A disturbing chart, from Jared Bernstein via K-Thug.
In other words, we’re looking at -0.3% in GDP from cuts in state and local budgets alone. The idea with Keynesian economics is that state cuts/expenditure increases get multiplied in terms of overall impact on the GDP, but, even leaving that aside, these numbers are large:
It’s hard to overstate just how wrong all this is. We have a situation in which resources are sitting idle looking for uses — massive unemployment of workers, especially construction workers, capital so bereft of good investment opportunities that it’s available to the federal government at negative real interest rates. Never mind multipliers and all that (although they exist too); this is a time when government investment should be pushed very hard. Instead, it’s being slashed.
All of this belt-tightening for the sake of belt-tightening is simply insane. It is failing over and over again everywhere, and this isn’t just some academic exercise, people’s lives are getting destroyed. It’s a tragedy, plain and simple, one that has real victims and real perpetrators.
MikeJ
I always confuse the Buckinghams with Hombres (Let it All Hang Out) because BB Cunningham lived across the street from me when I was about 10 y.o. and the whole 60’s pop/punk/Cunningham/Buckinghams always stuck with me. I mean I know the dif now, but it always takes me a half second to get it right.
What, we had a topic here?
The Dangerman
Government spending NEVER creates jobs (unless it was spent on, say, developing the Internet, one of the largest economic growth engines in history, but Government spending ALMOST NEVER creates jobs).
Gian
it has real world and ugly consequences.
cut fire department budgets, and people will die in fires that might otherwise live.
cut schools, and the doctor that the teabagger sees in 20 years will have had a less than optimal education
cut road repair and we all pay for new shocks and bushings to keep the cars functional
cut law enforcement and you will see changes in how they respond to calls for help.
cut infrastructure and deal with blackouts which may kill people on medical devices that need power, or people who need heat, or air conditioning.
But since government work is a way out of poverty, especially for minorities, the right wing wants to cut it to the bone, and let the 1% emply whatever blackwater/Xe/whatever the new name is for security
J. Michael Neal
Well, aside from those on the right who are simply arguing in bad faith, economics around the zero bound become counter intuitive. If all you took were the intro Econ classes, there are a lot of things that get turned on their head. If you haven’t taken enough to understand the conditions (or, god forbid, are getting all of your knowledge from those who haven’t), then the right prescriptions will seem like they are exactly wrong.
I disagree that most of the Villagers are arguing in bad faith. Most of them are sufficiently innumerate that they wouldn’t be any more effective at arguing dishonestly than they are if they’re trying to be honest. They simply have no understanding of what they’re talking about. The problem is that they don’t want to listen to someone who will make them try to understand numbers, because that cuts right at their self image of being so good at what they do that they can cover anything.
This makes them very easy marks for the charlatans.
Comrade Luke
The crazy thing is that this guy is saying these things in the best, most read newspaper in the world, and he’s being ignored by the elites.
Instead, the focus is on the lady a couple columns over, talking about the Arizona governor wagging her finger at the president, and what it all means.
Hill Dweller
As I was saying on the other thread, Goolsbee pointed out this demonstrable fact, but Will and Ingraham laughed at him.
Right wing economic policy has been a complete failure for 30 years, yet the Very Serious People don’t seem to care.
Judas Escargot
But the Little People were foolish enough to trust the People in Charge.
Therefore, they must suffer…
General Stuck
Keynesian economic theory is just to0 much of a counter intuitive stretch for the average voter to get their heads around. So it is easy for republicans to demagogue for austerity to allegedly fix recessions, as most people instinctively think in similar terms with their personal finances in lean times. Of course, the wingers know full well they don’t care about fixing an economy when there is a dem president they are trying to unseat. They do it to weaken dem credibility with our base, especially the poor. To strangle social programs for pol purpose and advantage. But now even the middle class is included in their scorched earth tactics to beat democrats.
It’s a sad state of affairs, and basically what lead Clinton to decry that days of big government are over. And every dem politician to at least comply with rhetoric. The tax and spend liberal charge the wingers attached to the dem party has been a lucrative one for them, politically, especially for winning elections.
