Monday, April 30, 2012

Red States Better Hope Austerity Just Continues To Be a Republi-CON Con Game

Red states are to the U.S. what the PIIGS are to the European Union, and "austerity might be no more welcome here than it is in Europe."  Read The New York Times, How Richer States Finance Poorer Ones, which references "an interactive map that shows the incidence of government benefits by county, in total and broken down by type of program. One can click on a county to discover the amount of transfer income per capita in the county and the fraction of the county’s income represented by transfer payments. It appears that there are quite a few Greeces within the American borders."

Can you say oink oink NW Florida.

The Myth of Expansionary Austerity

UPDATE XI:  "[W]e’re now living in a world of zombie economic policies — policies that should have been killed by the evidence that all of their premises are wrong, but which keep shambling along nonetheless. And it’s anyone’s guess when this reign of error will end."  Read The New York Times,  Death of a Fairy Tale

UPDATE X:  The chart says it all.  From the Washington Post, The consequences of austerity in one chart?:

The article, quoting Joe Weisenthal, notes that the "UK was recovering on a fine trajectory right up until early 2010, at which point UK growth hit a brick wall. What happened in 2010? That’s when conservative David Cameron came to power with an agenda of reigning in the debt."

As I said beforeand before,Obama should call the Republi-CON bluff.

UPDATE IX: Just ask the PIIGGS, "austerity policies have been an utter failure." Read The New York Times, Pain Without Gain.

UPDATE VIII: "Despite meeting terms for bailout money [i.e. austerity measures], Portugal is going deeper into debt because its economy is shrinking." Read The New York Times, Portugal’s Debt Efforts May Be Warning for Greece.

So much for expansionary austerity.

UPDATE VII: "Look at Britain [or Italy or Spain] to see the tragic effects of a very bad idea." Read The New York Times, The Austerity Debacle.

UPDATE VI: "Once again, when politicians and policy makers decided to focus on deficits, not jobs, they proved Keynes right about a slump being the wrong time for austerity. " Read The New York Times, Keynes Was Right.

UPDATE V: From The New York Times, The Hijacked Crisis:

[The markets are] "signaling, as clearly as anyone could ask, that unemployment rather than deficits is our biggest problem. 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.

So how did Washington discourse come to be dominated by the wrong issue?

Hard-line Republicans have, of course, played a role. Although they don’t seem to truly care about deficits — try suggesting any rise in taxes on the rich — they have found harping on deficits a useful way to attack government programs.

But our discourse wouldn’t have gone so far off-track if other influential people hadn’t been eager to change the subject away from jobs, even in the face of 9 percent unemployment, and to hijack the crisis on behalf of their pre-existing agendas."

UPDATE IV: We are in a 'Great Contraction,' and problem No. 1 is too much debt.

"Until we find ways to restructure and forgive some of these debts from consumers, firms, banks and governments, spending to drive growth is not going to come back at the scale we need.

Our challenge now, therefore, is to deleverage the economy as fast as possible, while, at the same time, getting back to investing as much as possible in our real pillars of growth so our recovery is built on sustainable businesses and real jobs and not just on another round of credit injections"

Read The New York Times, Win Together or Lose Together, which quotes:

"Kenneth Rogoff, a professor of economics at Harvard, who argued in an essay last week for Project Syndicate that we are not in a Great Recession but in a Great (Credit) Contraction: 'Why is everyone still referring to the recent financial crisis as the ‘Great Recession?' ' asked Rogoff. 'The phrase ‘Great Recession’ creates the impression that the economy is following the contours of a typical recession, only more severe — something like a really bad cold. ... But the real problem is that the global economy is badly overleveraged, and there is no quick escape without a scheme to transfer wealth from creditors to debtors, either through defaults, financial repression, or inflation.'

Re-read 'The Great Stagnation' about our broken political system.

UPDATE II: We are not suffering through a normal "business-cycle recession, in which the drop is quick, and the recovery is usually similarly swift. That is not what we’re in. That is not what financial crises are. And mistaking one for the other has, in his opinion, cost us a fortune.

Financial crises are not about the business cycle falling out of whack. They’re about debt. Lots of it. And that’s why they’re so resistant to efforts to speed a recovery. Whereas you normally get out of a recession by lowering interest rates and persuading consumers to spend, the period after a financial crisis is marked by consumers trying to dig out from under a mountain of borrowed money. You can accelerate that process, but it’s hard to do. But first you must correctly diagnose the problem. . .

'Debt de-leveraging takes about seven years. That’s the essence,' [Carmen Reinhart, now of the Peterson Institute for International Economics] says. 'And in the decade following severe financial crises, you tend to grow by 1 to 1.5 percentage points less than in the decade before, because the decade before was fueled by a boom in private borrowing, and not all of that growth was real. The unemployment figures in advanced economies after falls are also very dark. Unemployment remains anchored about five percentage points above what it was in the decade before.'"

Read the Washington Post, Double dip, or just one big economic dive?

But whether it is a Republi-con double-dip recession or not, there is no argument that Republi-cons want Obama to fail, the American economy is just acceptable collateral damage to achieve that goal.

UPDATE: As I first stated in 2008, the economy is deleveraging. From The New York Times, We’re Spent:

"We are feeling the deferred pain from 25 years of excess, as people try to rebuild their depleted savings. This pattern is a classic one. The definitive book about financial crises has become 'This Time Is Different: Eight Centuries of Financial Folly,' published in 2009 with exquisite timing, by Carmen M. Reinhart, now of the Peterson Institute for International Economics, and Kenneth S. Rogoff, of Harvard.

Surveying hundreds of years of crises around the world, Ms. Reinhart and Mr. Rogoff conclude that debt is the primary cause and that the aftermath is 'deep and prolonged,' with 'profound declines in output and employment.' On average, a modern financial crisis has caused the unemployment rate to rise for more than four years and by 7 percentage points. (We’re now at almost four years and 5 percentage points.) The recovery takes many years more."

And the article warns of the risk of austerity measures now:

"The easy thing now might be to proclaim that debt is evil and ask everyone — consumers, the federal government, state governments — to get thrifty. The pithiest version of that strategy comes from Andrew W. Mellon, the Treasury secretary when the Depression began: 'Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate,' Mellon said, according to his boss, President Herbert Hoover. 'It will purge the rottenness out of the system.'

History, however, has a different verdict. If governments stop spending at the same time that consumers do, the economy can enter a vicious cycle, as it did in Hoover’s day."

Of course, Republi-cons don't want an economic recovery just yet, even if unemployment remains high. It doesn't benefit their plans for the 2012 election, just as Bush couldn't admit the Iraq strategy failure until after the 2006 elections, even as soldiers died.

Another warning about the myth of expansionary austerity.

"The Irish, British and, soon, Greeks have bought into a misguided belief in austerity — that they can somehow cut their way to growth. In the United States, we have seen states and municipalities slashing head counts of teachers, cops and firemen. The “paradox of thrift” has morphed into a misguided economics of austerity. Hence, even when the private sector manages to create some jobs, its offset by public-sector job cuts." Read the Washington Post, Wall Street analysts and economists have this recession recovery wrong, which notes the economic downturn was caused by a credit-crisis, not an ordinary run-of-the-mill recession, "far rarer, more protracted and much more painful [and] different from other cycles" and bubbles.