Monday, May 20, 2013

What's missing from this picture?

At Economist's View Mark Thoma relays a Krugman post celebrating that there's "not a hint" of "runaway deficits" in "the new CBO numbers".

Yeah. Krugman says "there are longer-term issues" to be dealt with, later. But basically he says he was right and the austerity people were wrong about Federal deficits being a problem.

Thoma supports Krugman:

It's a good scam if your goal is to reduce the size and influence of government: implement spending cuts that slow the economy, never mind the unemployed, then call loudly for tax cuts and deregulation to spur economic growth. Repeat as needed.

Note the politics in his remark.

But what does Thoma not say? He does not explain the decline of growth. The other guys do: They want to "reduce the size and influence of government" because big government is bad for growth. Or that's their argument, anyway. At least they have an argument. Thoma doesn't offer one. Liberals don't.


The Arthurian said...

Excessive private debt stands in the way of economic growth. Our goal must be to reduce private debt.

Luke Smith said...

Andrew Jackson paid of the national debt, the only time that ever happened. He did not like debt or the Bank of the United States. Not sure if it helped the economy, or whether it was paid off with 'less government'. /Politics.

paul said...

They have an argument... it's wrong.

Hard to say whether a bad argument is better than none.

But I think I get your point.

"Excessive private debt stands in the way of economic growth. Our goal must be to reduce private debt."

True, we must reduce private debt (of households)...but the loss in spending has to be made up somewhere else.

We must have more public spending.

The Arthurian said...

"...but the loss in spending has to be made up somewhere else."

[lower-case] yeah...

I would prefer to have the Federal Reserve buy up and cancel private debt. Or they could make the payments for people. Whatever. If we didn't have all this debt to pay down, we might just have enough income to spend, to restore some measure of vigor to the economy.

The people who have the argument that is wrong, I think what they object to is expansion of government. And that's a fair argument. We need to come up with an economic solution that does what needs to be done without expanding the government.

"more public spending" is the way we fought the last war. We have to be creative and come up with a different solution this time. In the long run, Keynes is dead.

Juan said...

What's wrong with a little government expansion? Surely we can both do what Art wants (credit reduction) and what Keynes would recommend (government investment in jobs, etc). While stimulating growth by getting rid of debt is a great idea, I think the government still needs to pick some of the investment slack left over from the last decade's broken system, while also helping those who benefit the least from economic growth (the poor, the long term unemployed, etc).

Art has shown the government has actually "grown" below trend when compared to economic growth for the last 40 odd years; restoring the balance a bit seems perfectly fair to me.

As for the "reduce government" crowd, you have to bear in mind that their cost cutting tends to be very selective. They are happy to cut social programs to the bone while redistributing income towards the rich in the form of tax cuts, privatisation, trade deals, etc.

paul said...

"We need to come up with an economic solution that does what needs to be done without expanding the government."

Public investment doesn't necessarily expand the size of expands payments to the private sector.

But we still need more regulation in a lot of areas.

Anyway, most of the "government" the public interacts with is local and state. That's the part we should be concerned with.

Except for a few areas the size of the Federal government is not the right problem to worry about, and there's a big difference between a level of spending and a level of interference.

The Arthurian said...

Oh, I am completely apolitical! Your pro government spending arguments are wasted on me!

I would point out, however, that both Federal spending (as a % of GDP) and Federal deficits (as a % of Federal spending) were at sustained high levels for the 15 years beginning with Reagan. The "more government spending" approach has definitely been tried. The reason it failed to reinvigorate growth is that policy did not prevent the simultaneous expansion of private debt!

FRED: Federal spending as a % of GDP (blue) and Federal deficits as a % of Federal spending (red)

I do think it's funny that the people most opposed to increased government spending are generally the same people who look back most fondly on the Reagan years.

Juan, I remember showing that the trend of economic growth has fallen... and that this makes Federal spending look large by comparison... I don't remember showing that Federal spending is itself below trend. But then, my memory is not very good... :)

Juan said...

Art, you are right about Fed spending, apologies. I think we all take your point on the priority private debt reduction. Thanks for the clarifications.