Obama is dealing with it largely with smoke and mirrors deals to look like he is on the belt tightening bandwagon, but has managed to get quite a lot of spending bills passed, against the pol tides when times are rough. And that spending from a variety of sources other than the stimulus has likely kept the econ ship afloat as long as it has.
DougJarvus Green-Ellis
@J. Michael Neal:
Isn’t talking about something you don’t understand “bad faith” in and of itself? Or do you think they don’t know that they don’t understand it?
PeakVT
On top of the immediate stress on individuals, the long term effects of high unemployment aren’t pretty either.
Loneoak
Yeah, but it also creates real boners for Bobos. And that’s what ultimately matters.
J. Michael Neal
@DougJarvus Green-Ellis: I suspect that they have no idea that they don’t understand it. As I said, their self-image is tied up in the idea that a journalism degree, or something similar, makes one such a powerful generalist that they are competent on all subjects. It’s a lot like people who have a Harvard MBA.[fn1]
On your first point, I think it’s arguing in bad faith only if you claim expertise that you know you don’t have. If you don’t claim to be an expert, the real problem isn’t you. The problem is whatever fuck up of an editor decided that you should be the one writing on the subject you don’t understand.
[fn1] I mean that literally. The entire guiding principle of the HBS is that they can turn you into a manager capable of running any kind of business in a two year program. It’s the Cult of the Generalist taken to an insane degree. Remember, most business school educations are bad, but Harvard’s are the worst.
srv
You know, that would be a good question for Corey Robin to research.
Were the Villagers of yesterday (or their influencers) better grounded in reality? I accept that they still represented the status quo and all that entails. But could they or their influencers really do the math?
Or has gastritis always afflicted them?
Villago Delenda Est
@The Dangerman:
And WWII, and the entire MIC, and the Space Program, and the Interstate Highway System, and the TVA, and land grants for railroads, and the postal service…
Well, except for a few hundred things, government NEVER creates jobs.
Villago Delenda Est
@J. Michael Neal:
No one in the Village has ever read Adam Smith.
Not one of them. Too hard for them.
J. Michael Neal
@PeakVT: Ain’t that the truth. And if it’s damaging for those in their 20s, it’s a killer for those of us who experience long term unemployment in our 40s or 50s.
I’m now dealing with the conviction that I will *never* have a significant job again. Not only can I not find anything permanent in my trained field, accounting, but the temp agencies don’t call me back. I can’t get hired to deliver pizzas or be a security guard, either. I think that I am either underqualified or overqualified for every job in existence.
Chris
@Villago Delenda Est:
What have the Romans ever done for us?
J. Michael Neal
@Villago Delenda Est: Like Otto, they read Smith. They just don’t understand him. Which, given the clarity of his prose, is pretty pathetic.
Bill H.
Well, I know I’m going to get flamed for this, but why is the resopnsibility of the government, particularly state and local governments, to “contribute to the GDP” in the first place? Governments have a responsibility to provide services, and if they are not doing so that is a problem that needs to be addressed, but why should they specifically support the economy? I know, I know, “because paul Krugman says so.”
Redshift
@DougJarvus Green-Ellis:
It’s not bad faith, it’s the very definition of punditry. Another requirement is absolute certainty that you understand whatever you choose to talk about.
J. Michael Neal
@Bill H.: No, the reason why the government needs to contribute to GDP is because that’s exactly what providing good services does in the current economic environment. With negative real interest rates, this is the time that government MUST contribute to GDP by creating infrastructure. With high unemployment, this is a time when government MUST contribute to GDP by providing a safety net.
The dichotomy you argue is false. They’re the same thing.
PeakVT
@J. Michael Neal: That’s horrible. I hope things turn around soon, for you and everyone else.
bemused senior
@J. Michael Neal: It’s horrible to be in your position. Have you considered trying a different geographical location?
chrome agnomen
extremism in the defense of gittin’ that NEAR out of office is no vice!
PeakVT
@Bill H.: The basic insight of Keynes in the 1930s was that government policy should be counter-cyclical. S&L governments are being pro-cyclical by tightening at this point. In other words, by cutting services or investment, they’re helping to keep people like J. Michael out of work longer. S&L governments are constrained by S&L laws that force them to be in balance, but the federal government could help them out by shoveling money their way – which the stimulus bill did, to a small extent for a year or so.
jl
Not much to add. Except interesting that the neoclassical and Austrian conservatives seem to be beating a retreat, or putting their real cards on the table.
