The Wrong Message on Deficits

[Mass]

http://www.nytimes.com/2010/06/10/opinion/10thu1.html?partner=rss&emc=rss

The Wrong Message on Deficits
Published: June 9, 2010

The whip-deficits-now fever is running hot on both sides of the Atlantic. In Europe, politicians are understandably spooked by investors dumping government bonds in the wake of the Greek meltdown. But the sudden fierce enthusiasm for fiscal austerity, especially among stronger economies, is likely to backfire, condemning Europe to years of stagnation or worse.

The United States is running the same very high risk. Democrats have soured on job creation and economic stimulus in favor of antideficit rhetoric, which Republicans have long seen as the easy road to discontented voters in a confusing election year.

At a hearing on Wednesday, the Federal Reserve chairman, Ben Bernanke, said job creation and financial-stabilization programs were essential to stop recession from becoming depression, but he also called for “a strong commitment to fiscal responsibility in the longer run.” The emphasis in that statement should be on that “longer run,” but we fear many politicians weren’t listening for nuance.

The economic crisis isn’t over. Nearly 1 in 10 workers is still unemployed in the United States and in the European Union. Germany, Europe’s most robust economy, suffers 7 percent unemployment. In Spain, it is nearly 20 percent. Still, the German government plans to cut its budget deficit from 5 percent to 3 percent of gross domestic product by 2013. The Spanish government promised to cut to 6 percent from 11.2 percent. The new British government promised to take an ax to spending when it proposes its budget on June 22.

...

The problem calls for a varied response. Some countries, such as Spain or Portugal, may have to drastically cut their budgets if they don’t want to lose their access to capital markets. But countries such as Germany, Britain and the United States have space to spend.

...

Deficits will have to be reduced once the recovery gains more traction and unemployment recedes. Right now, for the most robust economies — the United States, Germany, Britain, Japan — slashing budgets is the wrong thing to do.

[TexasObserver]

1. The same people who preached bailouts for Wall Street want deficit reduction.

As usual, these guys don't hate lard in the budget.

They hate lard that doesn't go into the feeding trough in front of them.

[Go2Peace]

2. Ding!

And funny, they have also been the same ones who have done most of the deficit spending. Yet they never seem to be concerned about Military spending. Military spending must be magic. It never seems to cause a deficit!

[TexasObserver]

3. Imagine your business is 5% of the mall and you're losing money.

You ask yourself "what am I doing wrong?"

You study the other businesses and find out you're spending more on your security than all the other stores in the mall combined. In fact, the reason you're losing money is your spending on security is so high, it is more than you spend on your employees, or your merchandise, or yourself.

You would rationally decide "I have to quit spending all this money on security I don't need and cannot afford."

But if you secretly worked for the security company that you were paying, you might not want to see security costs decreased.

[proudohioan]

4. I like that analogy. n/t

[Hannah Bell]

5. +100, but more than 5%. because the employees are paying for their own

retirement program out of their wages.

military spending is about half of discretionary spending.

most non-discretionary spending is funded out of workers' paychecks, with the notable exception of the federal debt the double agents keep racking up -- purposefully so, because they make money on the other end of that one, too.

[TexasObserver]

6. You're right. The reality is worse than my model.

Reality:

The employees provide their own salaries, and the company constantly raids their fund to pay the "outside security" costs and kickbacks to such firms.

Our government's main job is finding money to pay defense contractors and military costs.