But what is most interesting to us is the story behind the story. Ireland is not only the European nation the farthest out to the West. It is also the one the farthest out in front in the fight against deficit spending. While others dilly-dallied, Ireland cut. It bailed out its big banks…and then had to protect its own credit. But despite deep cuts, the deficit remains stubbornly high. At 11% it is in line with the US, which hasn’t made any effort to cut at all.
What went wrong?
It appears that the neo-Keynesians Krugman and Wolf are right about at least one thing. Cutting government spending while the private sector is de-leveraging is a hard way to go. (In our opinion, it is the right way to go…but that’s another issue!)
What happens is that as the feds cut back it reduces income to the private sector, which is itself in cutback mode. This then causes tax revenues to fall – which increases the deficit…
You end up with a vicious cycle of cuts, deficits and more cuts…which doesn’t worry us…but the feds don’t like it. And the public doesn’t care for it much either. Better to wait until the private sector has finished de-leveraging, say most experts.
Of course, then you are only building up public sector debt – which will have to be repaid sometime. You are also wasting resources – forever – making people absolutely poorer than they otherwise would be.
I tend to agree with everything that you put in bold. I am not sure what that last sentence means.
Of course, then you are only building up public sector debt – which will have to be repaid sometime. You are also wasting resources – forever – making people absolutely poorer than they otherwise would be.
If you mean this sentence. What it says is that when you pay the interest on our debt, you have less money to spend on other things. For example interest on the national debt will cost a lot more than the health care bill just passed.
I guess specifically what I dont understand is why resources would be wasted, and did that refer to the case in which the gov does increase spending, or did that refer to the case in which the gov did not increase spending.
I understand that you are concerned about interest and such, I am also. But I am not sure that is what the author was refering to. Even in the case where the gov ramps up spending and increased the debt and the taxpayer is screwed in the future, is that interest really wasted? Sure, we all pay more in taxes to pay the interest, but then our capital providers get that interest and reinvest it back into our system - so nothing is really wasted.
I got this theory that on a macroeconomic level that money is never wasted. Sure, if I pay someone to dig a hole and then pay him to fill it back up, that seems pointless and certainly a waste of human effort. Sure, no wealth was created in the process. But if he then takes the money that I paid him and spends it or invests it, the money itself was not wasted, it just transfered hands. Thats the sad thing about the pathetic state of our government, particularly our federal government. They transfer a lot of money, but create very little. It doesn't HAVE to be that way, but I accept that until we have things like term limits, the line item veto, and more "thinkers" and fewer morons in congress, it will probably always be that way. I can envision a day where instead of wasting human effort we could create amazing infrasture which would support amazing productivity, the middle class would have the opportunity to save large amounts of money and to create large amounts of wealth, the very rich would still be very rich, and the poor would see how bad their own pathic lives are and make an effort to move into the middle class.
What I think (?) that the origional author may have been refering to as "wasting resouces forever" is that if we continue to be unemployed, the labor and effort that is no longer being utilized due to unemployment can never be regained. Once time has been wasted, it can not be recovered.
I am just not sure if the origional author was pro increased spending or anti increased spending. Sounded like pro increased spending to me. I just want to make sure that I don't distort anything.
It appears that the neo-Keynesians Krugman and Wolf are right about at least one thing. Cutting government spending while the private sector is de-leveraging is a hard way to go.
I tend to agree with everything that you put in bold. I am not sure what that last sentence means.
Of course, then you are only building up public sector debt – which will have to be repaid sometime. You are also wasting resources – forever – making people absolutely poorer than they otherwise would be.
If you mean this sentence. What it says is that when you pay the interest on our debt, you have less money to spend on other things. For example interest on the national debt will cost a lot more than the health care bill just passed.
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.
snip
Mr. Blinder and Mr. Zandi emphasize the sheer size of the fallout from the financial crisis. They estimate the total direct cost of the recession at $1.6 trillion, and the total budgetary cost, after adding in nearly $750 billion in lost revenue from the weaker economy, at $2.35 trillion, or about 16 percent of G.D.P.
snip
If the fiscal stimulus alone had been enacted, and not the financial measures, they concluded, real G.D.P. would have fallen 5 percent last year, with 12 million jobs lost. But if only the financial measures had been enacted, and not the stimulus, real G.D.P. would have fallen nearly 4 percent, with 10 million jobs lost.
Here is what I believe is a rational analysis of what would have happened to the US economy had TARP and the stimulus not occured. Perhaps the numbers might be different by +/-20% but I really dont think their numbers are off by much
There are several problems with this "analysis" done by these two economists. The most glaring is that they lumped all government and federal reserve actions together. This has allowed people to say that it was stimulus spending which saved us.
So until these two break out the impacts by categort I can't this as a serious exercise.
If the fiscal stimulus alone had been enacted, and not the financial measures, they concluded, real G.D.P. would have fallen 5 percent last year, with 12 million jobs lost. But if only the financial measures had been enacted, and not the stimulus, real G.D.P. would have fallen nearly 4 percent, with 10 million jobs lost.
They did, my mistake in not including a link
http://www.nytimes.com/2010/07/28/business/economy/28bailout.html?_r=1&partner=rss&emc=rss
Here is the relavent quote
If by by reserve actions you mean the 0% fed funds rate, no they did not seem to include that.
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