The economy

Waiting for the chop


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First, "In effect, the economy is caught between headwinds and tailwinds that have roughly cancelled each other out.", then "Yet it is far too soon to declare the experiment with austerity a success."... Clearly the latter sentence was written to deter the reader from getting overly excited about the positive effects of austerity. What made you think the language preceding that disclaimer would give rise to such excitement, is there a different meaning to tailwind on the island? My suspicicion is that, like the Economist's bipolar self, many of your readers are having problems getting the preconcieved notion that austerity was and is appropriate out of their head, despite overwhelming evidence to the contrary. Apparently a sentence saying that austerity has only slowed the economy to a breakeven (as opposed to contraction like in Britain) is a sign of vindication for you masochists... "A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines." -RWE




hedgefundguy in reply to shacfry

One word explains that.
Lobbyists for the stimulus and lobbyists for ObamaCare.
Businesses won't lay off employees or stop funding those that give them the highest Return On Investment (ROI).

chriff in reply to hedgefundguy

Regardless of who is behind it, it is stunning to go to DC these days. It's like a different country, where everything is shiny and getting shinier.

And even if it's just lobbyists/companies, what they're after is government handouts, which will certainly continue even with these puny cuts.

Puntmeister in reply to chriff

Yes - I agree - I lived and worked for a long time in the DC area, and still keep in close contact with it.

The recession never hit the Metro DC area. While the rest of the country was reeling, DC unemployment was still negligible, restaurants were always packed, and housing prices remained bouyant.

In a perverse way, the recession actually boosted the DC economy. You have to consider the "Beltway Tax". A certain percentage of all Federal spending is eaten up by all the minions within the DC Metro Beltway zone. The percentage on one-off, temporary spending measures is even higher than the percentage on standard, perennial spending.

ie - if 15% of all Federal spending gets siphoned off by the DC crowd from the standard Federal budget, 25% gets siphoned off from things like wars and fiscal stimuli packages.

When the economy tanked, the Federal government responded with large fiscal stimuli - a sizable percentage of which went to goosing the DC economy. It was a field day!


In a survey of its members the National Treasury Employees Union found that 63% expected to eat into retirement savings and 57% would take on additional debt.
Part of that probably would happen without the sequester.
"Eat into retirement savings" means the money they put aside into their 401(k) is based upon a percentage of gross income for each payday.
They could have opted for a certain dollar amount instead.
Bernanke is keeping rates low hoping for the foolish to borrow and spend so we can get back to our "borrow and spend economy." They would have continued to live as they do without the sequester.
The Savers save, the Debtors contiue to borrow.
What gets me is that this has been brewing since April of 2011 when that Debt Ceiling battle led to another can kick, and then the big one in August 2012 which gave us the sequestor.
So these people bascially had 18-24 months to tighened their belts and start putting more away for when the culmination occurred.
Thank God we have freedom in the US to choose our paths.
Some of us are pretty sick and tired of hearing the whine of people who make bad/stupid choices.
FWIW, March 2nd is the date The Economist is supposed to arrive in the mailbox.
Yes a "revision" said GDP grew at 0.1%.
We'll see how Personal Income, Personal Savings, and Personal Consumption did for January at 8:30am tomorrow.
Michigan Consumer Sentiment for February is at 9:55am
The concensus is -2.4% for Personal Income, and 75 for Michigan Sentiment.

chriff in reply to hedgefundguy

Especially that people have known this would come for a while and everyone is complaining now. This is my problem with this whole thing: every time someone releases a "study" about the effects of this, or a journalist interviews people about it, it's always the groups that are most affected (either specific trade organizations or the media just asking people in DC/VA area about this).

I bet once this happens, 95% of Americans will not even notice.

Just FYI, I really like your posts.

BLE7481 in reply to chriff

Oh, we'll "notice" all right, because we'll be force-fed a diet of casuist disaster stories from the Blue Angels shutdown to a woman in Anytown USA who self-immolates because the Headstart program was reduced.

If we apply the principle that's being articulated, no government spending can ever be reduced because it might affect someone's job.

Pez D Spencer

This article is dated March 2nd... yet it seems to ignore data published in the US this morning (Thursday, February 28th), that shows the US economy grew at a 0.1% rate in the fourth quarter of 2012.

So what are you TE guys talking about??
To begin with, a 2% annual growth rate in GDP is for all matter and purpose no growth at all, since the US population is growing at about the same rate, which leaves things about the same for the average American in their role as consumers who power this economy.
Second, 0.1% annual growth is practically the equivalent of an economic contraction for said Americans, I.E. for America.


Actually, the air-traffic control situation is a perfect opportunity to discuss the convenience of user fees. Why should everyone pay for a service used only by the people who fly? This cab easily be handled by a takeoff and landing fee for each plane - be it passenger, cargo or military.

hedgefundguy in reply to AtlantisKing

Actually the best would be to carve the FAA out from the budget (along with the Coast Guard) and let them be stand alone operations like the US Postal Service.
(The military has its own airbases, controllers, and the Navy to protect our waters.)
Flyers and boaters are the kings of free-riding.

Puntmeister in reply to AtlantisKing

Such a system - carving the FAA out of the Federal budget in the way the USPS works - wouldn't be terribly difficult.

There already are takeoff and landing fees. All they would need to do is raise the fees to cover the gap in lost funding from the Federal Budget.

Democrats really should support such a plan, as this is as close to a progressive tax as it gets. The poorest of the poor don't fly much...


The sequester is nonsense as is the fear over the deficit. If the GOP would get out of the way and stop preventing the economy from recovering, the improvement in the economy alone would get rid of the deficit in a few years. The deficit has nothing to do with domestic spending and everything to do with the Iraq & Afghanistan wars which were instigated by the President W. Bush. Severe cuts to the government do not do anything but pull the economy down. The Federal Government is not over staffed and the US public needs their services. I predict the sequester will backfire on the GOP and the public will be outrage once the cuts are actually implemented. The US public will then realize the importance of federal goverment services and hopefully vote the GOP out of the House in 2014. The GOP has been taken over by extremist that have no understanding of economics or even apparently how the US Government works. How can they possibly blame the sequester on Obama when only the GOP controlled House can start appropriation bills? How can they simultaneously blame it on Obama and say it is needed? I suspect the sequester will hurt US businesses the most and they will be screaming for the House to stop it ASAP in a few weeks. To the other comments saying these cuts are good - that is not supported by economic data or any experienced economist. The economy would be booming if Obama was able to implement his plans without being constantly blocked by the GOP.

brian t. raven in reply to cybergypsy

A very good article in the latest New Yorker about Eric Cantor, by Ryan Lizza. It supports your arguments. I, too am baffled by the Economist's insistence that President Obama is perfectly happy with the sequester.

chriff in reply to cybergypsy

Have you seen Obama's budget projections for the next 10 years? They all suppose a very sunny picture of the economy and still show the deficit rising again after year 5. That is mainly due to Medicare and Social Security, but the point is still the same: we need to tackle this issue. If the guy who is currently president, and is using the best-case scenario, can't predict anything but deficits for the next 10 years (and getting worse after that), we have a problem.

Puntmeister in reply to cybergypsy

I, personally, am all for:

1) The sequester


2) Increased government spending on infrastructure

While I agree, simply shrinking government spending would be harmful to the economy, the devil is in the details. There is too much unproductive Federal government spending (as you point out - spending on Iraq & Afghanistan, for example) and too much inefficiency (a long standing problem - there is just no incentive for Federal agencies to seek out operating efficiencies).

Just because the Republicans are wrong, doesn't mean the Democrats are right. If only the world were that simple....

USMMA 05 in reply to cybergypsy

You are clearly NOT a government employee. Nor am I, but I work with a lot of them, and the trickle down effect will eventually effect my contract. All government employees that are forced into furloughs due to sequestration are set to loose 18% of their pay for the 3rd and 4th quarters of this fiscal year (9% overall reduction taken in half a year = 18%).
Imagine losing nearly 20% of your paycheck for half a year, and then call it nonsense. The real nonsense is that Congress voted themselves a pay raise and made their salaries exempt from sequestration fallout.
Regardless of the derelict manner in which we've arrived at this impasse, it is most certainly not nonsense.




Bardejov in reply to AtlantisKing

"BTW, cute chart. Of course, it is just a bunch of estimates since we don't have the counterfactual for them, but it looks 'real.' Why not treat readers like adults and present charts based on, you know, 'facts'?"

Glad to see you leading the way on the whole "facts" thing.


Given that the evidence of effectiveness for Head Start ranges from thin to nonexistant, maybe it is time to scuttle the program altogether.

cybergypsy in reply to vectro

That is an untrue statement without any facts to back it up. The effectiveness of Head Start is well documented and it is a vital program for giving low income kids a chance to keep up with middle class kids. It should be great expanded into Universal Preschool.

AtlantisKing in reply to cybergypsy



prolejl in reply to AtlantisKing

True Head Start's positives fade by the 3rd grade, but there are positives up to that point. More to the point, recent, sound studies show that upgraded pre-K programs make for huge, lasting effects--- and its the upgraded pre-K programs that Obama advocates making universal. You know, pre-k programs with teachers instead of daycare providers making minimum wage with no training; programs that are targeted. By the way, it's really not cool to be a fraud. Below is the first sentence of the conclusion from Ms. Fitzpatrick's study. It's obvious to all you mischaracterize it to bolster your argument. "Estimates presented show Universal Pre-K in Georgia led to lasting beneifts on the academic achievement of children." And that's not me picking and choosing a favorable excerpt. Here's a link to the whole thing:




Bardejov in reply to the.ronin

What choice does he have? Gerrymandering ensurs that Republicans will control the House of Representatives for the near future. And it was their refusal to raise the "debt ceiling" that lead to the whole fiasco that was the Simpson-Bowles comission. And it was geniuses like Paul Ryan who sabotaged that commission, which in turn led to...the sequester!

Clastics in reply to Bardejov

You grab a quote that alludes to both higher taxes and spending cuts as an austerity risk... You then blame republicans (for both) and completely omitt the other party?
Rightfully or wrongly, it was not the republicans that were pushing fiscal consolidation on taxes. And, if we were to weigh the relative size of the two, tax increases (that republicance vehemently opposed) were approximately 4x that of the spending cuts.


"Yet it is far too soon to declare the experiment with austerity a success". How does an $850B deficit in 2013 equal to more than 5% of GDP in any way, shape or form qualify as an "experiment in austerity". The Congressional Budget Office over the next 10 years projects continuing deficits bottoming out at 2.4% of GDP in 2015 then climbing again to 3.8% by 2022. How does $1.2T in cuts over 10 years or $85B in 2013 in any way, shape or form alter the American federal government budget trajectory toward continuing credit downgrades and eventual debt defaults?


For the long term solvency of the nation, massive painful reductions are needed in defence, medicare and social security spending, to actually use this period of relatively benign economic growth to balance the books or at the very least to bring the deficit to below the long term GDP growth rate. It was done in the Nordic countries, Canada and Australia successfully, it can be done in America if there is the political and popular will to do it.

timshel in reply to Duckdawdger

The US cannot involuntarily default on its debt. Remember the last time those stellar and oh-so-independent ratings agencies lowered the US credit rating.. treasury yields went DOWN.

Maybe you can explain how taking money out of the private sector via spending cuts or tax increases is going to return the economy to GROWTH, the most important prerequisite for solvency.

Bardejov in reply to Duckdawdger

"For the long term solvency of the nation, massive painful reductions are needed in defence, medicare and social security spending..."

All evidence shows that the total proportion of deficit to GDP closely tracks the overall level of employment and economic growth. Think about it: once a full recovery is underway, the U.S. government is spending less on foodstamps, unemployment insurance, etc. Moreover, people are out spending more, investing more and the like. All of which means more revenue.

I'm not saying that we should never cut spending, but "massive" and "painful"? Look what that has done for Britain: double-dip recession. How about we spend a little now, get the economy on firmer footing and then reap the tax revenues and use that to pay down the debt?

Duckdawdger in reply to Bardejov

The problem for America now is deeper and more intractible than what faced the Nordic countries, Canada and Australia in the 90's and 00's. That said, those countries had the spectre of high interest rates leading to debt service costs that were crowding out program spending. Today, America is living in a fool's paradise of 1% interest rate and the Fed buying 40% of bond issues through QE.


While I agree that it would sure be nice to get the economy firing on all cylinders and then reap the tax revenues, that is unlikely as the 7-10 year boom bust cycle suggests another recession middle to end of this decade. If cuts are not taken by the politicians and accepted by the population then they will be forced on America by reason of balooning of debt service cost. The next bubble is not a real estate bubble, but is a US sovereign debt bubble that the Fed right now is actively inflating.

timshel in reply to AtlantisKing

Ok, so you'll cut spending, raise taxes, which will lower GDP, lower sales, increase unemployment, make GDP go down further, etc., and then somehow this is all going to end up making you a stronger country with higher solvency?

Bardejov in reply to AtlantisKing

Not once in our nation's history have we ever "balanced" a budget. No nation does so today. To argue for such a state of affairs is not "poetry," but lunacy. You are merely taking something that makes sense at the individual level and arguing that it should be applied at the collective level. By that logic, the U.S. should get married or go on vacation sometime.

forsize in reply to Bardejov

britain has run very large deficits the entire time. in fact britains deficits over the last 5 years include most of the highest deficits it has ever run. and britain's public sector debt as a % of gdp has more than doubled.

I think this is the problem, we're dealing w/ fundamentally ignorant human beings like badejov who simply take it on faith that britain has "practiced austerity."

AtlantisKing in reply to Bardejov

Oh, please, your argument is that "everybody is doing it"? Hasn't your mom warn you against this kind of argument?

Incidentally, that is not true. Of the top of my head, I can name Denmark, The Netherlands, Sweden, Switzerland and Chile as countries running superavits today. However, if you want to be technical about it, a country can maintain a moderate deficit that is a function of its growth rate, the relative size of the State on the economy and the interest rate it pays. So, yes, one can spend slighty more than it makes - like 3 cents on a dollar. The current 30 cents on a dollar is well beyond unsustainable. BTW, the current interest rate will have to rise evetually (for reasons beyond the scope of this post). When it does, the debt service will become intolerable and the cuts will have to be really savage. This is not theory - history is littered with nations which went broke when they surpassed reasonable limits. And in every one of those there were people saying "yeah, we can continue doing that".

Wealth is not created by political fiat, no matter how much the charlatans of the day push this snake oil idea. BTW, things that don't make sense on the individual level very rarely make any sense on the collective level - don't buy into this illusion.

stkschw in reply to AtlantisKing

This comment goes too far. Shoe leather costs lead to imbalance between aggregate supply and aggregate demand. The downward spiral of grain prices leading up to the Great Depression resulted in the collapse of the farming model and an imbalance between aggregate supply and aggregate demand. Make sense?

Thinking of Schumpeter instead of Keynes, what mattered about The New Deal and WWII was the improved efficiency or competency of government and corporations. What is a corporation, but a meeting of the minds? After the war, those improvements, along with the relative position of the rest of the world, gave us a half-century of wealth. Keynes did not give us a general theory.

What about today? Obama spent the stimulus on green technology and consumerism. At this point, it is important to ridicule the appellation of 'service economy' to us. We are an IP/capital economy when the leading trend in legal services is outsourcing. What institutional gains there have been from Obama's stimulus have accrued in China and India, the new service economies. We expect to see wealthy americans, who have the IP and other capital, benefit (not at expense of, except in the repayment of the stimulus money) over the average guy.

Obama's stimulus has created much inequality and little or no recovery and it was all predictable, albeit not by a neo-keynesian like Krugman. If you want to get keynesian, introduce Schumpeter to James Heckman, who argues that if it takes $100k/yr to teach the young, then that's what we have to do. In our IP/capital economy, I am sure he is right.

Duckdawdger in reply to forsize

Clearly, the word "austerity" has gotten a bad rap, now being the bogeyman for policy makers wanting to tout short term economic gains to a populace while accelerating the mortgaging of the future and day of eventual reckoning. To forego a huge, catastrophic global sovereign debt bubble bursting, sound fiscal management (sounds much better than austerity doesn't it?)demands countries with slowing GDP growth reduce deficits to below that level to maintain or reduce their debt to GDP level. If that means less goodies for the population, so be it. If that means precipitating a government spending induced recession, so be it ... that economy should never have allowed itself to become so dependent on the government spend (e.g. defence procurement) in the first place.

hedgefundguy in reply to Duckdawdger

Outside of defense expansion and the unpaid Medicare Prescrition Drug Act (which took away Medicare's bargaining power for drugs),
the economy wasn't dependent upon gov't spending.
I was dependent on the massive expansion of debt in the Household and Finance Sectors, and addition debt by the Business Sector.
Household Debt/GDP: 63.9%
Finance Debt/GDP: 53.5%
Business Debt/GDP: 53.7%
Household Debt/GDP: 97.5%
Finance Debt/GDP: 119.8%
Business Debt/GDP: 80.8%
All the stimulus/tax cut bill of 2009 did was to transfer that debt to the Federal gov't via safety nets, tax cuts, net loss carry backs, etc.
Toss in the loss of taxes due to the econony collapsing...
(Job losses, profits falling...)

USMMA 05 in reply to Duckdawdger

I'm sure some will say I'm a heretic, but the same countries you are refering to.... They all have government-run universal healthcare, strict gun control, and higher taxes than the U.S.
America is either uncomfortable with (Gov healthcare), incapable of accepting (REAL gun control), or outright opposed to (higher taxes) all of these issues, and more.
We will continue being fat, dumb, and happy until it is too late to go on a fiscal diet. I feel it is already too late ($15 trillion will never be paid off, and will lead to war), but still want to see action taken.

Duckdawdger in reply to USMMA 05

Well actually USA has government run healthcare if you make it to 65, that is actually the main problem in that America spends 17% of GDP on healthcare (versus about 12% for the other countries mentioned) due to having double the administrative expense of a public and a private system. Add to that your 5% spend on defense versus 1% for the other countries, being fat, dumb and agressive costs America $1.4T per year, much more than the fed deficit of $0.9T.


It took a decade to get into this mess, it will take a decade to correct it, that's what if took in Canada and I suspect in the Nordic countries and Oz.


While some people will suffer around the country and some productivity will be lost, this is probably going to instill a good dose of reality on the DC area, which by many measures has become the richest regional economy in the nation. And this has happened almost exclusively on taxpayers money on over-bloated, non-transparent, and wasteful contracting deals between federal government and the area's zillion contracting firms.

We should feel for parents with kids in programs like head start and other antipoverty measures, but federal employees should perhaps feel the pinch, too, as they have become an extremely fluid and often the most well-paid workforce shuffling between government and private sector firms in the area taking advantage of exclusive government credentials such as security clearances and revolving door between the two industries.

It's not fair to millions of other Americans around the country.


the economist is peddling a deeply depressing vision of economic reality. sort of economics as reality tv show. no time is spent on long term prosperity and all the coverage is about how IMMEDIATELY NECESSARY IT IS TO HAVE AS LARGE A DEFICIT AS HUMANLY POSSIBLE RIGHT NOW SO PEOPLE BUY MORE THINGS OMG THEY'RE NOT BUYING MORE THINGS RUN MORE DEFICIT RIGHT NOW NOW NOW NOW! the economist now has itself so deep in the intellectual hole that the only real response left is that the eye wateringly high deficits that nearly every country in the developed world has ran for more than half a decade straight count as...."austerity."

and of course they've been doing it for 6 years now, each time positive that a morons conception of reality, that you can simply spend your way to prosperity will be true. I hope there's some deep personal shame felt around the economist after six years of this tripe.

AtlantisKing in reply to timshel



Duckdawdger in reply to timshel

In addition the problem is the accumulated $16.6T in debt which has current annual debt service cost of $360B (source: or just over a rate of 2%. When rates increase and if credit downgrades continue, debt service costs could double over a very short period of time because the Fed's Operation Twist has shortened the duration on much of the debt. America becomes like Greece, Portugal or Italy, not being able to afford to service its debt.

Bardejov in reply to Duckdawdger

"When rates increase..."

Except they haven't. People like you have been saying this for at least two, if not three, decades.

"America becomes like Greece..." Right, because we are a small nation, without our own currency, that lacks lucrative natural resources or a manufacturing base. That describes us to a "T." Yup!

timshel in reply to Duckdawdger

Interest rates are a policy decision, the PIIGS do not have control over the currency their debt is denominated in.

2% of GDP is about as low as interest payments have been in the past couple decades.

AtlantisKing in reply to timshel

I'm sorry if numbers confuse you. It is just that they do matter.

Jumping from the first floor will break your legs. Jumping from the 50th floor will kill you - even if the first 49 floors are, literally, a breeze. Dismissing disaster in the future because there is no disaster in the present is incredibly shortsighted.

timshel in reply to AtlantisKing

Right, but we need context for these numbers. What does a 1.3 trillion deficit signify to us? Is there runaway inflation of the dollar, large selling off of treasuries? What is the CAUSE of the deficits? Throwing a number out there doesn't do us any good in and of itself.

Duckdawdger in reply to timshel

Only the Fed rate, an overnight rate the Fed lends to banks at is a policy decision. All other rates are market determined.

