mar 2013 20:54:42 +0000 @Fifth, the CBO estimates put out last year suggested that allowing the planned tax hikes and spending cuts to take hold would reduce GDP by roughly the same amount that they were projected to reduce the deficit. I’m sure you can dig up those reports as easily as I.

My other reference is the recent “Credit Supernova” essay from Bill Gross, arguing that today it takes $20 of new credit to produce $1 of new real GDP. Particularly disturbing is the suggestion that the efficiency has fallen by a factor of five since the 1980s, and continues to fall.

I am distrustful of “dusty textbooks” in this environment for the very reason that they are dusty. Macroeconomics is an art, at least as much as it is a science, and the economy is very different today than it was 30 years ago.

In any endeavor, those who trust in their complete understanding are dismissive of evidence that challenges this understanding, and thus get left behind in any and every paradigm shift. I fear that mainstream economists have fallen into this trap.

By: mfw13 Thu, 07 Mar 2013 08:43:25 +0000 The biggest problem is a lack of confidence, both in the markets, and in government.


Wall Street has for the most part been able to block any meaningful reform that would prevent a reoccurence of 2008. Banks are still “too big to fail”.

The federal government, thanks to the obstructionist tactics of the GOP, has been unable to address many of the important issues facing the country, such as our crumbling infrastructure, the education system, etc.

Add the two together, and you get a lot of scared and pessimistic investors….and a market so insular that it has become totally out of touch with reality.

By: KenG_CA Thu, 07 Mar 2013 04:33:43 +0000 y2k, I meant as a society we can produce all of that stuff, and more. However, it will require changing the distribution of work and income from the current model. Whether that will happen is another story.

The price of health care is distorted by the number of people who don’t pay for it, and how it is paid for. It’s not a question of do we have enough man-hours to provide all that care, or produce all of the equipment and medicine., but more so of our national policies and belief systems.