Laurie Anderson explains the (non-)solution to our problems: only an expert can do it. This is one song that addresses Oprah, Iraq, torture, and Wall Street financial crimes, while being kick-ass msuically. The version below is live, but the version on the album, Homeland, is even more terrific.
The studio version is available on iTunes for those who like her work.
The employment numbers for August were released a few minutes ago. The results: no new jobs created in the month, and unemployment still at 9.1%.
If anyone doubts that we need another stimulus program to kick-start the economy (or even to stop a fall into a second recession), the doubts should now be dispelled. The last thing a weakening economy needs is budget cutting and austerity. With interest rates on US borrowing at very low levels, a stimulus program need not cost too much. Let’s focus on reducing the deficit by actions triggered as jobs are created and unemployment is reduced. Otherwise, we risk losing an entire generation of poverty and distress.
This is an emergency no less real than Irene or a major earthquake.
It is critical for politicians and investors alike to distinguish between cause and effect, disease and symptom. Washington has been operating the past few months under the assumption that the United States and our euro-zone economic trading partners are experiencing a debt crisis that must be resolved by exorcising excessive spending in the near term. To Republicans, and even many co-opted Democrats, the debate starts with spending cuts and how much must be done to appease voters and the markets, both now and in November, when the “Gang of Twelve” committee that resulted from the debt-ceiling deal potentially follows through with its mandate…
Tighten the budget via spending cuts, reduce the deficit and voilá — economic growth will blossom.
But while our debt crisis is real and promises to grow to Frankenstein proportions in future years, debt is not the disease — it is a symptom. Lack of aggregate demand or, to put it simply, insufficient consumption and investment is the disease. Debt has been simply an abused sovereign and private market antidote to sustain it. We and our global market competitors are and have been experiencing a lack of aggregate demand for several decades. It is now only visibly coming to a head, as the magic elixir of leverage is drained and exhausted. …
The president and Congress must recognize that an AA-plus country, to remain AA-plus, must focus on growth, not debt reduction, in the short term. We have a debt problem — but primarily a crisis of aggregate demand. A 21st-century Keynes would have recognized this and sounded the alarm, pointing out that policymakers from a fiscal perspective are pointing us toward recession and the destructive 1930s instead of a low-growth but still breathing U.S. economy of the 21st century.
– Bill Gross, founder and co-chief investment officer of the investment management firm Pimco, from an op-ed yesterday in The Washington Post.
You can count me as a 21st (and 20th) century Keynesian.
The entire piece is worth a careful read.
Bear in mind that deficit hawks have been warning for years that interest rates on U.S. government debt would soar any day now; the threat from the bond market was supposed to be the reason that we must slash the deficit now now now. But that threat keeps not materializing. And, this week, on the heels of a downgrade that was supposed to scare bond investors, those interest rates actually plunged to record lows.
What the market was saying — almost shouting — was, “We’re not worried about the deficit! We’re worried about the weak economy!” For a weak economy means both low interest rates and a lack of business opportunities, which, in turn, means that government bonds become an attractive investment even at very low yields. If the downgrade of U.S. debt had any effect at all, it was to reinforce fears of austerity policies that will make the economy even weaker.
– Paul Krugman, arguing for the implementation of a significant stimulus now.
Aren’t you surprised that the economy weakened and investors fled equities yesterday, after the Tea Party’s victorious imposition of spending cuts in the US? I thought that they told us that spending cuts and debt limits are the only way to save the US economy.
The fact of the matter is that the United States budget actions are contrary to what is needed today. The initial cuts and those that are to be determined by a special committee of legislators, in substance, are a form of austerity plan. The absolute worst policy in a recession is the imposition of austerity.
If you want a recent example, look what happened in the UK:
A slowdown in Britain’s growth in the second quarter [2011] means that the economy is weaker than thought and has no chance of meeting its official growth target this year.
The eagerly awaited preliminary GDP estimate for April to June showed the economy growing by 0.2%, rather than contracting. Although this was better than some of the gloomier forecasts, it is still slower than the 0.5% growth seen in the first quarter, which came after a 0.5% decline in the fourth quarter of last year.