2% is the lowest rate for American debt service and that is exactly my point. When rates increase, as they inevitably must, the current level of relatively benign debt service cost quickly becomes malignant. Credit quality deterioration only exacerbates the debtors dilemma.

forsize in reply to timshel

when all the accumulated bad decisions finally catch up with someone what is a socialist to do? greece didn't go bankrupt over night, even large inflationary binges often have their causes going back years. it's all nice to say that it's easy to finance a debt at a historically low rate, therefore we should simply add more debt.

but what happens when you can't get that rate anymore? who does your little socalist brain blame then?

the stupidity of the decision should be based on its predicted contribution to bad events, not on the necessity that all the bad things happen instantly, we're not dogs, we can think about things outside the present.

Duckdawdger in reply to Bardejov

Of course, simply because we have been in a 30 year bond rally from 1982 on and rates are now as close to zero as they can get, doesn't mean that interest rates will never increase in the future. Of course they will and sound fiscal management requires one to be prepared for that eventuality. Unfortunately no American politician is even remotely an adherent to sound fiscal management.

Whereas America has many natural advantages not enjoyed by smaller countries including, currently possessing the global reserve currency, that does not mean they can deny the laws of finance and economics forever. Tax loopholes and tax avoidance by America's wealthy while certainly not as egregious as Greece, points to a culture where not paying the piper is an admired trait while lobbying and pork barrel politics ensures enormous waste on the expense side. Parallels exist whether you care to believe them or wish to remain in a state of denial.

timshel in reply to Duckdawdger

Right, and treasuries are based off of the fed funds rate, everything 5 years or shorter (most of the debt issued) maturity is currently under 1%, which is a negative real return btw.

If you have positive real GDP growth and negative real interest rates as we do now, there is no issue. Rates are only going to be raised (I don't think they should be raised at all) if GDP growth goes up.

timshel in reply to forsize

I'd read the other comments in this thread, interest rates are a policy variable. Greece's problems have little to do with spending and a lot to do with being a net importer in a currency bloc that it has no control over and favors exporters..

forsize in reply to timshel

socialists seem to think there is some magic that accompanies printing your own currency. "there is no free lunch."

ask zimbabwe how much printing its own currency helped it avoid economic disasters. "there is no free lunch."

greece's problems have everything to do with spending, the timing of greece's problems is minorly correlated to the fact that they can't print their own currency. but the nature of their problems is comppletely irrelevant to their control over their currency.

timshel in reply to forsize

The timing of greece's problems has everything to do with the global financial crisis, just like the U.S. Their response to this crisis has everything to do with it having no ability to run large deficits to mitigate the crash - like the US, Japan, Australia, and many other countries do.

For the umpteenth time, we've been running deficits for most of the last century. What are the supposed problems and where is the evidence of them? I'm not expecting much for data from you don't worry, your responses seem to be limited to bashing socialists. Ironically, many of the euro countries with the highest levels of government spending (those crazy commie scum you so despise) have done the best following the crash.

forsize in reply to timshel

yes, like warren buffet said, when the water recedes we get to see who was swimming naked.

debt and growth have been strongly negatively correlated in a great number of studies, it is more or less well known that increasing your debt burden hampers long term growth and past a certain amount of debt it can stagnate the whole economy.

that you pay zero attention to this amply proven correlation is not really my problem. I know socialists think debt is free, money is free, prosperity is free, its a dangerous lunatic level delusion, but apparently its all but foundational to their political beliefs that it be true.

timshel in reply to forsize

It's just too broad of a statement to really hold any merit. Japan is at over 200% debt to GDP, 3rd biggest economy in the world. So what are the constraints?

Interest is crowding out spending? No, interest/GDP is practically at a post-war low.

Inflation? Nothing above the official Fed target.

Dollar devaluation? No.

