The principles outlined seem to be self evident. However, today we have so many elected officials whose education was so poor or lacking in the understanding of economic cause and effect, that they cannot grasp the concepts outlined. The elected individuals believe, and perhaps correctly, that all they need to do to keep their jobs is to keep spending. This reality reflects the narrow focus of the electorat
"Cutting spending isn’t easy, of course, because the recipients of government subsidies and benefits—public employees, early retirees, large companies getting expensive favors, local governments with no fiscal discipline, and on and on—are well represented in the political arena, while taxpayers are not".
1. Taxpayers are represented in the political arena. Ever heard of this thing called an election? They can easily vote out the politician who is not legislating in their best interest. The only problem is that most of the electorate never change who they vote for.
2. Cutting spending isn't easy - but remember those early retirees, unionized government employees and subsidized companies all contribute to the well being of the economy - particularly the private sector. If unionized public laborers get paid less then they spend less. They fall back on mortgages. They won't go on vacations. They'll eat out less. They'll shop at the mall less. The banks, hotels, restaurants and stores are all private sector businesses that will suffer from a drop in government spending. Eventually private sector employees will also suffer and consume less also. Most of all the tax base suffers because lower revenue means lower taxes being collected by government.
Both economic sectors are dependent upon each other.
The question really is: What government spending will get cut and how will it affect the economy? No one ever seems to be able to answer this question.
Sounds like a good plan to me; but, will Krugman, and Obama go for it?
"For the time being, markets seem to trust the United States, and Treasury bonds are still in demand."
This is quite incorrect: the Federal Reserve is now 'purchasing' 70 percent of bonds at auction. Without the Fed's activity, we would have an endless string of bond auction failures.
Nice post! This is very informative! Great job! Kip on posting!
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What is Harvard doing employing a Supply- Sider?? Did the Koch brothers offer to pay for a new econ building??
Don't they offer macro courses there?
Is the problem Medicare or rising health care costs? Don't lower income people have shorter life spans? Will raising retirement to 70 make the problem worse? Doesn't a retiring person potentially create a job opening for a younger person? Wouldn't raising the retirement age just help the higher wage earners? Why is it that people often lump Social Security and Medicare into the same entitlement category? Is austerity working in Europe?
I somehow disagree with your analysis. My question is why we have deficit? A reason is that we are in recession and in this case we need to rise demand. In recession firms don't invest in machinery because there is not enough demand not just that they worry about future tax. I think your analysis is correct only when economy is in normal condition or exiting from recession.
"Shrinking spending reduces deficits without harming the economy..."
Ὦ ξεῖν' : Tell it to the Greeks!
If our economy were linear, that simple prescription might make a lot of sense; but it's highly non-linear and inter-connected in complicated ways that we don't understand.
One also can over-simplify by stating that shrinking spending reduces demand, which harms the economy. Again, if the system "only" were linear... But it just ain't that simple.
Debt, could be seen as a law, that the mystifying accountant in the sky has imposed on the world, as a means to enslave the inhabitants of the world into a mindset of guilt, a guilt trip.
A simple definition could be that it (debt) means that the loan holder is to be repaid with interest first.
Exchange rate profiteers, could be upset by the fact that no matter how much of it (debt) that is heaped onto distant future generations,very little of the interest can be realized in the near future.
The ability to enforce the "law" of the mystifying accountant in the sky, could be a risk that they (Exchange rate profiteers) are forced to take, in the hope that the Ponzi scam does not unravel in their lifetime. This is the Status Quo: It seams that each government agency is budgeted a certain amount and if they don't spend more than all of it, they receive a "spending cut" and they will do everything in their power to prevent this from happening.
That is the road the speeding truck is on, that is headed for a fiscal cliff.
This is the truck.
What would be needed is a governing body or political party, that could be used as a tool to implement debt, to be imposed by law, that would ensure that economic policy serves to enhance the grip on power of the debt free elite.
The right uses the democratic party like a tool, to invoke ever increasing taxes (because if everybody has money, then it is not very valuable) and uses them to make laws that make it illegal to lessen the value of the bank accounts of right wing conservative loan holders that are repaid with interest first.
Cast a ballot and watch these things stay the same.
