Total Employment

[The Rabbi]

I think she meant that the US is probably better off that the EU collectively, which I'd agree with. Even Germany is barely above the line for a recession, their GDP growth was only .5% in the 1st quarter. Some think the UK is already in recession.

Yeah that isn't saying much. They are in the situation they are because they pursued policies that are being proposed here.

And again, there are 27 different countries with 27 different policies...there is no single policy being pursued..honestly, how can you guys not know this?

True. Countries that have pursued policies like we are, bailouts, zero interest rates, higher taxes, are all in trouble. Countries that have pursued sensible policies are all experiencing growth and low unemployment. Thanks for refuting your own argument.

 

[Epsilon Delta]

" Well, yeah that is perfectly true - stimulus packages are only meant to help temporarily; until the private sector is capable of picking up the slack. The idea is that when the 'money runs out' the economy should already be functioning more or less normally, so that government spending can be scaled back; with growth, the debt-to-GDP ratio decreases so the level of relative debt falls.

Government basically acts as a safety cushion during a recession, because it is the only actor that can propel growth. It makes no sense for rational individual businesses or consumers to spend money at this time, but government can defy this - it can demand goods and services from businesses and distribute cash in the form of unemployment benefits or other social help which people then go and spend as well. " - Epsilon Delta


I can see we need to have a discussion about Demand pretty soon, maybe in a new thread. Since our posts are getting a bit long, I took the liberty of breaking it up into a few smaller parts, starting with this one.


The first issue I have is the assumption that the economy will be functioning normally as a result of stimulus. I am not at all sure that such would be the case, even at far larger amounts than what we've done so far, considering the debt we've already got. I know of no case where that plan worked, outside of the enormous amount of spending and the length of time we did it during WWII. We ended up with enormous debts after the war; we were able to pay if off then, not sure we could do it again. Didn't seem to work too well in 2009; why should we assume a different result if we tried it again?

[I agree... these are getting very long and I'll have to get to your second post another time ]

Well, the assumption might not be that the economy will function perfectly normal - only that, at an overall level, it's obvious that if businesses aren't hiring, and consumers aren't spending, as is the case in a recession, and if less spending leads to less hiring and less hiring to yet less spending, some actor needs to revive (or maintain) the growth of spending, and the only actor who can do so is the government, because while rational consumers and businesses will want to save, not spend (despite the fact that on the whole it compounds the problem), the government is the only actor who can muster the rationale for higher spending - because if its spending drops in line with the rest of spending, there will be even less spending, and thus even less hiring, and thus even less spending, ad nauseum, and if such a thing continues it will be toppled or defeated at the polls.

In terms of spending during recessions, WWII is a particularly spectacular example but the same has been done in most recessions, only that these recessions were not as bad as this. Most of the previous few recessions have been during Republican administrations which used both tax cuts and increased government spending (both Reagan and Bush dramatically increased government spending and payrolls) to egg the economy on. Tax cuts are also stimulus because they imply more income and more expenditure on the goods and services that keep the economy going [though we'll get to why spending is, I believe, far more effective during recessions in a bit].

Whether this debt is repaid or not is important, but only secondary to the growth imperative. If growth is not restarted there is no way the debt will ever be paid. And if the economy shrinks due to massive government cuts (which it certainly would if the trillion-dollar-deficit gets closed), the level of debt will stay the same and will in fact be much larger and much more unpayable relatively speaking - and then the real debt crisis comes, as Europe has learned the hard way.

As for scaling back spending and reducing the debt burden, we did that too after the war was over. I'm not sure we could or would do that either, recent history suggests that politicians woukld rather keep spending more money than pay down debt.

I totally agree that politicians would rather keep spending money - because it keeps boosting the economy and increasing their chances at being re-elected. But it can, as you say after World War II and in fact during Clinton as well growth in government spending decreased relative to the economy (the budget went from 1.4 trillion to 1.8 trillion over 8 years, compare to Bush's 1.8 to 2.8 trillion in the same time period - admittedly in many ways because of a Republican congress). It can be done, the problem of course is that fiscal hawks disappear when they're most needed: during good times. Booms are the time for austerity, not busts, because it compounds the problem. It is tempting for politicians to keep filling the punch bowl - that's when 'tea partiers' should come out; not in the middle of a giant recession.

In those days the US economy was the only game in town, most of the rest of the developed world was in ruins. They raised rates to exorbitant levels and got away with it; such is not the case today, there are other places where people can invest their money. BTW, do you realize that back then EVERYBODY paid taxes; the lowest rate was 22% for income between $0 and around $22k or so. I'll look it up later and edit this post. Edit: 22.2% tax rate for income $0 - $16807. Everybody paid something.

