Michael Linden of the Center for American Progress has an excellent piece out this AM which simply collects a bunch of facts about trends in fiscal and economic variables that have moved in ways that should inform the DC debate. But that debate is impenetrable to such changes for the simple reason that the ideologues driving the debate use facts the way a drunk uses a streetlamp: not for illumination, but for support.
To be less opaque, those obsessing about deficits never cared so much about deficits. If so, they would have accepted a balanced plan to reduce them. They use deficits and debt (and squirrelly research) to further their shrink-the-government agenda. In that context, the fact that the deficit numbers no longer support their four-alarm-fire messaging strategy is but a minor inconvenience.
Here’s is Linden’s argument, in charts (the pretty ones are his, of course):
–Most importantly, as the great recession—and all the temporary spending that ramped up to offset it—fades and growth returns, the near-term deficit and debt recede. This was never in doubt, as Krugman and others have tirelessly (ok, tiresomely if you’re on the other side, I guess) explained.
–One very important reason for this improvement is the slower growth of health care spending. I’ve blogged about this a lot: we can’t be certain these more favorable trends will stick, but there are good reasons to believe that some efficiency-enhancing changes to the delivery system are entering that system in ways that will yield longer-term savings.
[This next slide is from CBPP’s Paul Van de Water, showing the projected savings in billions from both Mcare and Mcaid:]
—Austerity bites: I mean, really…just look at this and mentally draw a vertical line when European policy went awry. I’m certain that if our species survives long enough for historians to look back on this period, they’ll be forced to come up with extremely esoteric theories to explain what’s happening here: “Clearly, gravity reversed for a period such that policy makers were standing on their heads, thus making negative trends in unemployment appear to be positive ones!”
—Inflation remains a phantom menace. Calls for eliminating fiscal and especially monetary stimulus have often been made with great urgency as those those policies are sure to stoke inflationary pressures. Except there are none, i.e., inflationary pressures. The figure shows the core PCE price index, which is clearly decelerating and most recently clocked in at a dis-inflationary 1%.
This should not surprise anyone. With labor demand only slowly ramping up and unemployment still high, there’s no pressure on labor costs. Averaging (noisy) annual growth rates in unit labor costs, which measure employers’ real compensation costs per unit of output, since 2012 gets you 1.1%.
Anyway, I could go on, but you get it. The facts, especially on the budget, point in a direction that would lead rational policy makers to a) continue to evaluate and implement measures that appear to be slowing the growth of health costs, as this is the most important fiscal development, as well as the steepest challenge, and b) employ anti-austerity measures to help boost the job market and steer some growth towards middle and lower-income households. Linden, in fact, ends his piece with a neat plan in that spirit.
The figures above should be streetlamps that illuminate a change in direction. But, alas, rational policy makers who are moved by facts are in short supply but that’s actually just part of the problem. The other part is weak demand.
You left out the 4th group.
The 1st group uses austerity to promote their barely hidden agenda of cutting government, helping the wealthy, and trying to insure Democratic defeat, even at the cost of a weaker overall economy. All three goals have very substantial synergies(achieving one aids other two goals)
The 2nd group argues austerity is just the opposite of what we need. This group consists of a few economists with blogs. They spend so much time arguing against destructive policies, they have no time to promote constructive measures. They seem to concede the Fed will begin fighting inflation as soon as unemployment hits 6.5% (some time in 2016?).
The 3rd group which exists only in the 2nd group’s imagination, are those taken in by the 1st group’s arguments. It is assumed papers by economists with the intials R.& R. were of critical importance convincing this group.
The 4th group are the power elite of moderate liberal, socialist, and centrist governments. They represent the top 20 and 10% for whom lower growth, low taxes, low inflation, low wage growth, high corporate profits are quite beneficial. They want clean water, equal rights, free health care, and other liberal policies associated with moderate costs. We get Romneycare, most of the Bush tax cuts, 7.5% unemployment, record foreclosures (3 times historical avg still).
This explains high unemployment and no wage growth for middle class. A macro analysis of this would be nice to have.
It should be “ensure defeat” not “insure defeat”
It is good to see that the long term debt picture isn’t as bad as feared.
Nothing on the external accounts. Stimulus without addressing the underlying imbalances is a waste of ammo.
High oil prices cause stagflation, so reducing our reliance on oil would be extremely expansionary policy.
“…b) employ anti-austerity measures to help boost the job market and steer some growth towards middle and lower-income households.” I’ll have to go read Linden’s paper, which you say makes such a proposal, because I sure haven’t seen any proposals along this line elsewhere. Actually I’m appalled. All around I see jubilation because the deficit is less than was projected and I think to myself, “WTF? Why are they so happy? We’ve lost. The sequester is permanent. The economy is going to stumble along at a rate that won’t return to 6% unemployment for ten years. The Fed is going to end QE as soon as unemployment gets down to 7.3%, not 6.5% as they promised. There’s no chance any reduction in austerity is going to get through Congress before 2017, and probably not then. They’re cutting SNAP, and that looks sure to pass and Obama will sign it. We’re doomed.”
I don’t see anybody out there urging an end to austerity policies. Well, Paul Krugman, but I don’t see him offering any specific policies. Brad DeLong, and I don’t see any specific recommendations there either. I could be wrong. I hope I’m wrong. The world has been turned upside down far too long.