What happened yesterday is that investors swarmed to US Treasuries. This means that they sought the safety of Treasuries as the most secure port in a storm. This is a huge vote of confidence in the dollar. Given that confidence, it would certainly be possible to implement a significant stimulus without risk to our credit rating. We need it and we need it now.
Floyd Norris offers this grim view:
In any other cycle, the recent spate of poor economic news would have resulted in politicians vying with one another to propose programs to revive growth. President Obama has called for more spending on infrastructure, but there appears to be little chance Congress will take any action. The focus in Washington is now on deciding where to reduce spending, not increase it.
From the LA Times:
Two years after the last recession ended, Wall Street is showing rising fear that the U.S. economy could be headed for a new downturn….Despite some relief that Washington could forge an eleventh-hour compromise on the debt ceiling, analysts said the prospect of even modest federal budget cuts in an anemic economy was spooking markets.
“Investors are looking past the budget situation and realizing this is an austerity plan,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “We have an economy that’s struggling to stay afloat and we don’t have the ammunition to keep prodding it forward.”
(Mother Jones via Balloon Juice)
For extra credit, answer the following questions:
The correct answers are yes, yes, and, by far the most damaging of all, yes.
Given President Obama’s endorsement of large budget cuts, the only question now appears to be how much fiscal policy will tighten and how fast. If it is back-loaded and mainly involves cuts in transfer programs, the impact on growth may be modest. But if – as I suspect Republicans will demand – the spending cuts are front-loaded and involve reductions in government consumption and investment spending, the impact could be severe.
– Bruce Bartlett, who held senior policy roles in both the Reagan and George H.W. Bush administrations, warning of the risks to the current economy of substantial spending cuts and tax increases.
There is plenty of evidence, in fact, that the spending cuts already imposed by Republican intransigence are responsible for a great deal of joblessness. Although the private sector added 57,000 jobs in June, that tiny progress was reduced by the 39,000 jobs shed by federal, state and local governments, much of which came from education. As David Leonhardt noted in The Times on Friday, cutbacks in state and local spending have cost the economy about a million public-sector jobs over the last two years, in part because the federal stimulus program, bitterly opposed by Republicans, ended too soon.
That has led to the bizarre spectacle of Republicans condemning the crisis that they helped to create and are refusing to fix. Speaker John Boehner said the poor job numbers were actually the result of the stimulus, regulations and the debt. Mr. Romney, who has been waffling over whether Mr. Obama has made the economy worse or has failed to make it better, chose to say on Friday that the White House was indifferent to high unemployment.
* * *
There is still time for the president to insist that the debt talks include a substantial program to put people to work now, while reducing the deficit over a longer period. To do otherwise is to ignore Friday’s ugly reality.
Both parties, in fact, are moving to anti-Keynesian policy orientations, which deny additional stimulus and make rather awkward and unsubstantiated claims that if you balance the budget, “they will come.” It is envisioned that corporations or investors will somehow overnight be attracted to the revived competitiveness of the U.S. labor market: Politicians feel that fiscal conservatism equates to job growth. It’s difficult to believe, however, that an American-based corporation, with profits as its primary focus, can somehow be wooed back to American soil with a feeble and historically unjustified assurance that Social Security will be now secure or that medical care inflation will disinflate. Admittedly, those are long-term requirements for a stable and healthy economy, but fiscal balance alone will not likely produce 20 million jobs over the next decade. The move towards it, in fact, if implemented too quickly, could stultify economic growth. Fed Chairman Bernanke has said as much, suggesting the urgency of a congressional medium-term plan to reduce the deficit but that immediate cuts are self-defeating if they were to undercut the still-fragile economy.
– Bond-king Bill Gross, co-founder of PIMCO, in a communication to clients
David Leonhardt, writing in the New York Times, challenges the common assumption on the right that cutting government spending at a time of economic stress is the best path toward recovery. It is worth a full read. This trope is generally said to have been demostrated in Germany. But the United States, with its stimulus (parts of which were put in place under the Bush administration and the remainder under the Obama administration), has had a meaningfully stronger recovery that either Germany with its austerity program or the UK which had a similar move toward significant austerity.