So what is the argument, where are the numbers and analysis to explain such a position?

forsize in reply to timshel

we could be having this argument about greece in 2006. you demand that immediate consequences happen to bad decisions, but that's not how things work. bad decisions are made, the short term consequences are papered over or delayed(often by running debt).

you have this ever growingly massive amount of debt, that is eating up even at like you say, historically low rates a very large amount of the federal budget. of course this will continue forever right? historically low rates under ballooning deficits? like I said in a previous post, I hope all the people pushing this idiotic agenda of endless money printing and ballooning deficits feel personal shame when the wrenching reality hits(like it has in greece).

as for japan, I just said two posts above that debt and growth are negatively correlated. have you seen japan's growth rate? hell the people who hail "the end of economic growth" point towards japan! and u use it as an example that debt and growth are not correlated? are u even thinking?

timshel in reply to forsize

Deficits are decreasing, not ballooning. And there is an obvious cause for them all over the world - the global financial crisis brought upon by massive PRIVATE sector debt bubbles. We wouldn't even be having this discussion if it wasn't for the crash. When you have that severe a downturn, the public sector automatically adjusts to keep the economy going. Jobs are lost, growth slows down, tax receipts go down, spending goes up automatically (unemployment benefits, food stamps, etc.), the deficit widens. This isn't some socialist agenda from Obama, it's the way the economy is designed to work, regardless of who is in the White House.

For the Eurozone unfortunately, they do not have the luxury of controlling their own currency and running huge deficits to make up for private sector debt deflation and massive unemployment. This works fine if you're a net exporter like Germany, but not for anyone else.

Japan is in a pretty similar situation to the U.S., haven't stimulated enough to get the economy going, but have spent just enough to keep things afloat, they've been doing it for a couple decades now. They also have like 50 something percent labor participation rate, so much untapped potential over there.

forsize in reply to timshel

thats the problems w/ keynesianism, every stimulation is "not enough" its like faith healing. japan has the highest debt to GDP of any developed country by a lot, which is of course....not enough. japan just has to BELIEVE, REALLY REALLY BELIEVE in deficits and then the magic keynesian faery will appear.

yes the crisis started w/ the housing bubble that was private debt fueled by idiotic government regulation that massively advantaged stupid behavior. one of the things fascinates me about keynesians is they fuel these huge bubbles w/ aggressively idiotic legislation(student debt, housing debt) then when the inevitable happens they pretend like the absolute peak of the peak of the peak of the bubble is "where everything should be" and demand the government spend trillions upon trillions to get there...AND THEN when the government DOES THAT and it doesn't work they say NOT ENOUGH!

timshel in reply to forsize

Private sector asset bubbles are not Keynesianism, it's called a ponzi scheme. If our economy was doing well at point X, and then it drops all the way down to point Y due to lost GDP growth, unemployment, debt deleveraging, why would we not want the government to pick up the slack until the private sector picks up again? We should just let tens of millions of people sit around not working with an economy way below its potential because, what, thats what we deserve and we need some pain??

forsize in reply to timshel

the housing laws are very keynesian, its all about artificially jacking demand up as high as possible while ignoring efficiency, smart allocation of resources or any pretense of intelligent investment. its just OMG GET PEOPLE TO BUY HOUSES.

of course this works into your socialist logic part 2. now that you have artificially jacked the economy you have the pretense of an excuse to make the government attempt to(but mostly just fail and make us poorer) to keep the bubble up. you want the government to pickup the artificial wasteful and eventually impoverishing "slack" for the housing bubble.

its like you have a really stupid idea(lets make bad laws that cause a housing bubble) and that fails, so your second idea is to do the same stupid thing again(make the government takeover the responsibility of keeping the bubble inflated).

timshel in reply to forsize

The part of the bubble that is artificial is the "wealth" created on the back of asset prices that must continually rise to fuel the economy. What was NOT artificial about the bubble is the jobs, the businesses, the output, the GDP, etc., that resulted from that perception of wealth.

Now what other way is there to get to the latter without the former? The Eurozone is in the toilet, the BRICs are slowing down, and we are a large importing nation, the demand isn't going to come from outside the U.S. Households are still in debt up to their eyeballs, businesses obviously have no reason to expand right now, so it's not coming from the private sector. Who else is there? We should just sit around for decades like Japan has done with stagnant growth like we have now? We should implement crushing austerity that throws our economy back into recession like the Eurozone? No, of course not.

When you get over your Cold War-era fears of "socialism", you'll realize that the public sector is the only possible source of demand right now. Worked fine in the Great Depression, worked great for WW2, and it has worked this time precisely because of these large budget deficits you so detest. But we are still way below our potential, we still have tens of millions out of work, money supply is still trillions of dollars short from where it was in 2008. It's time to get the economy going, via debt write downs, a jobs program, helicopter money, whatever you feel like.



