"Austerity has been an even bigger disaster than we thought"

[applegrove]

Austerity has been an even bigger disaster than we thought

By Matt O'Brien at the Washington Post

http://www.washingtonpost.com/blogs/wonkblog/wp/2014/10/07/austerity-has-been-an-even-bigger-disaster-than-we-thought/

"SNIP............................



It's all about the fiscal multiplier. Stimulus, you see, is measured by how much one dollar of government spending increases GDP. But in a normal economy, it doesn't. That's because the Federal Reserve has its inflation target that it's determined to hit (or at least not overshoot). Government spending, though, can flood the economy with money, raising prices in the process. So the Fed, in turn, would either raise rates to offset this spending it doesn't want, or wouldn't cut rates like it otherwise would have.

Either way, the Fed's actions would keep the economy from being any bigger with more government spending than it would be without it.

But this calculus changes when there's a recession, especially if interest rates are at zero. In that case, the Fed wouldn't want to neutralize stimulus spending. So GDP would grow at least as much as spending does — what economists call a multiplier of one — and maybe more since there could be spillover effects.

Think about it like this: spending money on roads and bridges might boost the economy more than just the money the government directly spends. That's because the newly-paid construction workers will go out and spend their money too — and so on, and so forth. Indeed, even the oh-so-orthodox International Monetary Fund estimates that the fiscal multiplier might be as high as 1.7 right now.




.............................SNIP"

[MannyGoldstein]

1. But if you call it "cutting the deficit" instead

then it's a glorious victory.

[ProfessorGAC]

17. Good One, Manny

You must have spoken to Frank Luntz.

[L0oniX]

22. +1

[SheilaT]

2. Well, duh.

Last edited Sun Oct 12, 2014, 12:22 PM - Edit history (1)

This is a classic example of "Those who do not learn history are doomed to repeat it".

When the stock market crashed in the fall of 1929, and the already impending economic downturn got catastrophically worse, the then President, Calvin Coolidge (who'd actually done an amazing job in helping Europe recover from WWI) kept on saying, "Prosperity is just around the corner" and honestly did not think the federal government needed to do anything to improve things. Correction: It wasn't Coolidge, but Herbert Hoover as Jim Lane has pointed out. I had a stupid brain freeze, and I know perfectly well that it was Hoover, not Coolidge.

He was wrong. Things only got worse. Then Franklin Roosevelt was elected, and he understood that the federal government was the ONLY entity large enough to help out, and he did pretty much everything possible. He did somewhat loose his nerve around the time he was re-elected in 1936, and cut back on the spending and the programs that had put so many back to work. The stock market took another downturn, the economy went south again. Eventually, especially with the help of WWII, government spending went back up, lots of people went to work, and the Great Depression came to an end.

If those idiots in Congress had had any understanding of history at all, when the economy tanked in 2008, they'd have voted for billions in things like rebuilding roads and lots of other infrastructure jobs, and the Great Recession would have lasted a year or two at most. Instead, we're still experiencing the results of that lack of confidence.

I used to read old Life magazines. At two different colleges I attended in the 1980's, I had access to bound issues, starting from the very first one in November, 1936. It was the single most educational thing I have ever done. I feel as if I lived through the late 1930's to the mid 1940's. and I can go on and on at length about the very many things I learned from reading them. Alas. the last I read was through the end of June, 1945. The war in Europe has just ended. The continent is in many ways devastated, but there's hope for the future. It is clear that we will be fighting for at least another year in the Pacific, that we will probably need to invade the Japanese home islands, and fight house to house to conquer that country. The amount of destruction, and the loss of human life is terrible to contemplate.

In reality, I know how the war ended, and I'm hoping I can someday again get back to reading my Life magazines, and see just how average Americans experienced what happened. This is such a clear example of learning history, and I wish that everyone I know could do this.

[applegrove]

3. Yes. Primary history sources are an amazing way to look at history. Gives one so much insight.

[Jim Lane]

14. The President you describe was Herbert Hoover, not Calvin Coolidge.

Coolidge was elected in 1924 but famously did not choose to run in 1928. Instead, the Republican nomination went to the Secretary of Commerce, Herbert Hoover, who won the election and was thus in office for the 1929 crash.

[SheilaT]

20. Oops!

A slip of the tongue, so to speak. Thank you for correcting me. I am going to go back and correct it, with an acknowledgement to you.

[deutsey]

4. That's saying a lot, because I thought it's been a huge catastrophe from the onset n/t

[valerief]

5. Wait, aren't the .01% doing well? That's all that matters now. nt

[tclambert]

6. Spending multipliers in chart form

From:
http://frac.org/initiatives/american-recovery-and-reinvestment-act/snapfood-stamps-provide-real-stimulus/

The data came from a study by Moody's. Note that Bush tax cuts returns 29¢ on the dollar. In other words, it loses 71¢ per dollar "spent" on that tax cut program. Infrastructure spending, like for road and bridge repair, creates $1.59 of economic stimulus per dollar spent. Unemployment benefits returns $1.64, and Food Stamps turns out to be the best investment of all, creating $1.73 in stimulus for every dollar spent.

The underlying reason is economic stimulus = consumer spending. Working people and poor people spend the money they get, and spend it right quick. That money then gets spent again and again. Rich people hang onto their money. Give them a dollar and they fight hard to NOT spend it, certainly not in the consumer economy.

[bullwinkle428]

7. "Man up, Grandma, and eat your peas!"

K&R.

[closeupready]

8. They don't care if it works; they care only about their $$$.

Keeping taxes on the wealthiest increasingly lower, promising 'prosperity will be just around the corner if we keep cutting taxes on the rich.'

[JEB]

9. Money hoarding is as much a sickness

as any other pointless hoarding.

[Cha]

10. Exactly what the repubCons do not want.

"Think about it like this: spending money on roads and bridges might boost the economy more than just the money the government directly spends. That's because the newly-paid construction workers will go out and spend their money too — and so on, and so forth. Indeed, even the oh-so-orthodox International Monetary Fund estimates that the fiscal multiplier might be as high as 1.7 right now."

Mahalo applegrove~

[applegrove]

11. Night Cha.

[Cha]

12. G'NIght, to you, apple~

Signing off..

[CJCRANE]

16. That's what always confused me about me about conservative business owners

who are against government spending.

They complain about government workers and welfare recipients...but these are many of the same people who spend money in their restaurants and stores etc.

Then the cons complain when their businesses tank (due to the same policies that they promote). It's like they have no concept of logic or cause and effect.

(I'm sure there was a time when conservatives prided themselves at looking at the cold, hard facts and using logic but it must have been a long time ago).

[AtomicKitten]

13. Congress passed and the president signed

huge, devastating cuts to food stamps but refused to address the millions in subsidies given to rich people and corporations. And that's straightup bullshit. Shame.

[CJCRANE]

15. Circulating money is the blood flow of the economy.

Money needs to keep circulating.

If there is enough money in enough hands then it will go to the places it needs to, just like oxygen and nutrients in the blood get delivered to where they need to be.

Take money out of the hands of consumers and the system starts to slow down and become less efficient.

Hoard money in a few hands and again the economy starts to stagnate.

[CTyankee]

18. Paul Krugman has been saying this forever.

He is scornful and disgusted by the "economics" of the austerians and gets it that the whole deal is political manipulation.

[mmonk]

19. One of the reasons I don't vote Republican

and avoid as much as possible "centrist Democrats" and the arguments to do so.

[librechik]

21. the poor can snatch their pittance only

from the cold dead hands of the Republican zombies who run the House.