The New Republic

Right on - thank you. "Dark forces" is not an exaggeration. And, complex economies, complex societies, run on faith as much as anything. If you look down, start to think about it, you'll fall; the whole thing can just crash.

- Sophia

July 26, 2011 at 12:21am

Sadly, John, you're absolutely right. In the interest of seeming balanced and moderate, Obama is granting a tremendous amount of ground to the Republicans. It's reflected in the good points you make about his speech, and in his yet again telling us that both parties are responsible for the mess we're in. On its face, that latter claim is true, but digging just an inch below the surface would show that the Republicans are 90 percent responsible. Where this is left us is a horrible choice between very bad and worse. Either Obama caves to the Republicans to the tune of granting them most of what they want or he lets them drive us over the cliff. (Pardon my mixed metaphors here.) In electoral terms, he might be better off with the latter course since he could then try to blame them for financial collapse. But that's some price to pay for getting re-elected...if it even works for him at all. What if Obama had consistently told the American public, from early in his presidency up through tonight, to question the judgment of those folks who got us into our economic mess (not to mention many of the same folks who misled us into Iraq, bungled Afghanistan, squandered the surplus and turned New Orleans into a disaster area)? And what if he'd hammered home the point that to revive jobs and the economy under these conditions we have to run a deficit rather than basically agreeing with the Republicans' analysis of our problems causes and cures? We'll never know whether he would have succeeded, but it's hard to see that we'd be worse off than we are now. Obama seems to be letting the debate and policies shift continuously to the right out of a mix of personal conviction, substantive policy and political calculation. The personal conviction is that he can change the way Washington works, but his notion of compromise involves giving ground in return for very little. The substantive policy relies on the same foolish advisers who helped get us into this mess to begin with. And ironically, the political calculation could well backfire on him, as the economy struggles and he fights next year's election on Republican territory rather than offering a more positive and realistic vision for where he'll lead us. What kind of electoral message boils down to "I'm not as bad as the Republicans"? I really hope I'm wrong, but I see the strong possibility of 2012 bringing us President Romney or, even worse, President Perry.

- Thunderroad

July 26, 2011 at 12:49am

But, FDR often ran on balanced budgets, even though he campaigned for retrenchment later on.

- darklayers

July 26, 2011 at 12:53am

Damn straight. It's as if having recognized that the Republicans are 100% wrong Obama has decided he can be 90% wrong and still make a case that he's the better choice. The question is why? This family-finance analogy for the relationship between government and the economy is deeply pernicious, as destructive as it is stupid. It plays right into the hands of the libertarian right who want to tear the government down. Why does Obama repeatedly mouth this rubbish? Does he think it serves his personal political ends? Does he actually believe it?

- AaronW

July 26, 2011 at 1:07am

Ummm - I thought I heard Obama say that short term spending cuts hurt economic growth....

- Virginia Centrist

July 26, 2011 at 1:47am

Could be that Obama believes the analogy. Or it could be that his polling data indicates and that his advisers believe that the view is so deeply entrenched in the populace that it would be counter productive to make the argument and better to concentrate on other aspects of the debate. It's not like it's an unknown debating principle to avoid introducing points that you understand your audience will disagree with, as when presented with something people "know" is wrong, the strongly tend to discount your other points. Similar to how I rather doubt Obama is living in some fantasy land where he believes the Republicans will work with him if only he'd try hard enough. As much as I'd love for him to stand up and say something like "Look, people in Congress apparently don't understand how our governemnt works. This isn't my spending that I'm trying to approve here in raising the debt ceiling, it's the spending the Republican controlled Congress has already appropriated. If you don't like this spending, pick up the phone and call your local congressman/woman." he's not, as that would be a strong signal to the markets that we're hosed.

- Nari224

July 26, 2011 at 4:32am

"Beginning to cut now will cost us jobs and do serious damage to the economy." I would like to see a rigorous study or analysis that actually demonstrates that the timing of the cuts proposed by Obama would seriously damage the economy. As pointed out above in another comment, Obama understands and tries to convey the fact that lots of cuts now would harm the economy. Perhaps he didn't emphasize this and the necessity for jobs programs enough for Mr. Judis, but the point of his speech was to deal with the immediate problem of the debt ceiling.

- kluhman

July 26, 2011 at 6:11am

I watched both speeches last night. Excuse my language but I think that we are totally fucked.

- paskunac

July 26, 2011 at 7:25am

Cross-examination!!

- chaitless

July 26, 2011 at 8:19am

Obama can't make the case for more spending, because no one would believe that piling up more debt could possibly be good for the nation. And the Republicans would denounce it as "just more of the same tax-and-spend liberalism that got us into this mess." So to create jobs, Obama is pushing for programs like an infrastructure bank financed by higher taxes on the rich and the involvement of private industry. Of course, the Republicans will oppose all such proposals, but it will show that they don't really give a damn about creating jobs. They just like to rant about jobs not having been created and blame the high unemployment rate on Obama. As always, they're depending on the stupidity of the masses, expecting that the majority of middle-class voters will go on believing their lies. They've been pretty much right about that so far, but let's hope the tide is turning.

- DAVIDDREIER@EARTHLINK.NET-old

July 26, 2011 at 8:31am

The president's problem is not his framing of the issue and solution. It is his lack of credability to deal with the economy. How can he say that more revenues (taxes) will bring down unemployment when the stimulus package failed to bring the rate to his predicted 8%--in spite of adding 600,000 public sector jobs. We would be closer to "6% with factories and offices humming" if the uncertainty of the health care bill was not hanging over the heads of businesses, the oil drilling hadn't been stopped in the Gulf of Mexico, big business was lauded and encouraged rather than disparaged (eg. Las Vegas in '09 and private jets last week), and the president realizing that many of the millionaires and billionaires that he pillories actually create a ton of jobs.