Cynical Hawk

Department of ‘Education’ – 5,000 Sacked and introduce school voucher system
Department of commerce- 47,000
Department of Agriculture >100,000 Pushing money around for subsidies

All should be immediately fired.

I was starting to write this and found this website which lists all the departments then realized there are not even enough lines here to go through them. The waste is a joke, start going through this lot with a chainsaw before looking anywhere else.
These people serve no purpose whatsoever, bureaucrat parasites, paid to hassle the economy, with ridiculous salaries and pensions, paid to do what the free market can achieve without them. It is pathetic how the argument is always framed around having to cut social programs. True they need culling, but there are far easier places to start.

I doubt it in reply to Cynical Hawk

I think one important point is that the sequester doesn't provide an opportunity to cut government efficiently. In fact, it's cutting things that will probably increase the deficit, so the realized savings will be much smaller than advertised.


Why is a 1.9% of GDP fiscal consolidation via taxes considered necessary but a 0.5% of GDP fiscal consolidation through reduction in (the increased of) expenditure considered catistrophic?


Since the National Capital Region will be hurt the most, will real estate prices there get cheaper? I want to buy a condo/townhouse.


Why would a furlough in the FAA have any affect on air traffic? Isn't that like saying that layoffs in a highway patrol unit will keep people off the highway?


The malfunctioned dualistic political system in the USA is at its pinnacle. Any even trivial life’s problems carry more than two solutions. Two opinions is a bare minimum for democracy. Tell me what options speaker Boehner really has under the dualistic system, just to provide his opposite alternative and disagree; the black and white game. Agreeing would make him politically insignificant weakling and that applies for the President as well.

The other side would however willingly agree in a coalition with a third or a fourth party proposed alternative. Unfortunately these are not available. A long lasting indoctrination that there are only two solutions to a problem is deeply installed.

WT Economist

Anyone remember the early 1990s?

Former President George HW Bush signed off on a deal that cut spending and increased taxes as the U.S. struggled to get out of a recession associated with a junk bond and office real estate bubble. A Democratic Congress was on the other side of the deal. Bush I was very unpopular, and thrown out.

And then incoming President Clinton raised taxes and cut spending again, with most of the latter cuts coming in a deal with a Republican Congress. This after abandoning a plan for a stimulus package.

The result was not economic devastation, although rising private sector debts offset some of the slowdown in rising public sector debts. The debt can't go on rising forever. And by taking the economy's debt onto itself, the federal government is playing by the one percent's playbook, to the detriment of ordinary people in the future.

hedgefundguy in reply to WT Economist

Some of Clinton's cuts were the closing of military bases after communism fell and "ending welfare as we know it."
The stock markets loved the idea that we were on a path to creating surpluses, and interest rates fell, with the Fed Funds Rate going from 6% to 4.75% before Greenspan killed off "irrational exuberance."
(1990 Fed rate was 8%, Jan 1994 Fed rate was 3%, then up to 6% in Feb 1995)
After the Bush43 tax cuts, the Treasury once again issued 30 year bonds.

Frank Lowther

Which do you believe to be the case?

OneAegis in reply to Frank Lowther

Aren't air-traffic controllers constantly listed as one of the most stressful jobs in the country, with one of the highest suicide rates? And you expect them to just "work harder" to pick up the slack of 10% less staff?

I don't know about you, but I prefer margins of error in my airport's handling of takeoffs and landings.

OneAegis in reply to AtlantisKing

Right, because somehow simply by the fact they're government jobs they're easier, despite any and all data to the contrary? I could easily name a slew of private sector jobs that are much lower stress and responsibility than air traffic controller.

Frank Lowther in reply to OneAegis

Aren't you making a bit of a leap here? What percentage of those 47,000 FAA employees are actually air traffic controllers?

I agree that the ATCs are in a different category, but that exception doesn't make the generalized assertion plausible.

hedgefundguy in reply to Frank Lowther

You have to remember airplane manufacturers need FAA certification before being able to sell them.
Same thing for new parts, else you end up in the Atlantic Ocean off the coast of Brazil.
There's other aspects, so you may want to look at

hedgefundguy in reply to OneAegis

If you are an ATC at LAX and have 100 flights in/out in one hour and 5 controllers, each controller gets 20.
Cut it down to 4 controllers, each get 25.
Regional ATC's are larger as they monitor even more planes in their area until they hand them off to the next regional center.
(And I don't even have frequent flyer miles.)



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