As veteran OTE’ers know, this has happened before: I’ve come to the end of my rope and can’t write about this anymore. It’s just too ridiculous to spend time analyzing this part of contemporary fiscal policy–the part where they set fiscal time bombs and then scrum around defusing them…or not–as if it makes sense. It’s nuts, and I refuse to treat it as some kind of new normal.
So, a few random observations and then I’m due back in reality.
—Economists, including myself, agree on guesstimates about the magnitude of the sequester’s impact–it’s expected to suck about half-a-point off of growth this year and cost 500,000-1 million jobs. That’s not recessionary but it means more slogging along of the type I bemoaned yesterday.
So how come on Larry Kudlow’s show last night it was one against four (about five minutes in) on this widely accepted point re the sequester’s impact on growth? To be fair, I agree that a) the sky won’t fall today–if the auto-cuts stick, their impact will be a rolling and cumulative, and b) these waters are largely uncharted–it’s hard to know precisely how the cuts will play out. But unless you’ve got a good reason to think otherwise–and I heard nothing approach reason in the segment–you’ve got to go with the arithmetic, which in this case means subtraction of an estimated $66 billion in (calendar year!) 2013 outlays.
–This leads one to think about Keynesian multipliers, and I caught a snippet of my old colleague Austan Goolsbee arguing this point with former GW Bush chief economist Michael Boskin this AM on NRP (couldn’t find clip).
Clearly, the Kudlow-crew refuses to accept this math and that’s behind their rejection of the negative growth impacts I stressed (a view that’s widely shared as the above link shows). But here’s my question: under what micro-economics do such multipliers not exist? By which I mean, there’s a furlough, a reduced defense contract, a cancelled research grant–and I don’t think even the deniers question whether some of these cutbacks will occur–and someone has less money than they otherwise would have. So they cut back on something–a meal here, a vacation there, a movie–some discretionary part of their family budget gets pinched. And this has the well established ripple effect.
Again, I’ve never heard the folks who now scoff at Keynesian analysis of times precisely like this, with large, persistent output gaps, low inflation, and interest rates at historic lows, explain why this common sense is wrong.
just saw that your nominee for prez, Stephanie Kelton, will be appearing on UP with Chris Hayes this Sunday, March 3rd, talking sequestration and its economic impacts…
airtime is 8 a.m. eastern on MSNBC.
My main man Goolsbee on the 1’s and 2’s at the JEC:
http://www.c-span.org/Events/Joint-Economic-Committee-Holds-Hearing-on-Economy/10737438446/
54 whole views…I don’t understand why people don’t just eat this dense economics testimony up in their free time.
I can’t blame you for being sick and tired. Obstruction is getting old and decrepit.
PK dealt with the issue from the Bernanke angle. In my opinion, the only way to approach this whole meshugganah situation is head on.
Here is a link to my comment on PK’s op-ed for today. I usually mince my words a bit more. After four years of going round and round, I to have had my fill.
http://www.nytimes.com/2013/03/01/opinion/krugman-ben-bernanke-hippie.html?comments#permid=1
Just watched the clip, oh my if people can’t even add, what can you do?
What I don’t understand is how seemingly rational economists can’t figure out that other ‘economists’ are not, in fact, economists at all. Its akin to someone getting a degree from Harvard arguing against someone who got a degree from Oral Roberts University. You are too enamored of the B.A., M.A., or Ph.D next to their name to wonder what it actually means.
It’s akin to being a scientist who also wants to be a creationist. Due to its natural state of opposition, the belief in the one will erode the person’s ability to be as educated in the other, and the result will be Creationism with a smidgen of science thrown in as cover. The same is true of a non-Keyensian economist, or the freshwater school of “whatever rich people want is good for everyone.”
They are not doing the math, they are doing the math so that it agrees with whatever end result (tax cuts pay for themselves, trickle down really works) they already want. And you can always tell the difference because no amount of empirical evidence to the contrary ever sways their opinion. Not only that, they are smart enough to realize that if they get credentials that put them on a similar intellectual plain as other people (degree from Oral Roberts University) then their opinions will magically gain credence. Not only that, supposedly real economists will start calling them economists as well and make their job even easier. You have to call a fraud a fraud if you truly want to get at the heart of the problem. You can’t keep giving them academic cover by calling them something they aren’t. You can’t be a scientist and a creationist (at least not in a strictly bible-as-absolute-truth sense) and you can’t be an economist and take your talking points from UofC and Ayn Rand. In both cases, oil and water.
> As veteran OTE’ers know, this has happened before: I’ve come to the end of my rope and can’t write about this anymore.
Those of us not professionally invested have the luxury of whistling past the graveyard for awhile . For the sake of sanity sometimes one just needs to think about other things temporarily (see, e.g.,http://www.robustanalysis.net/category/plantae/).
>Again, I’ve never heard the folks who now scoff at Keynesian analysis of times precisely like this, with large, persistent output gaps, low inflation, and interest rates at historic lows, explain why this common sense is wrong.
It’s willful ignorance. These are the “crowding out” folks, right? If nothing else, the sequester will be a test of their “crowding out” hypothesis. If they’re correct in their theory then cut spending then we should expect “crowding in”, shouldn’t we. The GDP will soar beyond our wildest dreams and all that. The EU experience suggests nothing could be further from the truth but, hey, let’s keep an open mind until the experiment is complete and the results have been analyzed.
Once upon a time I heard a joke that a Russian peasant asked Gorbachev, “Was Comrade Lenin a theorist or an experimentalist?” to which Gorbachev replied he thought he was both. The peasant corrected him, “No. Lenin was a theoretician. An experimentalist would have tested Communism on rats before he subjected people to it.” The same should be said of austerity advocates.
They have tested it read Shock Doctrine, it’s sad tale of dead uncle milton freidmans plan as it took down Main Streets from South America, Baltics, Russia, Poland, South Afica, Europe and Amerika are now in play.
I could only stomach about 4 minutes of that claptrap. The other 4 people on the panel didn’t agree with you because they believe that ANY amount of dollars the government spends is a “waste” of money. As an economist you know this isn’t true, essentially if the money is spent it doesn’t really matter where the money is allocated as long as the money is spent in the economy. Those government workers will spend that money and create demand. The demand is the net productivity in the economy (as the economy is about 70 percent consumer demand). If that money is not spent employing people – where is that extra demand going to come from? And that is the crux of the argument – how is the shortfall in demand going to be made up? Eventually it probably must or we accept that GDP is permanently down and if GDP is down then the US is definitely poorer. Either way it will have a contraction effect at least in the short term if not in the long term too as we are seeing with the long-term unemployed problem.
I don’t know if this would be something to look forward to, but maybe in a year or so, we’ll be able to respond to all those (a la Kudlow) who pound their fists and berate us with “The stimulus never worked!” with something akin to “And how did the sequester do?!”
But I’d rather not go there.
I admire your stamina for going on shows and trying to counter those folks.