- 64099

July 26, 2011 at 8:55am

"...Obama needs to tell people what’s really wrong with the economy, and what needs to be done. Otherwise, he is not doing his job. ..." well, gee, why did Obama not do that every day since winning the election? Does Judis actually think Obama EVER cared about the economy? Then why did he spend all his political capital on health insurance reform? and obsessing over high speed rail in the original stimulus bill? and completely failing to allow ALL the Bush43 tax cuts to expire as intended - explaining WHY they had an expiration date never came up - utter failure in moral courage/leadership that will next cost the Democratic Party the Senate AND the White House, bringing our unfortunate America back to the perils of one-party rule with Norquist as puppetmaster.

- K2K

July 26, 2011 at 9:56am

64099: "...and the president realizing that many of the millionaires and billionaires that he pillories actually create a ton of jobs." Billionaires and millionaires do not create jobs by themselves. They need consumers. You can invest in a factory making widgets and hire a 100,000 people, but if there is no market for your widgets that factory closes down, period. Also, the President has never once said more revenues will bring down unemployment. It is fair to disagree with the President's policies, but you don't get to make up your own facts in the process.

- wkwami

July 26, 2011 at 9:58am

64099: The site ate my much less pleasant response, but here's the more basic one: stop lying and you'll have some credibility. Fun additional facts: -New permits have been issued for the gulf; drilling continues. -600,000 new public sector jobs only existed if you count the Census workers, who had nothing to do with the stimulus. Since the Census is over, those jobs ceased to exist. States, counties and cities are shedding jobs by the bushel and federal hiring is nearly frozen.

- janus

July 26, 2011 at 10:11am

..."in order to get out of a continuing slump, we need to continue running deficits and piling up debt." Frankly, this is a bit of dogma that too many liberals are buying. We have long-term structural problems that temporary stimulus simply won't be able to make a huge dent in. We need to re-allocate spending, not spend more overall. And any sociological appreciation for the current climate can see that a long-term plan to lower deficits and reduce debt will provide a huge boost of confidence to the market, businesses, and consumers.

- polcereal

July 26, 2011 at 10:27am

As soon as Obama agreed to play by the Republican rulebook, he was lost. And what's all this quoting of Reagan about? Next thing you know, Obama will tell us we have to cut school lunches to balance the budget, but that's okay because ketchup is a vegetable!

- mgorvine

July 26, 2011 at 10:36am

John, I would like to see a more extended analysis from you on how and why Obama is in this corner. Is he willfully ignoring the lessons of the 30s? His advisors (Geitner, Daily, who, of course, he has chosen)? Or is this simply political calculation and a willingness to put the country last. Your piece on the fundamental underlying problems in the U.S. economy this week is excellent. Please address this political dilemma in equal depth.

- lfriedla

July 26, 2011 at 10:44am

Watching our President negotiate with the GOP is like watching the Israeli-Palestinian talks. He gives up ground, he compromises, he throws away his best stuff, and they scream that he won't compromise. He wasted his veto-proof majority trying to get a compromise on health care while the GOP jerked him around until after the MA Senate debacle. Now he's moved so far to the right on the economy he can't get back, & the GOP has offered Zilch in return. Of course, he's 10x better than anything the GOP can offer [Bachmann? Palin?? God save us!!], but he's losing his base. I fear a last minute primary challenge which would destroy the Democrats!

- nicuron

July 26, 2011 at 10:55am

http://www.realclearpolitics.com/articles/2011/07/26/imperiled_blue_dogs_moderates_face_tough_odds_in_polarized_times_110712-2.html "...The Blue Dogs formed after Republicans took control of the House in the 1994 midterms, and comprised Democrats who felt the left wing of their party contributed to their landmark election losses. The group was credited with making blue gains in red districts in the 2006 midterms, which restored power to the Democrats, and in the 2008 presidential election, which put their party in the White House. Last year, the coalition included 54 Democrats, most of whom represented swing districts. But Republicans defeated 22 of them in the midterms and took an additional six seats held by retiring Blue Dogs. Many coalition members had taken heat for backing President Obama's stimulus package and health care law. ..." add all the moderate dem senators who retired or are retiring, and that is how the GOP regained control of congress...

- K2K

July 26, 2011 at 11:24am

First of all, liberals lost the narrative; when they ignored the changing landscape in the mass media, when the likes of Limbaugh an his clones began to dominate the air waves, then came Fox News and its daily distortions. this hate machine spawned the Tea Party. Some attempts at showing how astro turf the tea party was, failed miserably in the now terrible summer of 2009, where distortions like death panels were allowed to poison the health care reform debate. For Obama there's a silver lining. If the deficit debate crowds out the economy as topic one in 2012, that allows him and the dems to turn it into another Ryan Plan debate which as we know helps not only rally the base but the independents as well. The cut, cap and balance should be easy to link to the Ryan plan. I wonder whether Obama is pulling the Repubs into the trap by saying he wants a long term solution to the debt issue, when it has always been in his interest to take it to the people and wait for 2013. Let's face it; the 2010 election gave a false mandate. Only a truly mobilized center left can take the country back to sanity

- rigos4

July 26, 2011 at 11:26am

I'm not entirely sure a primary challenge to the President from the left would be a bad thing. Perhaps it would help move the economic debate back towards the center and away from the right wing insanity that it has become. The public can grasp the reality that the reason all of these states are having mass layoffs of workers now is, at least in part, that the "failed" stimulus that was supplementing their salaries ran out and the federal government is not offering new stimulus to replace it. Now, in addition to competing with the already unemployed for scarce jobs, they have hundreds of thousands of newly layed off state/local workers looking for those same scarce jobs. Its not a hard connection to make, if the President would just MAKE IT. Businesses don't hire because of tax cuts, they hire because of demand...period. Tax cuts without demand don't create jobs, they just improve the bottom line. The more people working (in private jobs or public jobs), the more demand. It is not a hard argument to make, if the President would just MAKE IT. Similarly, the US government is not a business or a family, and it should not be run as such. Comparisons to businesses and families are ridiculous and he needs to point that out, not buy into it. But as long as this is where the debate is, don't republican families and businesses ever try to get a RAISE, or improve REVENUES when they face tough times? Its not a tough argument to make, if the President would just MAKE IT. And when republican families face a job loss that lowers their income, don't they tap the credit cards and HELOC until they find another job? Or do they immediatly sell the house and mercedes and walk to their rented trailer home until they find a new job? Its not a tough argument to make if the President would just MAKE IT.

- rbstanley

July 26, 2011 at 12:17pm

This is actually pretty funny because I didn't come away from the speech with any of it. Obama came out, played the role of Adult, asked the citizens to join him by yelling at their reps to pull their heads out of their butts. Boner's retort was little more than comforting babble to sooth the party faithful, and reassure them Obama is just being a big meanie and everything is ok.

- GSpinks

July 26, 2011 at 12:43pm

I stopped taking John Judis seriously when he referred to the Roth IRA as a loophole for the wealthy. A course in Econ 101 would do wonders for him. There he could learn that every dollar spent on government crowds out investment in private enterprise, and employment growth has historically come from small business, not government hiring. If he had actually read Keynes then Judis would also realize that throwing money at the problem is not the panacea he assumes.

- davemh333

July 26, 2011 at 3:44pm

- "Obama needs to tell people what’s really wrong with the economy...". Yeah, like Churchill needed to tell the British what was wrong with the French? The vast majority of voters know the House Zombies are nuts but they weren't going to sit through an Econ lecture at 9PM last night. His only job until this ends on his terms is to make his terms appear the most reasonable. Only after not losing this round can he pick a new fight. It's one trial at a time and last night was the worst time to lose this jury.

- michaelg

July 26, 2011 at 4:17pm

Oh come on. What did you expect him to say--"we need a bigger deficit"? Now that wouldn't have given Boehner one to knock out of the park, would it? It's a real problem that Obama often doesn't seem to know what he's doing, but the advice he gets is even worse. My plan: get Biden to resign, appoint Hillary vice-president (shouldn't be a problem), and then get Obama to resign. Some people need to be feeling a sharp pain in their balls.

- mlottman

July 26, 2011 at 5:36pm

I didn't watch both speeches last night, but I suspect that paskunac is probably correct (about 4:25 am comment). The rhetoric and style of many comments is something along the lines of Obama is not battling vigorously enough against the "enemy." There are problems with this rhetoric. We are not trying to "kill" the "enemy" [Republicans/conservatives], we are trying to convince (at least a few of] them. How does "attacking" them convince them? Also, as irritating as they are, they have some valid points. Our government has been spending money we don't have for a long time. The bill is now due. Obama probably has a better approach to trying to deal with the financial crisis--pay more taxes and cut more benefits--but the crisis is not imaginary, and however irritating and hypocritical the Republicans are--we have to deal with it seriously. Or start the bankruptcy sale to the Brazilians, Indians, and Chinese. Who have little reason to be sympathetic to us.

- skahn

July 26, 2011 at 6:20pm

Barak Obama is our Robert Mugabe.

- rgglsg

July 26, 2011 at 7:14pm

You make a fair point, skahn, but recent history has shown that when a Republican is in the White House, "spending money we don't have" ceases to be an issue for the GOP. Hence their credibility on the question of the crucial importance of budgetary discipline is next to non-existent. This is a concerted attempt to protect the rich and nothing else.

- ironyroad

July 26, 2011 at 7:17pm

"the bill is now due" Rubbish. The only reason we, ie the government, doesn't "have" the money is because of our ridiculous tax structure. Instead of letting trillions in cash remain in the hands of the investor class who have insufficient real investments in which to park it and so either (A) drive up spectulative asset bubbles or (B) park it in near-zero-interest T-bills to loan it back to the government that foolishly failed to collect it as tax in the first place, we could recognize that public goods such as infrastructure and universal health coverage can never be produced by the free market because consumers cannot organize their demand to back such massive projects and go ahead and tax ourselves sufficiently that the government could direct our productive capacity towards the creation of goods other than "the new purple pill" (same as the old purple pill other than for being still on-patent) and digital action extravaganzas like The Green Lantern.

- AaronW

July 26, 2011 at 8:33pm

AaronW is absolutely correct, skahn. If we produce what we consume, invest, and the government spends (which we do to within a 2% trade imbalance that we could easily eliminate if we did not have free trade absolutists to go along with our supply-side nuts), then we do have the money. We just don't collect it in taxes. Instead we borrow it back, just as AaronW describes. We have a lunatic tax structure and that is the only reason for our budget deficits. Our Federal deficit equals a private surplus. The two cancel out in the national income accounts.

- roidubouloi

July 26, 2011 at 10:20pm

Somehow, sometime the entire conceptual basis for borrowing seems to have been misplaced. Trampled, in the case of TEA-ers. Bankers and investors lend on a presumption that the borrower will apply skills and efficiencies and newly imagined techniques made tangible in order to fulfill the obligation. Bankers and investors go to some lengths to assure themselves that the promise of repayment is both valid and achievable. In recent months the presumption has been inverted, even turned inside out and upside down. That multi-dimensional reversal symbolically declares the future holds no bright promise, trumpets relentless doubts that anyone anywhere anytime can fulfill obligations taken against the future of America's economic activity. It's a downers' presumption. And, in the special case of TEA-ers, it is a pledge improbably identified as "conservative" to forego payments due, to waive and even abrogate solemnly enterred repayment promises made by others before them. President Obama has indeed strayed verbally too close to foreseeing a national economic plateau, has not challenged the American people to roll up their sleeves and build instead of dither. But he's nowhere near abandoning the concept that America can and will grow, which is the basis on which our borrowing has always rested. Our household borrowing, our borrowing as a nation.

- lespin

July 26, 2011 at 10:23pm

But that is the rub. We've averaged 18% GDP collections and rarely collected more than 20% GDP in fed taxes. There is zero consensus to collect more, tho we should be collecting roughly 20% as a matter of course given past spending patterns. But 25%, or more? Sez who? One controversial congress? The national income account identity would also imply that budget balance will correspond to a decreased surplus in net private saving (assuming no exim change). The argument is really over the appropriate level of fed spending as % GDP, and with that whether growth will be greater at the historical level or at the new 25%+ level. That said, there is also a fair question of how best to optimize growth, free choice and economic security.

- ds111

July 26, 2011 at 11:05pm

The metric of net private savings is irrelevant. Investment matters. Savings that are simply the accounting offset of budget deficits are of no real value. If we tax instead of borrowing all it means on a static basis is that the people with the extra dollars give them up without getting a Treasury security in exchange. They pay them in taxes rather than as the purchase price of a Treasury. So what? Whatever the level of spending, in a normal economy, it should be funded with taxes, and in a boom we should be paying down debt. If we extracted sufficient taxes to pay for our spending and the public found it too much, then there would be a consensus to reduce spending that does not now exist. That decision would then be made on real consequences, not on arbitrary notions about the percent of output that the government rather than the private sector should consume. We should hope to reach that point. There is zero basis for the belief that government spending should be a particular percentage of the economy, particularly if you are including transfer payments. If the number of retirees compared to workers is going to go up, as it will for purely demographic reasons, then how can government spending including transfer payments NOT increase, unless you cut actual government services or investment. Why do that? What evidence is there that we cannot produce the output needed to support retirees with fewer workers, particularly when we have had chronic unemployment? If we actually reached full employment as workers retire in greater numbers and find that we are output constrained rather than chronically demand constrained, then we have decisions to make about public versus private consumption and investment. That is a problem we should look forward to having.

- roidubouloi

July 26, 2011 at 11:30pm

To make the point a little clearer, savings that is in the form of government securities produced by a current deficit is not actually the saving of anything. There is no asset generated or saved that can increase output. Such savings are illusory because what one has "saved" the rest of the country has consumed. That is why simply raising sufficient taxes makes the illusory savings disappear without necessarily changing consumption or investment. But those who want to save would then have to invest in productive assets, whether directly or indirectly, rather than in government securities.

- roidubouloi

July 26, 2011 at 11:35pm

The problem lespin is not that we would fail to pay our debts, but that we have dramatically increased the claims on our future output, with both SS and especially MC, and ramped up by GWB and now BHO. Debt for a house is fine, as it is a long-lived asset, but not if you can't pay it back, or if sucks up too much of your future income. Think Greece. We are in the process of substituting private debt for public debt. Private debt is far easier to renegotiate, or even default on.

- ds111

July 27, 2011 at 12:10am

Nah. Treasury debt, at least to the extent that it is held domestically, just redistributes output as the payment of principal is revenue to the payees even though not income. We can use taxes to pretty much redistribute it back again, if that is we want to do. The point about social security and medicare is a little bit better, except that it is not really "claims" that are the issue, as neither social security nor medicare is a legally enforceable claim if Congress modifies these programs. Rather, the issue is what part of output we want to devote to support of retirees and their medical care. If we had had a private pension system all these years, retirees would still be consuming a share of output, perhaps a larger share, because the rich would not have been able to steal their pension investments as they have by running deficits that have been funded by payroll taxes. Greece is inapposite as an example as its debt is external. So, don't think Greece. Think the United States of America with external debt that represents less than 20% of its annual output and a trivial percentage of its assets.

- roidubouloi

July 27, 2011 at 12:27am

Yes Roi, And the only way to achieve that would be through a balanced budget, gradually shrinking the on-budget debt as a % GDP. We probably disagree over which is the chicken and which the egg, but I've said before that we should define the % GDP the federal govt will spend on entitlements, leaving each generation in stasis with the next, in GDP terms. Seems otherwise you'd be absorbing an increasing share from successive generations. Exactly the process playing out wrt SS/MC, where the 8-10% GDP today crowds out potentially productive investments, both private and public, vs the 2-3% GDP share from 50 yrs ago. Mind you I think 8-10% public entitlement cost is fine, and could easily be somewhat higher, but see no reason successive generations should be expected to pick up ever higher percentages, which is the current trajectory. There is a tipping point, the PIIGs being a prime example.

- ds111

July 27, 2011 at 12:39am

You're making a number of unwarranted assumptions here, ds. Or rather echoing the unwarranted assumptions of a particular ideology. 1. We have had less than full employment for a long time now. This means that we have underutilized productive resources. That in turn implies that we have been demand constrained, insufficient demand fully to employ all productive resources. Therefore, there is no reason to believe that there has been any crowding out of investment. 2. If we did reach full employment due to increasing numbers of retired workers, it is not at all clear that what would be crowed out is investment rather than consumption by workers. 3. You assume that consumption that today is funded by government didn't exists previously. To some extent the change is only a change in the financing mechanism, not the real consumption. Retired people used to eat too, and as there are more of them relative to workers, the will somehow eat even without social security, thereby consuming a share of output. 4. You make no allowance for increasing labor productivity as labor becomes scarce. 5. You cannot have the same spending on entitlements as a percentage of GDP as the relative number of retirees to workers changes. That would make no sense. 6. If we do run short of labor, we can then start to raise the retirement age, but we are not there yet, not even close. 7. The problem such as it is cannot be addressed by assigning some percentage of GDP to entitlements. That is completely arbitrary, particularly as output per capita increases.

- roidubouloi

July 27, 2011 at 1:54am

- The really big reason the Big Deal would free Democrats is it included right's concession to get more income. It's another way of saying, "I'll see your cuts and raise your taxes.". The GOP doesn't want a balance budget. They want some weird construct of government that predates TR. They spend when they're in and cut when they aren't and the only constant is deny Democrats the option to fund their programs. They admit it: "The problem is spending (on regulation, entitlements, The New Deal).". But if the goal were fiscal balance they'd have to discuss more revenue. Unless Obama could break them on taxes, no Democrat can succeed. Thus, by daring them to slash big they'd have to accept more revenue. The problem is spending but they turn down $3 Trillion in cuts? As he would say, "This is a debate I want to have.".

- michaelg

July 27, 2011 at 9:20am

I agree that we can't reasonably assign an arbitrary percentage of GDP to entitlements, or anything else as a long-term plan. But we should have some agreed-upon figures based on current and projected future requirements in order to plan effectively. Where else to get them? For what it's worth, virtually the entire Industrial Revolution was funded privately. The idea that increasing the State's tax income automatically translates into valuable investment in the future is a concept with shaky historical foundations. And please, spare me the list of government accomplishments in DARPA, NASA, etc.

- Robert Powell

July 27, 2011 at 2:12pm

hello RP! I refer you to Rural Electrification in Texas' Hill Country in Robert Caro's "Master of the Senate (forget which volume). I do not, however, compare electric transmission (or the Interstate Highway System) to such current obsessions as high speed rail. head-spinning debate.

- K2K

July 27, 2011 at 7:20pm

Frankly I can't see the logic of ever higher entitlement spending as % GDP. We've done that and created a version of intergenerational warfare w SS and MC - Europe has it even worse. (The trust funds are sound as they represent govt debt, but the PV of non trust fund liabilities has become a major future problem.). Individuals produce in order to consume (and save) a respective share of current GDP. Savings, delayed consumption, allow the consumption of future GDP as the savings are liquidated. By what right does one presume to command a greater share of the effort of any generation. The poor and middle class now pay 15% of their earnings SS/MC (including employers share) largely for the benefit of past generations, and presumably for their own future, though they will likely need to rely on a yet further-burdened future poor or middle class earner. Setting an approx percent GDP for all entitlements is the only generationally fair way to draw against future GDP. If future generations wish to pay more, that's fine, but they should not be expected to. Again, we are approaching a SS/MC pickle because it is politically easier to pledge future benefits but fund them inadequately. Fine, but we should live and learn.

- ds111

July 27, 2011 at 8:04pm

ds, every cadre of working people supports all of the mouths then in existence in a society, children, retirees, and those who are unable to work. This is always true, always has been true, and always will be true (although the boundaries of what is considered an acceptable age and condition to work have changed for the humane). There is no other way for an economy to work because we have no means of storing value. We can as individuals lend and borrow, but as a society we have no practical means of doing so. There is nothing morally objectionable, to the contrary, about assuring everyone who has worked a lifetime a minimum living for having been a worker and having contributed his or her share of effort to the present society upon which all future society stands. If, as you imagine, all retirees paid for their retirement consumption with personal savings, there is absolutely nothing that assures them a particular share of output when they retire or that assures workers a particular share of output while they work. What one generation saved in excess of investment (which typically is funded with profits, not with wages) was consumed by non-workers in that generation, or by other workers consuming more than they earned. Why do you think that when that group retires the value of wages for current workers will be such that they receive the same value in consumption as what they deferred? Just as the forced savings of payroll taxes are consumed by another generation, so too any non-forced savings. It is really the same, except that in one case you do not have the option of failing to save and then being impoverished and still a dependent on society. To a libertarian, the notion of forced savings is anathema, but, so what? Libertarianism is incoherent because the opportunities available to an individual depend on the existence of a society built and maintained by others. There is no such thing as the self-supporting individual unless we are talking about subsistence farmers of hunters who are completely off the grid. There can never be more than a handful of those if indeed there are any. Given the inevitable mutual dependence of individual and society, requiring all to contribute to the support of those who came before or who will come after (as in educating them) is the foundation of a decent society. Get over it already. In my opinion, the most rational way to allocate retirement income is to peg it to per capita GDP. If the ratio of non-workers to workers gets too high, then per capita GDP suffers and everyone shares in the shortfall. If we manage through productivity gains to increase per capita GDP despite a relative decline in the workforce, there is no reason why everyone then living should not share in the bounty just because productivity was lower 50 years earlier when current retirees were working. Their work 50 years ago made possible the society of today. We don't really have inter-generational warfare. We have class warfare waged by the wealthy and by medical providers against everyone else. It tries to disguise itself as inter-generational warfare in order to confuse us about what is really going on here. If not for the obsession of the wealthiest with securing for themselves an ever larger share of income, there is plenty to go around. The wealthy don't even have a use for all their money which is why they buy Treasuries.