Germany’s economic growth surged in the middle of last year, causing commentators both there and here to proclaim that American stimulus had failed and German austerity had worked. Germany’s announced budget cuts, the commentators said, had given private companies enough confidence in the government to begin spending their own money again.
Well, it turns out the German boom didn’t last long. With its modest stimulus winding down, Germany’s growth slowed sharply late last year, and its economic output still has not recovered to its prerecession peak. Output in the United States — where the stimulus program has been bigger and longer lasting — has recovered. This country would now need to suffer through a double-dip recession for its gross domestic product to be in the same condition as Germany’s.
Yet many members of Congress continue to insist that budget cuts are the path to prosperity. The only question in Washington seems to be how deeply to cut federal spending this year.
If the economy were at a different point in the cycle — not emerging from a financial crisis — the coming fight over spending could actually be quite productive.
Score one for the Keynes.
The New York Times highlights a report from two prominent economists that indicates that the various Federal actions in the wake of the economic collapse substantially improved the situation.
In a new paper, the economists argue that without the Wall Street bailout, the bank stress tests, the emergency lending and asset purchases by the Federal Reserve, and the Obama administration’s fiscal stimulus program, the nation’s gross domestic product would be about 6.5 percent lower this year.
In addition, there would be about 8.5 million fewer jobs, on top of the more than 8 million already lost; and the economy would be experiencing deflation, instead of low inflation.
The paper, by Alan S. Blinder, a Princeton professor and former vice chairman of the Fed, and Mark Zandi, chief economist at Moody’s Analytics, represents a first stab at comprehensively estimating the effects of the economic policy responses of the last few years.
Another take on the report is available from David Leonhardt.
This is good news for Democrats heading into this fall’s election. However, the deniers on the right will no doubt refuse to accept any validity in the report.
(via The Big Picture)
So over on Fox, Trace Gallagher interviewed Michigan Senator Debbie Stabenow on the “cash-for-clunkers” program. Needless to say, since the setting was Fox News, the interviewer was against it. As soon as Stabenow makes a valid point, the interview is over.
And as you can see, the breaking news wasn’t about Bill Clinton. It was footage from a Discovery Channel shark show. (h/t Daily Kos)
Paul Krugman makes the case for an additional jolt of stimulus from the Obama administration. I do agree with him that the fact that jobs continue to be lost at a very high rate does not mean that the original stimulus failed. It simply means that the original stimulus was insufficient. God knows how high unemployment would be today if the original stimulus had not been enacted.
Since the recession began, the U.S. economy has lost 6 ½ million jobs — and as that grim employment report confirmed, it’s continuing to lose jobs at a rapid pace. Once you take into account the 100,000-plus new jobs that we need each month just to keep up with a growing population, we’re about 8 ½ million jobs in the hole.
And the deeper the hole gets, the harder it will be to dig ourselves out. The job figures weren’t the only bad news in Thursday’s report, which also showed wages stalling and possibly on the verge of outright decline. That’s a recipe for a descent into Japanese-style deflation, which is very difficult to reverse. Lost decade, anyone?
More from Paul Krugman on the potential for wage deflation here.
When House Appropriations Committee chair David Obey sought $900 Million in funds for pandemic preparation to be included in the stimulus bill, he generated bitter opposition from Republicans. The GOP claimed that this was not economic stimulus. Well, with the prospect of the swine flu outbreak upon us, and its potential for damaging the already fragile economy, we now see the truth.
Obey and other advocates for the spending argued, correctly, that a pandemic hitting in the midst of an economic downturn could turn a recession into something far worse — with workers ordered to remain in their homes, workplaces shuttered to avoid the spread of disease, transportation systems grinding to a halt and demand for emergency services and public health interventions skyrocketing. Indeed, they suggested, pandemic preparation was essential to any responsible plan for renewing the U.S. economy.
But former White House political czar Karl Rove and key congressional Republicans — led by Maine Senator Susan Collins — aggressively attacked the notion that there was a connection between pandemic preparation and economic recovery.
Oh, and the markets are sharply down this morning, in part based on pandemic fears.
This reminds me of the Republicans and volcano monitoring.
Update: Video of Susan Collins’ opposition: