Saturday, December 21, 2013 11:07:34 AM
It's the Austerity, Stupid: How We Were Sold an Economy-Killing Lie
Once again, the Beltway fell for cherry-picked data—and you paid the price.
—By Kevin Drum | September/October 2013 Issue
Uncle Sam being squeezed by a belt Illustration by Zohar Lazar
It was the Excel error heard round the world.
In January 2010, as the global economy was slowly beginning to claw its way out of the depths of the Great Recession, the Harvard economists Carmen Reinhart and Ken Rogoff published a short paper with a grim message .. http://www.nber.org/papers/w15639.pdf?new_window=1
: Too much debt kills economic growth. They had compiled a comprehensive database of debt episodes throughout the 20th century, and their data told an unmistakable story: Time and again, countries that rack up high debt levels have gone on to suffer years—sometimes decades—of stagnation.
As economics studies go, it was nothing short of a bombshell. As its conclusions were invoked from Washington to Brussels, tackling the recession suddenly became less important than tackling deficits. For the next three years, stimulus was out, austerity was in, and the protests of critics were all but buried amid the headlong rush to slash spending.
But then, on April 15 of this year, a trio of researchers at the University of Massachusetts published a paper .. http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_301-350/WP322.pdf .. that took a fresh look at Reinhart and Rogoff's study. It turned out there was a problem: R&R had presented data from a list of 20 countries that filled lines 30 through 49 on a spreadsheet. But the formula that calculated the results relied on lines 30 through 44. Oops.
On its own, the spreadsheet error had only a modest effect .. http://www.nextnewdeal.net/rortybomb/researchers-finally-replicated-reinhart-rogoff-and-there-are-serious-problems .. on the paper's conclusions, but the UMass team had other, weightier criticisms that taken together called R&R's conclusions into serious question. Still, under ordinary circumstances the whole thing would have been little more than a dry academic debate.
But these were far from ordinary circumstances. Like a well-aimed snowball that sets off an avalanche, the UMass paper changed everything.
To fully understand the R&R affair, let's return to that moment .. http://www.nber.org/cycles.html .. in January 2010. Technically, the Great Recession had ended several months earlier .. http://www.nber.org/cycles.html . But the economic reality of working Americans remained bleak. The unemployment rate continued to hover near 10 percent .. http://research.stlouisfed.org/fred2/data/UNRATE.txt . A broader measure that includes discouraged job seekers and those forced to accept part-time work was near 17 percent .. http://research.stlouisfed.org/fred2/data/U6RATE.txt . GDP was growing again after a disastrous 2009, but at an anemic rate of about 2 percent a year. Wage growth, adjusted for inflation, was actually negative: Salaries were shrinking, and still no one was getting work.
----------
The obsession with cutting back cost us 2 percent in GDP growth—and as many as 3 million jobs.
----------
The problem, from an economist's perspective, was a simple one: The housing bubble had burst, and banks were stuck with enormous losses on their housing-related securities .. http://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf . They desperately needed to sell assets to remain solvent, but when everyone wants to sell all at once, and nobody wants to buy, the result is a death spiral: Falling prices require ever more asset sales, which in turn produce ever steeper price drops and further asset sales. This vicious cycle eventually transformed an ordinary recession into something far more threatening—a banking crisis recession.
Ironically, it was none other than Reinhart and Rogoff who had warned us of this in their magisterial—and sardonically titled—study of financial crises throughout history, This Time Is Different .. http://www.amazon.com/This-Time-Different-Centuries-Financial/dp/0691152640 . They found that while government action might rescue broken financial systems fairly quickly (in this latest case via bank bailouts and emergency cash injections by the Federal Reserve), the wider recessions brought on by financial crises typically last a very long time. Five years is hardly unusual.
This wasn't a counsel of despair. If anything, This Time Is Different should have been taken as a well-timed warning to respond to this recession even more forcefully than usual. What was needed was for the federal government to apply the same urgency to rescuing the economy that it had to rescuing the banks.
No Stimulus For You
In every recent recession, rising government spending provided a backstop to the recovery except this one.
http://www.motherjones.com/politics/2013/09/austerity-reinhart-rogoff-stimulus-debt-ceiling
===== .. that one is old, yet worthy .. this one, i was surprised to see from YAHOO! FINANCE
.. surprised to see they were on the 'austerity is bad' road .. hope i'm wrong, just it feels new to them ..
How Washington has choked off the recovery
By Rick Newman December 19, 2013 6:38 PM The Exchange
U.S. Capitol dome
.
View gallery .. [ Yahoo .. please .. wtf don't you have images easy to reproduce, as
most all others do? .. why, not provide a link to your gallery? .. sorry, it's inside .. ]
A woman walks past the U.S. Capitol dome, seen through a porthole in nearby brick-work, in Washington, August 2, 2011. (REUTERS/Jonathan Ernst)
Ben Bernanke is known as “Gentle Ben” because of his avuncular demeanor and discreet use of words. But the Federal Reserve chairman made one comment in his latest (and last) official press conference that would make many voters angry if it had been expressed in a different manner.
“People don’t appreciate how tight fiscal policy has been,” Bernanke said, in his typical folksy econospeak. Put another way, that means Washington has been hurting the economy and holding back job growth when it should have been doing everything possible to help.
“Fiscal policy” refers to the government’s tax-and-spending plans, which are determined by Congress at the prodding of the president. Monetary policy — pushing interest rates up or down using a variety of measures — is the Fed’s responsibility. And one reason monetary policy has been so aggressive and controversial during much of Bernanke’s 8-year tenure is that fiscal policy has been so weak. With the Fed now starting to rein in one of its key tools — “quantitative easing” — Congress faces more pressure to act like grownups and stop relying on the Fed to do all the heavy lifting on the economy.
In his final press conference, Bernanke referred specifically to government jobs that have been lost since the recession ended in 2009, cutting into economic growth. We dug up the numbers to see what usually happens with government hiring after a recession. Bernanke is right — the distinction between the latest recovery and prior ones is startling.
Since the mid 1950s there have been nine official recessions. Government employment — including federal, state and local jobs — rose after eight of them. The only exception is the latest recession. During the four years following the end of the downturn, in June 2009, government employment fell by 748,000.
Here’s a breakdown: .. View gallery ..
[ a kinda cute image, if an picture you can't reproduce is still called an image on this f*ing net sometimes ]
.
In most instances, state and local government added more post-recession jobs than the feds, which makes sense since those two levels of government employ the most people to start with. But federal grants — usually in the form of traditional “Keynesian” stimulus spending — often provided a lot of the money municipalities used to hire cops, teachers and other types of workers.
[ almost felt a hedge, but guess ok ]
That also happened in 2009, with the $800 billion American Reinvestment and Recovery Act, which turned out to be controversial because it didn’t help the economy nearly as much as President Obama promised it would. But it did help protect or create nearly 3 million jobs .. https://www.economy.com/mark-zandi/documents/End-of-Great-Recession.pdf , according to mainstream economists. The basic problem was the recession turned out to be more stubborn and virulent than most economists believed, even in the middle of it. In fact, it might have turned into a depression, with even greater job losses, without aggressive government intervention.
The stimulus spending peaked around the middle of 2010, which is when the total number of government jobs began to decline. Had this been a normal recovery, the number of government jobs would have continued to tick upward as the economy improved and tax receipts bounced back. The deep real-estate bust cut sharply into tax receipts at many state and local governments, however, and helped keep the whole economy depressed. That’s one of the things the Fed has tried mightily to turn around, by forcing interest rates far below normal levels. It finally began to work in 2013, with a housing recovery now firmly underway. That’s one reason the Fed recently said it would pare back the bond purchases that constitute quantitative easing, with the whole program possibly coming to an end within a year or so.
