The UK economy, in the midst of its own premature deficit reduction efforts, barely budged in the second quarter, up only 0.2% (though it sounds a bit less bad if you say “naught-point-two-percent” as I heard on the BBC today). The Q2 rate is down from an already slight 0.5% rate in the first quarter.
And get a load of this—turns out you can earn a downgrade on your debt even with an austerity plan, if said plan whacks your growth rate (these raters get you comin’ and goin’). Which, if your economy is not recovered, it will.
On this side of the pond, the devious Cut, Cap, and Run bill that R’s keep touting (but isn’t going anywhere) would have cut 0.7% of GDP, around $110 billion, in fiscal year 2012, which begins on Oct 1!
The Gang o’ Six would have zapped 0.2% in FY2012…better, but still…when did masochism replace Keynesianism?
From a new research note from Goldman Sachs (no link):
“A review of the spending and tax data at the federal, state, and local level suggests that a significant part of the weakness in economic activity in 2011 so far is due to fiscal retrenchment. In the first quarter, the Commerce Department estimates that spending cuts at the federal, state, and local level subtracted 1.2 percentage points from the annualized pace of real GDP growth; moreover, the expiration of the “Making Work Pay” federal tax cut and hikes in state taxes probably offset most, if not all, of the boost to disposable income from the temporary payroll tax cut.
In the second quarter, the fiscal policy impact was probably smaller, but still negative. Indeed, monthly data on defense spending, state and local employment, and state and local construction all show a clear downward trend for 2011 so far.”
It’s not clear which budget plan, if any, we’ll end up with. But unless we want to start posting naughts on the GDP, we’d better be sure spending cuts are as backloaded as possible. Nothing should start in 2012 and probably not in 2013 either. That won’t matter at all to the deficit, but it could matter a lot to the unemployment rate.
Masochism replaces Keynesianism when moral theology replaces economics.
Broad swaths of this country are convinced that the reason the economy is stalled is due to a collapse in aggregate virtue.
Austerity addresses this. Increase virtue and probity enough, and U6 falls to where U3 is. The Recovery waits until the day when we’re just good enough.
>when did masochism replace Keynesianism?
When the public wanted it to, of course. Why else would any major change in basic policy occur?
Something which most economists are likely to be unaware of is that the majority of the public is opposed to inflation. The reason most economists are likely to be unaware of this, is that most economists think inflation is beneficial to an economy.
The majority of the public thinks the government should not spend money to create jobs. This money only goes, in the end, to subsidize further iPod sales and related goods, removing that money from circulation in the economy.
>That won’t matter at all to the deficit, but it could matter a lot to the unemployment rate.
No one cares about the unemployment rate, as evidenced by their lack of desire to do anything about it. They are too busy listening to music from their iPods.
Masochism is bad for America. It is especially bad for the incumbent. The American public wants a strong recovery and robust employment more than anything else. If most people truly understood what austerity would do to the economy, they would be opposed to it. So why are Obama and other Dem leaders acting like masochists and putting their own reelection in danger by not explaining the full implications of austerity and caving in to the Repubs instead of insisting on a clean debt ceiling bill? Blackmail should never be responded to, yet Obama has responded with obvious relish. He is clearly masochistic. The only way Obama can win reelection and the Dems keep the Senate and fight the good fight for the House is by talking about jobs creation, homeowner relief, and protecting SS, Medicare, and the social safety net. And the only way they can do that is if Obama uses the 14th Amendment to keep the government from illegally not paying its debts. Austerity has nothing to do with raising the ceiling, and more and more ordinary Americans are catching on to the attempted scam.
If Obama is completely fixated on masochistically throwing away his reelection by becoming a deficit hawk and refuses to take a little heat and use the 14th, then how about asking Bill Clinton to have a heart to heart talk with him and persuade him to man up? I wish we had a President for a Day system and could reimport Bill for only a day to make The Tough Decision, but we don’t. Isn’t there some way to get Bill involved? Or to make the president see reason? The situation is rapidly getting nasty and self-destructive. Jared, please call on the president to use the 14th by Aug. 2. Thank you.
>>when did masochism replace Keynesianism?>>
I believe it was when Obama abandoned Keynesianism and adopted the “govt must tighten its belt” framing and encouraged belief in the confidence fairy. This was somewhere around the 2010 State of the Union.
Reports indicate this was done for political reasons and against the advice of his economic advisors. As you were there, you would likely have more information on this issue.
Masochism? As if those who want to impose cuts are going to feel any pain. (Although I can imagine Alan Simpson saying, “This is going to hurt me more than it will hurt you.”) This isn’t masochism, it’s sadism, which can be much naught-ier
Like I was sayin’… “House GOP Plays Ben Affleck Movie Clip To Rally Caucus: ‘I Need Your Help… We’re Going To Hurt Some People’” http://thinkprogress.org/politics/2011/07/26/280239/house-gop-plays-ben-affleck-movie-clip-to-rally-caucus-i-need-your-help-were-going-to-hurt-some-people/
What does “austerity” sound like in a Boston accent?
I can only hope that the rating agencies do downgrade the debt and the Democrats then get the ovaries to prosecute them for all their bad behavior during the housing bubble. Just the thought makes me feel a tiny bid sadistic.
When Obama decided it was time.
Facts, shmacks. That the Teas don’t understand any of this is not what’s scary to me. What’s scary is that, per the NYT front page today and other places, Boehner is the -moderate- Repub. And he’s rapidly loosing influence.
I gather there are quite a few Republican representatives who think that the right path forward is to maintain the current debt ceiling, and immediately slash spending to match current tax receipts.
I think the projected annual deficit at the moment is upwards of $1.5 trillion. Try to imagine the economic consequences of an immediate $1.15 trillion spending cut. Try to imagine the human consequences of suddenly destroying the whole safety net.
This is nothing less than insane, and I greatly fear for our country.
The elite think we are like them – rich enough to absorb $3.75 a gallon gas, wage cuts of ten percent, end of food stamps and unemployment benefits, and no paying job after months upon months.
When faced like the problems noted above, the trust fund buddies tell their accountant to transfer some bucks from A to B. They chuckle at plans to rape Social Security, Medicare and Medicaid – those “giveaways” for the unwashed multitude of lazy and uninspired. It is so much fun to be on top of the ladder, such entitlement to inherit without effort, except attendance at your own birth.
We, on the other hand, have to decide which hell hole is best for our mother’s final days, while looking a year or two for a job to pay the just increased electric bill and rent.
We are the “lesser people”, but we are sucking on air, not government largesse, and we are gasping, blue, afraid, so tired, hopeless souls wandering outside the gated clubhouse villas.
This is so ridiculous. You can’t even balance the budget via cuts alone. Social Security essentially pays for itself right now. If you cut Medicare by 50%, the and rest of the descretionary spendo=ing including the military, you still have a deficit of half a trillion per year. Oh – thats the amount of revenue lost inthe Bush tax cuts plus the revenue lost in the recession.
Oh my! How much is 2 plus 2?
Whether its masochism or not depends on who you are advocating cutting.
If I cut my own standard of living and empty my wine cellar, that’s masochism.
But if I cut your standard of living and empty your pantry, that’s sadism.
My father died last year. He will be gratified to see that we are finally going to see how tough living in a Depression can be. He always voted Republican after gaining his own small fortune. I believe he believed in the “stick” theory of forcing people to be good.
How interesting..! While 66% of the public thought a deal would be made by Aug 2, as late as last month only 24% thought the debt ceiling should be raised. Even among those closely following the issue, only 51% think it should be raised. (29% for those not following it closely)
This, of course, is why we have polls.