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Fri Feb 1, 2013, 07:56 AM

Krugman: Our Incredible Shrinking Government (and the dip in 4th quarter GDP)

Most analysts are, rightly, shrugging off the surprise report of an actual decline in 4th quarter GDP. It will probably be revised away, and in any case itís the result of one-off factors: a drop in inventories and a quirky sharp decline in defense spending.

Still, the report does highlight the role that shrinking government purchases of goods and services are playing in holding the economy back. And yes, I mean shrinking, not just growing more slowly than Iíd like. Transfer payments like Medicare and Social Security are rising (although unemployment benefits are falling), but government purchases of stuff ó mostly at the state and local level, where the stuff in question includes hiring schoolteachers ó has been in fairly rapid decline.

Hereís a comparison, using the BEA numbers, of the relevant numbers in the current business cycle and during the Bush-era recession and aftermath:



So fiscal austerity is the difference between where we are now and an unemployment rate not much above 6 percent. Itís a policy disaster.

http://krugman.blogs.nytimes.com/2013/02/01/our-incredible-shrinking-government/

The impact of austerity rears its ugly head.

12 replies, 1635 views

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Reply Krugman: Our Incredible Shrinking Government (and the dip in 4th quarter GDP) (Original post)
pampango Feb 2013 OP
xchrom Feb 2013 #1
caseymoz Feb 2013 #2
bigapple1963 Feb 2013 #5
Bandit Feb 2013 #6
NewJeffCT Feb 2013 #7
libtodeath Feb 2013 #8
caseymoz Feb 2013 #9
bigapple1963 Feb 2013 #10
caseymoz Feb 2013 #11
libtodeath Feb 2013 #3
uponit7771 Feb 2013 #4
YoungDemCA Feb 2013 #12

Response to pampango (Original post)

Fri Feb 1, 2013, 08:08 AM

1. du rec. nt

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Response to pampango (Original post)

Fri Feb 1, 2013, 10:41 AM

2. Austerity isn't a recovery plan.


The people who say it is either misunderstand, or are in denial, about what it really is.

Austerity is the wealthy demanding that they be paid no matter what.

The wealthy "support" government more with bonds. The rest of us support it with taxes. Since interest on the bonds have to eventually be paid by tax revenue, it means money is being transferred to the wealthy.

When the economy turns down, the wealthy want to be sure, above all else, that they will be paid. Therefore, they'll put out propaganda lauding the value of austerity. What they're doing is just making sure the money goes only toward them, not to anyone else.

It's class warfare at its most basic level. It's not a program for recovery.

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Response to caseymoz (Reply #2)

Fri Feb 1, 2013, 10:50 AM

5. well

 

Firstly, the wealthy pay more in taxes than "the rest of us".

Secondly, there's no reason why the government has to borrow. If it can run a primary surplus, it doesn't need to borrow. If it doesn't, it needs to borrow. If it borrows, it needs to pay an interest rate.

Thirdly, yes all debt holders want to get paid. If not, that's a default.

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Response to bigapple1963 (Reply #5)

Fri Feb 1, 2013, 11:01 AM

6. In actual dollars the wealthy do pay more in taxes but as a percentage of income

They on average pay quite a bit less. There are many reasons to borrow by the governement. Whenever there is an unexpected need for money such as WAR or Natural Disaster the Government issues bonds to cover the expense.. Municiple governments do this all the time..And the price of money for the government right now is virtually zero. In fact with inflation the Government actually makes money by borrowing at this time in history..Your logic is not...

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Response to bigapple1963 (Reply #5)

Fri Feb 1, 2013, 11:03 AM

7. More in income taxes

and some other taxes as well, but as a percentage of disposable income, the poor & middle class pay a far greater share of their incomes than do the rich.

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Response to bigapple1963 (Reply #5)

Fri Feb 1, 2013, 11:13 AM

8. It is basic fairness that those who get rich,often by exploiting the poor should

pay the most share of operating the country.

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Response to bigapple1963 (Reply #5)

Fri Feb 1, 2013, 12:34 PM

9. You took what I said and made three straw men.

You made three almost-related points you thought you could answer by adding a condescension. Actually, you fundamentally misunderstand the economics, and you're bullshitting.

Okay, the rich pay more than the rest of us in total tax dollars, but which would you rather have: $10 with a 1% tax or $1,000 with a 10% tax?

Nobody with a brain and/or calculator would take the first one. You know it, too, so your first point is bullshit. Tax dollars paid mean nothing unless they're compared to income and assets. The rich can afford to pay more taxes without any distress or suffering, greater than emotional.

Your point is also irrelevant, because 1) much higher percentage of the bonds are owned by the wealthy, 2) the greatest percentage of interest on the bonds go to them, defraying the taxes, 3) they benefit from a vast amount of government contracts, 4) in monetary support of government, they have a higher proportion of bonds/taxes, 5) they're working on lowering their taxes, continually.

You're second point is just as irrelevant. I know and agree with everything you say there, and it doesn't contradict what I said. At all.

You're third point, where did you get the idea I was saying bondholders shouldn't be paid? You can pay bondholders without austerity. In fact, with good management, you pay them better without austerity. We did it throughout the 20th century without a catch.

My post was about the wealthy imposing austerity in their own self-interests, not over whether loans should be paid. Therefore, the point you made here is also irrelevant, and a straw man.

You answered three points you knew how to answer, not any points I made.

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Response to caseymoz (Reply #9)

Fri Feb 1, 2013, 01:48 PM

10. not sure why you think my points are unrelated to your points

 

The wealthy "support" government more with bonds. The rest of us support it with taxes. Since interest on the bonds have to eventually be paid by tax revenue, it means money is being transferred to the wealthy.