For beating a retreat, John Cochrane said this business about it being a simple and obvious logical derivation government expenditure could never increase GDP by a penny or employment by one person, was all a kind of misunderstanding. Of course, it is an interesting and not implausible hypothesis, with even some empirical support. Except, economists should disguise the talk about it so that the lesser people would not get uppity ideas. See De Long’s blog which as been airing the issue at length last week.
I have to say that in finance and micro, Cochrane is a very good economists who has made important contributions. I new he was about as neoclassical and conservative as it gets, but so what, his good articles in his area are good, no arguing about that. So, I was astonished at what he, and others, had to say about macro.
Also too, Tyler Cowen has given up trying to argue that social and economic mobility the US has (edit) NOT declined. And his new position is, wait for it! His new position is that, well, maybe this idea that social and economic mobility is a good thing, well maybe that idea is kind of a mistake. Krugman has been on this, and John Quiggin.
patroclus
@Bill H.: The elements of governmental financial, fiscal and monetary policies (at all levels of government) are to: (1) promote growth; (2) pursue stabilization, safety and soundness; (3) strive for an efficient allocation of resources; and (4) create a system that allows for an equitable distribution of wealth and income. That’s what public finance is (in democracies).
GDP is the sum total of the economic value of all goods and services provided in a given year. When a government encourages growth, it is the same thing as “contributing to GDP.” The government itself, especially at lower levels, is supposed to, as you say, provide services, but the financial arm of government is aimed at growth, stabilization, efficiency and equity.
jl
@J. Michael Neal: Good luck. Don’t give up. Make double sure that you find something to do with your time, build some human capital in areas that interest you. Things will change. Never surrender. I had same thoughts in a previous recession when I was laid off.
jl
@Bill H.:
Commenter above are correct.
Neoclassical theory might work if all prices, including price of debt, could change together in tandem. It also might work if rational expectations (the idea that people’s and businesses’ forecasts of future prices never wandered from what they would actually be in the future) were true.
But those things are not true.
So, Keynesian theory (and Irving Fisher too, and BTW Uncle Milty Friedman too, when it came to macroeconomics) said government had an important role in promoting economic expenditure and thereby, growth, during recessions.
True, Friedman thought it should be done using monetary policy. When interest rates were zero and conventional monetary policy would not work, Friedman advocated massive unconventional monetary policy, much larger than what the Fed has done so far.
Friedman was alive and active during the Japanese lost decade, which is a situation similar to this episode so we have a good idea of what he said.
Friedman went a little loopy, IMHO, on libertarian microeconomics as he got older, but I am pretty sure he never abandoned his partly Keynesian ideas about macro.
Yutsano
@Bill H.:
In a good economic situation, government spending isn’t as much of a necessity. But during bad economic times, it becomes vital, for one simple reason: government ALWAYS has a secure money supply. Not only do they collect taxes, they can create money by fiat (which a goldbug would tell you is the problem, but they’re just idiots if they think assigning a finite resource to currency is a smart idea for anyone) so government needs to step in to fill the gap. Without it, the spiral decays to the point of macroeconomic collapse. I’m simplifying a few points here, but that’s an extreme gist of why government needs to support economic activity, especially now.
jl
Also, Bill H, if you do not want to take Krugman’s word for it, you do not have to. If you look at his column page at the NYT, he has a set of links to introductory material that will allow you to follow the basic logic and historical facts that back up his arguments.
So, no one has to just take the word of Krugman.
And it is not just Krugman, he merely has the most prominent public voice. You can also read Brad De Long, Joseph Stiglitz, James Galbraith, Oliver Blanchard, Bruce Greenwald, Kristina Romer, Robert Solow, Alan Blinder, even that arrogant old fart, Larry Summers. Or James Hamiltion or Menzie Chinn at Econbrowser. Krugman represents a whole school of macroeconomic thought.