- roidubouloi

July 27, 2011 at 8:36pm

obama is similar to herbert hoover. incompetent. member of a clueless class of advisers. detached from reality. the rest can be managed. boehnert is also the wrong guy. for his party, and for america. but the major problem is the tarnished failed obama. not a pretty picture. we need politics without violence, with some sacrifice, and with manageable goals.

- sf4200

July 27, 2011 at 8:45pm

"we need politics without violence, with some sacrifice, and with manageable goals" Which is precisely what the president has been arguing for the last two-and-a-half years! And equally precisely what the Republican Party has been trying to deep-six for about the same length of time.

- ironyroad

July 28, 2011 at 6:24am

Roi, you know I view Keynes insights as clever but misguided, or perhaps abused after the fact. Govt surpluses simply don't occur in modern economies - the political pressure, whether through more politically favored spending or Bush-like tax cuts is too great. (Clinton and Gore tried!) That leaves only the deficit side of the equation, which equate to the very phantom government bond savings you rightly disdain. None of which enlightens as to the optimal level of govt consumption/investment as % GDP. I believe least is best (absolute power and all that), but recognize that public infrastructure, and public art, are areas where govt investment is invaluable for a society. Later on your latest missive - good clarity, but strong disagreement here. Ahh, a rare true kook on the site: thanks sf4200; is that poetry? How about "there once was a man from Nantucket..."

- ds111

July 28, 2011 at 6:56am

I would be interested to hear why you think Keynes is wrong, other than that you do. Surpluses are indeed hard to achieve, although we were there briefly and, guess who squandered the opportunity under the tutelage of supply-side nuttery? But in a growing economy, it isn't essential to pay down debt. It can shrink relatively through inflation and growth. This occurred under every post-war president until Reagan/Bush. That is because of the supply-side nuttery that took possession of Reagan. Remember how tax cuts were going to produce growth? Didn't happen, growth slowed, income inequality started to grow, trade deficits started to grow, deficits exploded. We had a respite under Clinton. Then back to supply-side nuttery, but worse, under Bush II. Supply-side economics is a demonstrated failure. There is not to my knowledge a single success that can be attributed to it. So, now you can explain why keeping up demand through government spending does not work to keep wages growing with induced improvements in labor productivity. Make my day.

- roidubouloi

July 28, 2011 at 9:25am

Supply-side economics in the absence of spending discipline is a demonstrated failure. I think ds111's idea that Keynes has been "abused after the fact" is true. Spending borrowed money or granting generous tax cuts are both stimulative. Nixon, Reagan, and Dubyah were the biggest Keynesians going. Comes down to a simple question IMHO: What do we want the government to do, and how much should we pay for it?. Most people seem to prefer , "Everything", and "Nothing", but we need to do the math on a serious answer in public.

- Robert Powell

July 28, 2011 at 1:29pm

Supply side economics is a demonstrated failure period. An advanced capitalist economy is demand constrained, not supply constrained. That is, the limiting factor for output is demand because there is almost always slack in productive resources. Even in a supply constrained economy, where the trade off must be made between government spending and private spending, there is no good explanation as to why reducing government spending will produce a higher rate of growth, unless, that is, there is a capital shortage due to government consumption of resources. We have no capital shortage. We can produce all the capital we need and the rest of the world keeps trying to send us more. Beyond that, there is simply no evidence in the real world that supply side economics works. Ever. In World War II, with the economy dominated by government, we achieved an astonishing increase in output in a very short time. There was enormous technological innovation. The whole thing propelled us forward after the war. Where is the evidence that supply side economics ever actually produces a success?

- roidubouloi

July 28, 2011 at 1:51pm

We do pay for what government spends, in that the government thereby consumes a share of output/productive resources. The fact that we have fiscal deficits is simply because, instead of taking the money that equals government expenditure by taxation, we borrow it back. This is completely unnecessary. It has zero to do with the share of the economy spend by government. Rather , it is purely an artifact of a tax system that has been deliberately crippled in the effort to "starve the beast" and impose a vision of public spending that the public does not support.