This almost sounds like the "rest of us" pay taxes while the rich just lend money and don't pay taxes. I was merely pointing out that the rich actually pay most of the taxes.

And it also sounds like the rich have this scheme to suck money from the "rest of us" through interest on the bonds. I was merely pointing out that no one forces the government to borrow, and if it wants to, it should pay interest on its bonds. Or do you think that the rich shouldn't lend money because they don't deserve the interest? Or that the rich should lend money without expecting any interest back? I'm curious as to exactly why you think borrowing from the rich and paying them interest is so bad.

And who actually owns the debt (US Treasuries)? I think the vast majority is owned by governments (e.g. Social Security Trust, other countries, states and locals), pension/mutual funds, banks and insurance companies. Now which of these categories do you consider "the wealthy"?

http://useconomy.about.com/od/monetarypolicy/f/Who-Owns-US-National-Debt.htm

When the economy turns down, the wealthy want to be sure, above all else, that they will be paid.


This sounds like you think we shouldn't prioritizing paying interest/principals on the debt. Or maybe you think only the rich shouldn't be paid. Hence my point that this would be a default.

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Response to bigapple1963 (Reply #10)

Fri Feb 1, 2013, 04:51 PM

11. Well it (almost) sounds like this,

and it could be that, but it wasn't. You shouldn't go by what it rhymes with.

Nobody forces the government to borrow? Look a little closer: four-fifths of Congress are in the 1%. Many of the top bureaucrats go on to work for private firms for truckloads of money, if those firms are happy with them. Congress and top bureaucrats are the ones setting the monetary policies.

I didn't conjecture about whether this is done via a scheme. The force behind it might be a series of small, limited schemes which all push wealth distribution in the same direction. Or it might be a confluence, where people in similar circumstances will tend to act a certain way. This is because members of an economic class have some common interests; therefore their behavior follows the same logic. There doesn't have to be an overall plan for all of this to happen.

Borrowing money from the rich and paying them back with interest isn't all bad, but it has one side effect that must be countered. More of everyone else's money will tend to circle the wealthy like water does a drain. This is accelerated when so much wealth and capital is already concentrated in their hands.

Compound interest (among other devices) gives money its own Law of Gravitation. A great concentration of wealth exerts a slight pull on the wealth in the rest of the economy. As that concentration grows, that pull becomes greater.

I'm not arguing that compound interest is bad, any more than gravity is, but if something isn't done to counter the concentration, interest-- and other economic contrivances-- create an economic black hole.

How would that look? You're born inheriting debt you can't pay off and have work for your lender (who's a member of a small group of masters) who sets a token wage so that you will only fall further behind. In the black hole, everybody but the one percent, or the one-tenth of one percent, will suffer this. The master also set the prices of the goods you must buy to survive. Meanwhile, you have to sell your children into slavery, just to try to catch up. Now imagine if everyone in your neighborhood, and everybody you ever see is in that same situation. That's what I mean by an economic black hole, where you have the rare wealthy, while everyone else has negative wealth.

Do you think compound interest is benign? Debt is the leading cause of slavery in the world. Think on that.

The ownership of the national debt you've listed actually supports exactly what I'm saying. How? How does a casino make it's money? Every time there's a transaction, a percentage point or several go the the casino. The casino owner gets richer and richer and the patrons in general get poorer.

Let's look at the list:

Foreign - $5.311 trillion
Federal Reserve - $1.66 trillion
State and Local Government, including their pension funds - $709.1 billion
Mutual Funds - $864.9 billion
Private Pension Funds - $605.2 billion
Banks - $305.2 billion
Insurance Companies - $259.1 billion
U.S. Savings Bonds - $184.7 billion
Other (individuals, government-sponsored enterprises, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, and other investors) - $1.14 trillion. (Federal Reserve as of Januray 2, 2013; All others as of June 2012.

Okay, who are the individuals who collect from the other side of each of these pipes? Of the $5.3 trillion in foreign debt: who are the ones seeing the proceeds on the other end? Private pension funds, well call me cynical, but companies frequently don't live up to them. Banks: this should go without saying, but who are the people banks are paying? Insurance companies, same question. Other: first notice that this category is as large as the four above it combined. That's a pretty big unspecified.

If you get to the spigots at the other end of these categories and organizations, look at exactly who they're paying, it's, in a huge percentage, the wealthy. Yes, a lot of social security recipients receive some percentage of their $1,200 monthly payment from interest. But ithat's very diffuse. From several other categories, a lot of wealth that's being concentrated.

This sounds like you think we shouldn't prioritizing paying interest/principals on the debt. Or maybe you think only the rich shouldn't be paid. Hence my point that this would be a default.


You have a tin ear if that's how it sounded. I just said austerity is a bad idea if you want an economic recovery. If you want to be over-cautious that the wealthy get paid, want an economy that does only that, and you don't mind if making the rest of us miserable doing it, austerity is the program for you. But if you do, you're either wealthy and/or psychopathic. If want austerity otherwise, it's because you don't understand the least bit about how a national economy works.

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Response to pampango (Original post)

Fri Feb 1, 2013, 10:45 AM

3. We need to push for massive public sector hiring to get money flowing back into the system

the private sector will do all it can to horde cash and operate on as few employees as possible.
The ugly teeth of capitalism bared again.

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Response to pampango (Original post)

Fri Feb 1, 2013, 10:48 AM

4. Conservatives are too gullible to run the government, believe anything

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Response to pampango (Original post)

Fri Feb 1, 2013, 06:01 PM

12. Austerity is a political choice to punish the poor

K&R for Krugman.

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