Well, actually not really if you think about it - investors are fleeing EN MASSE to traditionally safe US treasuries because the entire world is screwed right now. Investors are begging the US to keep their money safe and there's almost literally nowhere else to go or to put that much money. Debt only really becomes a problem, as we see in Spain or Greece, when people think you simply cannot pay back, regardless of what the absolute level is. Spain's debt is about 3.5 times smaller than Japan's (the US's debt level is half that of Japan), yet investors are fleeing Spain, not Japan (in fact they are flooding into Japan as a safe heaven compared to the Eurozone). This is a huge advantage for the US and it is being squandered; right now with the entire world economy in turmoil is the window of opportunity in which the US can increase its debt level with virtually no consequences - there is literally nowhere else to go and it will continue to be lent money.

In your 2nd paragraph you seem to suggest that increased gov't spending is the only answer. Not true, first of all there's no evidence that redistributing wealth would result in more spending of all that money. I suspect that in today's environment most of that money will be saved rather than spent; I know I would rather put most of it away just in case I lost my job or had my wages cut. There are some countries that did cut spending, and got themselves out of fiscal difficulties. Sweden and Canada come to mind.

The bolded part is exactly the case for wealth redistribution during recessions. Poor and middle class people have a higher marginal propensity to consume than rich people and it's for a simple reason - if you redistribute money to people who don't have enough to pay for things they need - they will use that money to pay for things! You and I might be able to save the money - so we're not good targets to get more money. But if you go from $700 a month to $800 in income, you can be sure as hell you'll be spending 100% of that money. But as you climb up the income ladder you see that the richer you are the higher the proportion of extra income you will save, especially during uncertain times. The poor and newly-struggling middle class don't have that luxury - money given to these groups gets spent because they need to spend it, whether on consumption or deleveraging [paying down debt].

And there's only 2 ways you can pay for that extra spending: you either raise taxes on the wealthy or you borrow it, thereby increasing your obligation to service the debt. Since taxing the rich doesn't come close to paying for the stimulus, you're going to have to borrow most of it anyway. Don't know about you, but I have serious moral issues with putting that much debt on our children and grandchildren to deal with.

Well, increasing taxes on the wealthy is one option that would ease the burden - again, because the rich are saving, so funneling to lower income groups more or less ensures the money is spent. But yes, on the whole a lot of it would be borrowing, which would increase the debt burden in the short run but decrease it in the long run assuming that the higher spending accelerates growth and makes debt less relative to GDP (and it does considering government consumption is itself a component of GDP).

As far as 'saddling the children' with debt, I like the sentiment but I've never quite agreed with it in practice because there's really two options: spending can get slashed in the middle of a recession, plunging the economy into a depression, and leaving 'the children' with an indefinitely bankrupt economy, OR you can spend as much as possible to get the economy restarted, and, should it ultimately fail, default. A default is catastrophic in the short run but within a few years almost universally growth gets restarted, the same is not true of a prolonged imposition of austerity - compare Greece now to Argentina in 2001.

 

[Saigon]

Countries that have pursued sensible policies are all experiencing growth and low unemployment.

Really....which ones do you mean?

 

[The Rabbi]

Countries that have pursued sensible policies are all experiencing growth and low unemployment.

Really....which ones do you mean?

Switzerland. Finland. Czech Republic.

 

[Saigon]

Rabbi -

Ah..ha. I'm in Finland, actually.

Our unemployment rate is 8.5%....so about the same as the US.

Finland Unemployment Rate

Except that you claim that the US has the wrong policies, and Finland has the right policies. Correct?

The Czech republic has 8.4% unemploment, and Swtizerland isn't in the EU.

Would you like to try again?

 

[Saigon]

Countries that have pursued sensible policies are all experiencing growth and low unemployment.

Switzerland. Finland. Czech Republic.

Growth, Q1, 2012.

Finland 0.8

USA 1.9

Czech -1.0

Switzerland 0.7


I don't need to say anything here, really, do I Rabbi?

(But since you neg repped me for being stoopid, perhaps also rep me here for being right)

 

[The Rabbi]

Countries that have pursued sensible policies are all experiencing growth and low unemployment.

Switzerland. Finland. Czech Republic.

Growth, Q1, 2012.