- roidubouloi

July 28, 2011 at 1:54pm

Growth has slowed persistently along with the increasing government share of GDP at all levels, notably at the state level. Maybe not causation, but Europe, with few exceptions experienced a similar decline in growth as govt share of GDP rose. It has less to do with supply side, and is more likely attributable to the increasing use of government as a transfer agent rather than a public infrastructure investment agent. Same with Europe, where unfunded liabilities remain staggering. Reagan deficits were as much a function of both lower revenues and an inability, with a democratic congress, to cut domestic spending to offset the growth in defense spending. With the exception of the 81-82 (Volcker) and 91 (S&L) recession, growth was solid, straight through the Clinton years. That Clinton and a GOP congress finally got revs in line with expenses was icing on the cake. Gore may have been able to see it through, but never got the chance. The Bush II tax cuts should have been pulled to offset post 9/11 spending, in lieu of "go shopping." Even so, his average annual deficits were sub 4%, not good, but not the end of the world given sub 40% debt/gdp post Clinton, and Homeland/Afg/Iraq needs (choices?) and had dropped to 2.5% by 2007. Demand side economics ignores price, the true arbiter of supply and demand, and the benefits of individual savings (deferred consumption), which is where societal wealth comes from. An excess of supply needs to be price adjusted to meet demand, or liquidated if none exists. An increase in demand unsupported by previous production distorts the price mechanism by borrowing production from the future. This may be worthwhile but comes with varying longer term risks, from inflation to long term economic underperformance. Through the housing bubble, the increase in demand was driven by private leverage and reinvested foreign trade surpluses, with government encouragement. The price of housing was distorted, and needed to revert to a sustainable level (well on its way, but not there yet). The prudent, those who saved rather than consumed, are providing the ultimate support for the housing market, which has become considerably more affordable for once priced-out potential buyers. Keynes disdains uninvested savings as idle demand, and prefers to either tax them away or borrow in order to spend them. It completely defeats the purpose of saving. Distorting the price signal is the real problem here, and whether it be government or private leverage, or societal leverage via the trade balance, each is a mechanism of price distortion. You refer to unused productive assets in a demand constrained economy. It is ever thus, and Keynes didn't like the idea much. But unused productive assets represent someone's savings, and they may be unused for many reasons, not the least of which is price; cash, another unused asset according to Keynes, represents the need or desire to keep something in reserve for changes in demand or potential opportunities. According to Keynes, idle resources serve no useful purpose and can be used buy government, thru taxation or borrowing to enhance current demand. This is his most pernicious concept. The assets were saved, and belong to their owners. That they are "idle" is the responsibility of the owners, usually with good reason. Some owners will make good decisions and some bad, but so what? Keynes chooses to second guess their decisions, the height of arrogance, and borrow or tax to get to full utilization. Demand, real and latent is infinite. Supply is finite and requires effort to produce. The fruits of ones effort can be traded (normally through the price mechanism) for the fruits of others effort. The only way to increase demand above production is to borrow future production (or liquidate real assets from past production). Keynes thought the latter possible, and the former necessary, and that the former (borrowing) would pay for itself out of higher future production. It is the flip side the view that a lower tax will pay for itself out of future growth. There is a justification for both, basically deficit spending, depending on theoretical multipliers, but each is a gamble, with limited risk at low leverage, but high risk at high leverage, which is where we are now. At 100% debt to GDP (trust fund redemptions need to be funded with cash or new debt), plus unfunded liabilities, we would be nuts not to balance our budget now, while we can. Keynes, or his followers, would keep gambling (he did lose several fortunes). Clinton/GOP was effectively anti-Keynesian, balancing the budget by cutting spending and raising tax revenues, relieving the public of future debt burdens, and ceating confidence as a result. Obama has been the opposite, sadly, employing poor Keynesian advice (admittedly from a crappy starting point), but perhaps a GOP congress will allow him to turn the tide as well.

- ds111

July 28, 2011 at 5:09pm

Roi, we've averaged roughly 18% fed revs and 21% fed expenses for 50 years. Yes they should be closer to balance for long term fiscal health. The share of the economy spent by government, adding the 12-15% at the state level is significant. The principal question is whether it should be higher (possibly) or lower (likely not). That debate, and the fact that it would require broad based higher taxation is not even being held. Cheers.

- ds111

July 28, 2011 at 5:17pm

"Demand side economics ignores price, the true arbiter of supply and demand, and the benefits of individual savings (deferred consumption), which is where societal wealth comes from. An excess of supply needs to be price adjusted to meet demand, or liquidated if none exists. An increase in demand unsupported by previous production distorts the price mechanism by borrowing production from the future. This may be worthwhile but comes with varying longer term risks, from inflation to long term economic underperformance." This is just gibberish. And there is nothing gained by idle productive capacity, human and material. That is not savings, it is waste, and a wasting asset as the productivity of both human and material assets declines if not used. "Savings" in the form of deferred consumption are irrelevant in the aggregate. Investment is what matters and, by definition, whatever is invested will, by accounting identity, equal aggregate savings. Deferred consumption, on the other hand, is just lending. What in god's name are you talking about?

- roidubouloi

July 28, 2011 at 6:44pm

Perhaps I don't understand or agree with your terms. Should we have protected the ice pickers after refrigeration was introduced? It was an issue at the time. Were they not idle human productive capacity? I'm all for aiding the transition of displaced workers, as Denmark does well, and which we could learn from. But they become displaced because their present labor is relatively unproductive. Without capex, potentially productive assets depreciate, sometimes into oblivion. Should we sustain them should they become unproductive? Do we know when they are unproductive? Presumably owners of capital assets don't want them to be idle, but they often make mistakes, about production and potential demand. Can Keynes correct their mistakes? Idle capacity is one of the pillars of the capitalist system, yet Keynes disdains it, because he thought wise men - himself, in particular - could employ idle capacity better. But there is a purpose for idle capacity, as a signal to cut production, or as a loss leader in a competitive market. Keynes would substitute his judgement for those of ten thousand capitalists. Better to use the price mechanism, a truly honest broker. Idle capacity suggests that the price of a good or service is inaccurate. Better to use the price mechanism, an indifferent honest broker.

- ds111

July 28, 2011 at 11:41pm

You seem to think that there is no difference between a recession and the normal slack that results from changes in demand and technology. There is a big difference. And Keyne's solution recognizes the difference. It was not to pick winners and losers or subsidize particular industries. Rather, it was for government to spend money on things we need so that the gap between overall capacity and output narrows and so that aggregate demand -- not demand for particular goods -- is sustained. Keynes did not propose to tell people who get paid by government what they should then spend their money on. So, what frankly does the argument you just made have to do with Keynes? Nothing. And how does it follow from your argument that cutting taxes on profits or cutting goernment spending enhances growth particularly when we are producing well below capacity? If there are particular shortages, then the price for the short good or service will rise until the profit is sufficient to pay for the necessary capital investment that then relieves the shortage. Price, remember? Investment demand is derivative of consumption demand, ever and always, and price adjustment makes sure that the two stay in line, with all the mistakes that get made. Taxes do not interfere with that adjustment process as long as they are leveled across the board. I don't see how anything you are saying either undermines Keynes or support supply-side economics.

- roidubouloi

July 29, 2011 at 12:03am

"and there is nothing to be gained by idle productive capacity" Where did housing CDO short sellers fall on this spectrum? They were shorting the price of housing, in the belief that there was excess supply and an unsupportably high price. They had plenty to gain, to the chagrin of the idiot long side, including the builders and land speculators. This is the price mechanism at work. How do we now sop up that excess capacity, unless through the price mechanism? Tarp to protect the lenders, foreclosure interference to protect the borrowers; at least that is what we've attempted. Yes, there was waste, but not the kind you are thinking of. The prudent, those with savings, were the beneficiaries, tho the fed is working overtime to penalize them. Keynes is most harmful to savers, because he views savings as idle capacity, and not as reserves, which is a more accurate view. Savings, deferred consumption, could represent gold buried in the yard, in which case it wouldn't be investment, or lending, as you suggest. But it would be available to exchange for other assets, to the extent of it's relative price. In this way savings may represent a bet against the price of current output in favor of the price of future output. That's what makes markets, and what leads to productivity improvements an real growth. There are huge piles of savings on the sidelines today, saying essentially that dollar based assets are too expensive. For the same reason gold keeps rising vs the dollar. Keynes can't solve this (though he would probably have profited from it).

- ds111

July 29, 2011 at 12:26am

Man, you're fast! Micro is far superior to macro economics. On a macro level, we have had systemic overcapacity. The micro examples highlight where macro "aggregates" are faulty. Producing well below capacity indicates that prices are too high; price, remember? Investment is both derivative of and anticipatory of consumption demand. Keynes only understood the derivative variety, believing it the be all and end all. Followers like Krugman make the same mistake. That Obama's advisors relied so heavily on this distorted view is one reason we are in our current pickle, so perhaps that is why I take issue with it. I'd like him to succeed, tho naturally, on my terms! I've indicated I view government spending, the least productive, but most stable component of our economy as necessary, but that it should be as small as possible and focused on public infrastructure and arts. We both agree that tax collections should roughly equal spending. We differ it seems on the % GDP level of govt spending, but not to as great a degree as might seem, though likely more so in implementation. I'm not sure I even know what "supply-side" economics is, just that I reject some basic inferences of Keynes, decent fellow that he was. Thanks RP, and others, except sf, for the earlier comments. As a more or less libertarian, I enjoy this site, and especially the respondents, immensely. Keep up the good work. Roi, earlier I may have used confusing language re national income accounts, specifically deficit reduction reducing net private saving. I intended to agree with you, and that budget balance would, by identity, reduce the private surplus lent back to the govt, all to the better. Enjoy!

- ds111

July 29, 2011 at 1:15am

ds, how is spending on, say, education or disease control or better transport systems "the least productive"? Production can't happen with an ignorant workforce in a complex world, or with dangerous public health crises happening, or if the infrastructure damages or slows down the movement of goods and services. I agree with you about public spending on the arts, for example, but an educated population capable of understanding and appreciating minority arts (e.g painting, dance) is part of that equation.

- ironyroad

July 29, 2011 at 11:16am

Irony, I wasn't clear - just meant that government productuvity consistently lags behind private sector productivity. To be expected given the difference in government (political) vs most private sector (profit) incentives and resulting efficiency. Its the case everywhere, but doesn't imply anything about the necessity of government, nor perhaps it relative economic impact. That is more of a political decision, as the items you mention require at least some degree of government involvement.

- ds111

July 29, 2011 at 1:52pm

Saying microeconomics is superior to macroecnomics is like saying physics is superior to music. The subject matter is different although the two have an intimate relationship. You cannot make music that defies the laws of physics. But neither can you infer music from the laws of physics. Microeconomics proceeds by assuming away all macroeconomic issues. Ceteris paribus. There are insights to be gained this way, but that by no means makes the macroeconomic problems disappear in fact. Aggregated microeconomic effects produce different problems on a different scale that cannot be inferred from microeconomics. Fresh-water economists keep insisting that macro is just micro writ large. But it isn't, any more than music is merely the physics of sound writ large. Microeconomics deals with partial equilibria, by declaration. It does not address general equilibrium or disequilibrium and hence has no sensible response to the problem of lack of aggregate demand. You can keep declaring all you want that markets must clear, but real markets, in the aggregate, don't always do so. It is typical of ideological extremists when confronted with the disjunction between reality and theory to insist that reality is wrong or simply isn't happening. That's why supply-side economics resembles nothing so much as orthodox communism. It is not economics at all, but extremist right-wing political ideology masquerading as economics, just as communism is extremist left-wing political ideology masquerading as economics. In both case, the goal of the masquerade is to gain legitimacy for that which, stripped bare, is morally and politically unacceptable to the two thirds in between the extremes.

- roidubouloi

July 29, 2011 at 11:35pm

I'm surprised that so many put so much faith in macro. It is a near religious obsession. I find it useful mostly for idealogues, but no more so than the views of the freshwaters. Seems to me you are ridiculing the ideology you don't agree with. These are not religions, and they are barely science. I just don't buy that aggregates are anything more than than the sum of the parts, working together in an almost inscrutable fashion. We've run a highly leveraged economy for years. The leverage stops, and reverses, and Keynesians want to prop up something called aggregate demand, without regard to the fact that said demand, though real - houses were built - was unsustainable. I know he's a keynesian bugaboo, but as Mellon said, liquidate. That, unfrtunately, is the answer to the drop in aggregate demand, and one I've not heard adequately addressed by the Krugmans of the world.

- ds111

July 31, 2011 at 10:30pm