Prune and Grow

[Azazello1313]

 

If the economists are divided about what just happened, the rest of the world is not divided about what should come next. Voters, business leaders and political leaders do not seem to think that the stimulus was such a smashing success that we should do it again, even with today’s high unemployment.

 

They seem to see the fiscal floodgates wide open and that the private sector still only created a measly 41,000 jobs last month. That doesn’t inspire confidence. Furthermore, they understand something that is hard to quantify: Deficit spending in the middle of a debt crisis has different psychological effects than deficit spending at other times.

 

In times like these, deficit spending to pump up the economy doesn’t make consumers feel more confident; it makes them feel more insecure because they see a political system out of control. Deficit spending doesn’t induce small businesspeople to hire and expand. It scares them because they conclude the growth isn’t real and they know big tax increases are on the horizon. It doesn’t make political leaders feel better either. Lacking faith that they can wisely cut the debt in some magically virtuous future, they see their nations careening to fiscal ruin.

 

that's from obama supporter david brooks (read the whole thing). is it not fairly obvious, at this point, that this pretty accurately describes what is going on? the fiscal approach embodied in the stimulus bill just isn't working, and the reasons aren't difficult to discern. the basic keynsian idea is that government spending primes the pump by ultimately generating confidence among other economic actors. we are seeing the exact opposite effect, as people are getting very concerned about the bill coming due. someone like paul krugman can jump up and down all day about this fear being irrational, but nevertheless, it is there -- and when you watch what is happening in europe, the argument that the concern is irrational quickly wears thin.

[Azazello1313]

and whomper, sorry if I sucked you into reading this thinking it was a gardening post.

[wiegie]

 

that's from obama supporter david brooks (read the whole thing). is it not fairly obvious, at this point, that this pretty accurately describes what is going on? the fiscal approach embodied in the stimulus bill just isn't working, and the reasons aren't difficult to discern. the basic keynsian idea is that government spending primes the pump by ultimately generating confidence among other economic actors. we are seeing the exact opposite effect, as people are getting very concerned about the bill coming due. someone like paul krugman can jump up and down all day about this fear being irrational, but nevertheless, it is there -- and when you watch what is happening in europe, the argument that the concern is irrational quickly wears thin.

That's not really the primary mechanism via which the stimulus plan works. (However, I understand the counter-mechanism you are talking about where if people think the stimulus has made things worse, it could actually have a mitigating effect concerning the effectiveness of the fiscal stimulus. I blame Obama's economic team for not being on the ball and explaining what the stimulus was intended to do as well as the dems in Congress for providing easy targets for opponents of pork.)

 

The US is not Greece or Portugal and to compare these countries to the US does not really make sense. The US is NOT in the middle of a debt crisis right now and it's peculiar that people think that it is. The budget will have to be adjusted over the next decade, but it is weird that the general public wants fiscal austerity when the unemployment rate is near double-digits.

[Azazello1313]

wiegie, whistling past the graveyard

 

The budget will have to be adjusted over the next decade, but it is weird that the general public wants fiscal austerity when the unemployment rate is near double-digits.

 

austerity? no, but at least a tiny little indication that our poltical system can pare back the out of control spending, absolutely. so far, all they've done is accelerate it. if we don't make serious cuts in entitlement spending, we WILL have a debt crisis in the not-so-distant future. I really can't say it better than brooks did:

In times like these, deficit spending to pump up the economy doesn’t make consumers feel more confident; it makes them feel more insecure because they see a political system out of control. Deficit spending doesn’t induce small businesspeople to hire and expand. It scares them because they conclude the growth isn’t real and they know big tax increases are on the horizon.

[Kid Cid]

That's not really the primary mechanism via which the stimulus plan works. (However, I understand the counter-mechanism you are talking about where if people think the stimulus has made things worse, it could actually have a mitigating effect concerning the effectiveness of the fiscal stimulus. I blame Obama's economic team for not being on the ball and explaining what the stimulus was intended to do as well as the dems in Congress for providing easy targets for opponents of pork.)

 

The US is not Greece or Portugal and to compare these countries to the US does not really make sense. The US is NOT in the middle of a debt crisis right now and it's peculiar that people think that it is. The budget will have to be adjusted over the next decade, but it is weird that the general public wants fiscal austerity when the unemployment rate is near double-digits.

Some of us have wanted fiscal austerity for over 30 years. It just so happens that we are still clamoring for it as unemployment dips into double digits.

[whomper]

and whomper, sorry if I sucked you into reading this thinking it was a gardening post.

 

 

You totally did

Edited June 11, 2010 by whomper