And as I noted above, the other side is starting to say that they did not mean all those nasty things they said, really, and are suggesting that it might be wise for them to signal, discreetly, that they wish to whisper ‘uncle’ in the ears of Keyenes/Fisher/Hicks people.
jl
@General Stuck: Hmmmm… General Stuck, we meet again! Trying to sneak in the back door of Keynes again eh? (never mind that, Keynes being bi, that is an all too appropriate Freudian slip on my part).
Well you are foiled this time Stuck, your clever ploy has failed. We have records of your skepticism of Keynes!
Get the tumbrel! Capture the heretic! You all know the fate of heretics!
You didn’t expect the Keynesian inquisition, did you, Stuck? Bwa ha ha ah!
burnspbesq
@jl:
“You didn’t expect the Keynesian inquisition, did you, Stuck? Bwa ha ha ah!”
Give him the comfy chair!
Bago
@jl: Did you just bring sexuality into an economics argument via orifice? Seriously?
Samara Morgan
@DougJarvus Green-Ellis: K-thug is a free market fucktard too.
the free market model is WAI…or “working” in the only way it can.
jobs flow to the cheapest most efficient labor source.
the free market is teleologically incapable of improving the human condition, because it only improves the condition of the overclass.
it totes worked for America for a while because we were the overclass of the world.
kdaug
@J. Michael Neal:
Make one.
Lurking Canadian
During the era when the Canadian dollar was trading around 65 cents, I found myself in a Canadian fast food joint holding only American money.
This particular business has a policy that paying in US currency is Ok, but they will make change in Canadian money. So, I gave the cashier US $20 to pay for my Cdn$8 worth of coffee and donuts. The poor kid’s brain just locked up when the register told her she owed me more than $20 in change. She just could not accept it, no matter how I explained what had happened and no matter that her computer kept giving her the same answer.
I detect the same brain lock in certain media personalities trying to understand what Krugman’s getting at with regard to the zero lower bound, negative interest rates and so on. No matter how many times he explains it, statements like “inflation is good” or “government debt isn’t a problem” simply cannot be true.
bob h
This is exactly what Republicans want, but that doesn’t stop them from bellyaching about the job loss.
Sir Nose'D
Here in Sir Nose’Dville, Ohio, my city of 9,000 is facing a $2.6 million budget shortfall due to the state assembly’s decision to eliminate the estate tax–an important source of revenue for municipalities.
I was told that an elimination of the estate tax would increase the amount of freedom in my life. It it almost as if it has done the opposite–go figure!
gene108
@General Stuck:
I think people read Clinton’s relationship to government services incorrectly.
Clinton didn’t want to strangle government or drown it in a bath tub. He wanted to prove that government could be an efficient tool in helping solve society’s problems.
In order to restore people’s faith in government, after 12 years of Reagan-Bush, he had to show that government could be efficient. Government could provide means of handling problems, without doing the same things that provided a backlash in the 1960’s and 1970’s.
The media wurlitzer around Clinton really took away from this, but the reality is that the right-wing knew that if Clinton succeeded, the Republican idea of “government is the problem” would be dead.
It’s one reason the right-wingers, went after Clinton with an unprecedented (at the time) level of nastiness.
deep
I’ve been saying it for a while now, but these Ayn Rand Capitalists aren’t even very good capitalists.
Jamie
Local Government spending never creates jobs, except when they hire teachers, firemen, policemen, city administrators….you get the idea.
burnspbesq
@Jamie:
“Local Government spending never creates jobs”
What wingnuts really mean when they say that is that local government spending doesn’t create private sector jobs. They don’t count public sector jobs as real jobs, because public employees are considered to be useless parasites.
Even with that qualification, the statement is still false. The vast majority of municipalities in this country don’t have people on staff who patch potholes, erect traffic lights, or collect trash. They contract with private companies for the performance of those services. The expenditures of those private companies and their employees is where the multiplier effect comes from.
General Stuck
@gene108:
You kind of missed my point
Didn’t say he wanted to strangle government and social programs. I said he had to posture toward that theme with rhetoric, at least. Because of the Reagan era tax and spend liberal label that worked and still works for wingers, though that is fading some, I think. Obama has to do the same thing, and he still has the senate. I don’t really think Clinton or Obama believe government is too big, but they need to talk like it is, ditto for spending levels of government.