Finland 0.8

USA 1.9

Czech -1.0

Switzerland 0.7


I don't need to say anything here, really, do I Rabbi?

(But since you neg repped me for being stoopid, perhaps also rep me here for being right)

Except you aren't.
Switzerland 2010 growth 2.6, 2011 2.4%

 

[Wiseacre]

I agree with you here: obviously the business climate has to improve. What I say is that some of the ideas that people bring up about how to improve the business climate actually worsen it - like slashing government spending. This very seriously damages the business climate when basically only the government is spending any money. You do not improve the business climate by firing public sector workers and hence increase the unemployment rate, nor do you do so by lowering demand through cuts to government programs which need to buy goods and services from the private economy, or social assistance which allows consumers to buy more goods and services from the private economy.


The damage done kind of depends on how much spending gets cut. Many on the right want a balanced budget right now, which I think is a mistake. Seems to me that some sort of spending cap where you limit spending increases to a low % of GDP or maybe an arbitrary number like 3%. Suppose you don't fire people but instead install a hiring freeze. Suppose you privatize certain gov't functions and reduce fraud and waste and cut spending that way. It can de done carefully with minimal pain. And there are those who say that less gov't spendng means more money in the private sector, who is far better at growing an economy and creating jobs than the gov't is.

What we've really gotta do is find some way to agree on fixing our entitlement programs so they are sustainable. If we don't do something to control costs, we're gonna be in big trouble.


I'm not totally sure how to make the government be less 'adversarial' towards businesses, but I have an idea: how about if it buys more of their stuff? Or if it gives more people more money to buy more of their stuff? That seems quite the opposite of adversarial towards businesses - it seems VERY positive towards businesses. This is why further stimulus would work, and it still needs to be very large.

How about if the gov't gets out of the business of picking winners and losers. Hasn't worked too well lately, has it? And stimulus doesn't work; it's a temporary measure that gives you a temporary boost in the economy that doesn't last. When the money runs out you're rightback where you were except now you have more debt. I know of no instance where it has ever been successful.


But it will not happen - why? Because the stimulus would help the economy; and an improving economy might get Barack Obama re-elected. So we'll have to wait until President Romney passes some synonym of stimulus over the next 4 years - which will happen without a doubt because he is perfectly acquainted with the reasoning expressed in this post and he will no doubt take no chances at securing a second term.

If Romney gets elected I highly doubt he will ask for or pass some form of stimulus. But I'll make you a promise right now - if he does I'll vote for whoever the democrat is in 2016.

 

[Saigon]

Rabbi -

You gave 3 examples of EU contries with low unemployment and strong growth.

One of your example is not in the EU, and the other two have lower growth than the US, with similar unemployment.

I think the words you are looking for are "Sorry - I am wrong."

 

[Chris]

8 million jobs were lost in the Great Recession.

4.2 million PRIVATE SECTOR jobs have been created since the stimulus.

A lot of government jobs have been lost since 2009.

If these government jobs had not been lost, unemployment would be below 6%.

10,000 Americans a day are retiring, so there is going to be a labor shortage in a few years.

All these numbers add up to 8.2% unemployment.....a number that will continue to go down.

 

[Chris]

America has added 4.2 million private sector jobs since the stimulus.

Here’s what Bush left us with.....

Aug 2008 - 334,000 net JOBS LOST
Sep 2008 - 458,000 net JOBS LOST
Oct 2008 - 554,000 net JOBS LOST
Nov 2008 - 728,000 net JOBS LOST
Dec 2008 - 673,000 net JOBS LOST
Jan 2009 - 779,000 net JOBS LOST

 

[The Rabbi]

8 million jobs were lost in the Great Recession.

4.2 million PRIVATE SECTOR jobs have been created since the stimulus.

A lot of government jobs have been lost since 2009.

If these government jobs had not been lost, unemployment would be below 6%.

10,000 Americans a day are retiring, so there is going to be a labor shortage in a few years.

All these numbers add up to 8.2% unemployment.....a number that will continue to go down.

Uh, no.
UE is lower because people have stopped looking for work. Assume the same workforce participation rate as when Obama took office and the UE rate goes to about 11% or more. Job creation is not keeping pace with the increase in population. This is the worst recovery on record, despite the most amount of money spent.
Obama is the worst president in history. His policies are disasters. And Scott Walker won the election.

 

[Saigon]

Rabbi -

Do Finland and the Czech Republic have a better growth rate than the US?

Seriously dude, when you are wrong and you know full well you are wrong, you score more points by owning up to the fact than you do by running away from your own posts.