When a Counsel on Foreign Relations (CFR) member that is also a member of Democratic party is voted out of office and replaced by a Counsel on Foreign Relation (CFR) member that is also a member of Republican party, then a Counsel on Foreign Relations (CFR) member is still in a position to guide the the Counsel on Foreign Relations (CFR) previously agreed to agenda. The agenda is to maintain the "Status Quo". (See top)
P.S. When the election is over, Krauthammer will see to it that no main stream media, would dare point out to the general public that this "Status Quo" will remain secure and that no attempt will be made to make it known to the public at large. http://www.washingtonpost.com/opinions/charles-krauthammer-the-choice/2012/11/01/59b5bed0-2445-11e2-9313-3c7f59038d93_print.html
Cast a ballot and watch these things stay the same.
It appears that the electoral college is occupied by C.F.R. members and they use the electoral collage as a tool, to silence any number of votes or voices, that are not members of the Counsel on Foreign Relations, and silence the voices of those that have had first hand experience, of what the previously agreed to agenda is.
Sir. You should be bolder. And tell us which public expenditure exactly should be cut.i would go with army. Not health.
Imagine you and the wife step out to attend a sports event one warm summer’s day. When you arrive at the stadium, you present your ivory admission ticket and are directed to your seating section. You will sit in the world’s largest outdoor stadium, holding between 125,000 and 150,000 eager fans. Before the event can begin however, there is an elaborate parade, political in nature, which winds around the stadium – elephants lumber slowly, ostriches ridden by pygmies appear, tumblers perform, jugglers also and finally, at long last, the politician and sponsor of today’s games makes his appearance, riding in a chariot pulled by tame zebras and already half-drunk before the start of a long day. Because many of the fans can’t read, attendants shout out the name of the candidate and the office he is running for in the hopes you will remember his name when election day arrives – and if today’s games live up to your expectations, the candidate has a good shot at receiving your vote.
Then the games finally begin, the start of a very exciting and bloody day. Gladiators perform, sometimes in a single pair, mostly in groups to make it easier for everyone in the stands to see. Trained specialists fight animals, animals fight animals and groups of warriors fight both other groups of warriors and/or animals. To lighten the blood and gore, comedy acts are interspersed throughout the day and sometimes a drawn out and brutal execution of a notorious criminal. These spectacles absorbed tremendous sums within the Roman empire, both government money and private party funds. But since the private sponsors were running for a political office, the sponsor’s hope was to recover the money spent through political graft once the candidate achieved office.
In today’s world, no one would condone spending enormous amounts of taxpayer money on such entertainment and the Romans couldn’t have adequately explained it either. The Roman Games actually started out on a very small scale, perhaps only a pair of gladiators commemorating a famous Roman general following his death and paid for by the immediate family. But as the centuries passed, more and more games were held, more and more money was spent on the Games. Such enormous resources were allocated to these political spectacles, entire animal species were wiped out through being slaughtered within the arena – the African lion’s cousin, the European lion, being one such species.
You could easily argue such spending was both irrational and absurd, it benefitted the continued well-being of the Empire in no discernible fashion. But the spending was increased very, very gradually until no Roman could curtail it and there were many sensible individuals who condemned the Games as both too vulgar and too expensive.
Once the Romans came to demand these continuous Games as the right of Roman citizens, the spending had to continue and would gradually balloon into tens of millions spent annually over the years. Had a Harvard economist with a functioning time travel device publicly warned the Romans such spending was counterproductive and must be decreased, or even stopped altogether, then most likely the Harvard economist would have found himself in the arena facing an enraged lion with nothing but his logic to protect him.
Y= G + I + C - NX, as I recall the first lecture in macroeconics. If an economy (like a living organism) has adapted to excess spending (or food), be that in Gov't expenditure or Consumption paid for by thrifty foreigners, then the Y will be bigger that nature would allow. The simple truth is we stuffed our guts on debt. NINJA loans, the smart MBAs must having been laughing up their sleeves - and the jerks borrowed - they must have laughed.
Now we have got used to the "retail therapy", pay tomorrow and all the rest of it, the simple fact is we have to repay the excess debt, while living on less and working longer. Name me a politicians who could be elected telling that home truth?
I am 49 in my second marriage, first two kids (28 and 25) are set up or at least working, my younger two are 6 and 4. I can see me working until I am 70, I live on 3 1/2 acres and am making the place as self-sufficent as I can. I can see high food prices in the future and an ageing population. My only disagreement with the article, is getting it all going again by spending - mostly on imports and increasing the deficient? No I think we need to cut that, make things again and grow food and fibre balance the budget as a major component of the plan.