General Stuck
@jl:
Shirley, you jest. I am not, and have not been against keynesian policies, only treating them like some kind of magic elixer that will cure all econ ills. That, And people claiming its only tenant is more government spending.
gene108
@burnspbesq:
Also, too government only obtains money to employee people by
taxingstealing money from productive members of the private sector, who if left to their own devices would’ve done the same things the government has crowded them out of and done it more efficiently and better.You might as well say the mafia creates jobs, because the government and the mafia both rob from useful people and threaten them with punishment, if they refuse to pay up.
The only difference is the government has a lot bigger stick than the mafia.
(/sums up right winger views on taxes).
gene108
@General Stuck:
I disagree to a point.
When Clinton took office, the Great Society programs had been in place for a generation. There was data on what worked and what didn’t work.
Overhauling those programs was probably due anyway and some of it had to be addressed.
I don’t think talking about changing welfare programs was entirely capitulation to right-wing sentiment. At some level it was an acknowledgment of reality that changes had to be made. At another level it was triangulation and attempting to co-opt a right-wing initiative to attract voters.
I think ripping up the 1960’s housing projects, for example, wasn’t a bad move and was part of overhauling the “welfare” state that had to be done.
Bill H.
Okay, Krugman and people who went to the same school as Krugman, or were taught by him.
Government have a responsibility to promote growth? Who dictated that? Why is growth always good? When you pour coffee into an empty cup, that is good for the person who is holding the cup. The more you pour the better off the cup owner is. After a while, though, the cup is full and you better stop pouring or all you are doing is making a mess and burning his hand.
Krugman wants higher inflation, too, to “reduce the effective interest rate on debt.” If you have no debt but have a lot of savings, which will be reduced in value by the inflation which he so ardently desires, do you agree with him? If you are on a fixed inclome, and will be eating less because of the inflation which he thinks is such a good idea, do you agree with him?
Krugman wants inflation, in fact, so that people who have accumulated excessive debt are not punished for it. Why am I supposed to be enamored of his passion for telling my government what to do? This is a guy who wants to reward debt and punish savings.
Sooner or later further growth becaomes impossible. This nation experienced incredible growth when it was home to 50 million people. Can it achieve the same level of growth when it is home to 330 million people? Don’t be ridiculous. And in trying to do so we are destroying our environment, with Paul Krugman leading the charge into the valley of death.
Djur
Except every year there are more ‘cups’ to fill. If the population grows, the economy has to grow.
Zero debt here, a lot of savings. Yes, I completely agree with Krugman that we need more inflation.
Defining policy in terms of reward and punishment is reactionary. It isn’t the role of government to reward the virtuous and to punish sinners. We can have government intervention to improve the economy, or we can keep millions of unemployed on the dole for decades, or we can let millions of people fall into complete destitution. Neither of the latter two options are conducive to the long-term stability and prosperity of a free society.
BDeevDad
Kthug stole from Leonhardt.
jl
@Bill H.: I think you are confusing long run sustainable growth policy with short run growth needed to reduce unemployment and deficit.
Stiglitz is very critical of growth as measured by GNP and GDP as the ultimate standard of economic prosperity. James Hamilton seems close to a ‘drill baby, drill’ position on US fossil fuel extraction. Krugman is somewhere in between, not sure where. But those debates are about long run growth policies.
For short run, over next couple of years, they all agree government should spend, and they all agree that it will reduce both unemployment and deficit problem over medium term.
Also, what is the deal with with your question ‘why should the government do so and so?’. The whole idea of neoclassical economics is that the market will solve social and economic problems all by itself, and government will only get in the way. If there is a good argument that in certain cases and at certain times the market cannot solve social and economic problems, what is your proposal? Just let what happens happen and call it all good? Why?
El Cid
@J. Michael Neal:
Particularly when it involves matters of great import and a discussion in the public sphere which so heavily affects the citizenry, acting as though you know what you’re talking about when you haven’t really asked yourself what it is you need to know in order to know what you’re talking about is arguing in bad faith — in my opinion, and in the opinion of many I’ve known.
In a technical field, doing this would often be considered negligence.