A considerable toll
Still, budget-cutting in Washington since 2010 has taken a considerable toll on the job market, through spending cuts and tax increases both. [ my emph. ] And histrionics such as the threats to default on U.S. debt in 2011 and 2013 certainly haven’t helped. The government's huge debt load — more than $17 trillion — is a real problem, but many economists agree the optimal solution is to do more to stimulate the economy now while addressing the debt in a few years, when the economy is healthier.
After a year of tightening fiscal policy, the recent budget deal in Congress loosened things up a bit, with a small amount of additional spending coming in 2014. But that won’t reverse trends in fiscal policy that have made the job market worse. If government employment since the end of the recession had followed the historical pattern, another 1.2 million people would be working and the unemployment rate, now 7%, would probably be closer to 6.5%, or even lower. The Fed may also have begun to rein in quantitative easing much earlier, since goosing the labor market is one of its jobs, and there would have been less need.
There will be arguments forever over the question of whether government spending that goes directly to create jobs is good for the economy or not, in the long run. There’s evidence to buttress both sides. Government spending does tend to crowd out private spending, and the money has to come from somewhere, which can push taxes and public debt loads higher. But there have also been decades’ worth of real-world instances in which Keynesian-style spending helped compensate for a drop in private demand during a crisis, ending a recession sooner than would have happened otherwise.
There may ultimately be more agreement around the idea that we got lucky during the latest recession and the weak recovery that followed, because it could have been a lot worse. The history books may give Bernanke and his colleagues at the Fed a lot of credit for that, if their policies don’t eventually generate runaway inflation or other nasty surprises. At the moment, the worst unintended consequence of the Fed’s aggressive policies seems to be a Congress that can afford to be reckless because somebody else is there to bail it out.
Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman. [ links inside ]
http://finance.yahoo.com/blogs/the-exchange/how-washington-has-choked-off-the-recovery-190355229.html
.. i'm probably wrong, lol, just feel Yahoo have just recently jumped on board .. lol ..
See also:
Fear of Froth
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=90480588
The Corporate Right-Wing Agenda Is Driving Thousands of Americans to Attempt Suicide
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=90654230
Bruce Bartlett Is A Mensch
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=92545756
Republican Debt Crises Have Killed 900,000 Jobs: Study
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=93045609
Widening Income Inequality Bad For Economic Growth: IMF Report
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=93468706
Allyson Schwartz Signed Onto Bill Expanding Social Security After Third Way Panned It
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=94738763
Once again, the Beltway fell for cherry-picked data—and you paid the price.
—By Kevin Drum | September/October 2013 Issue
Uncle Sam being squeezed by a belt Illustration by Zohar Lazar
It was the Excel error heard round the world.
In January 2010, as the global economy was slowly beginning to claw its way out of the depths of the Great Recession, the Harvard economists Carmen Reinhart and Ken Rogoff published a short paper with a grim message .. http://www.nber.org/papers/w15639.pdf?new_window=1
: Too much debt kills economic growth. They had compiled a comprehensive database of debt episodes throughout the 20th century, and their data told an unmistakable story: Time and again, countries that rack up high debt levels have gone on to suffer years—sometimes decades—of stagnation.
As economics studies go, it was nothing short of a bombshell. As its conclusions were invoked from Washington to Brussels, tackling the recession suddenly became less important than tackling deficits. For the next three years, stimulus was out, austerity was in, and the protests of critics were all but buried amid the headlong rush to slash spending.
But then, on April 15 of this year, a trio of researchers at the University of Massachusetts published a paper .. http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_301-350/WP322.pdf .. that took a fresh look at Reinhart and Rogoff's study. It turned out there was a problem: R&R had presented data from a list of 20 countries that filled lines 30 through 49 on a spreadsheet. But the formula that calculated the results relied on lines 30 through 44. Oops.
On its own, the spreadsheet error had only a modest effect .. http://www.nextnewdeal.net/rortybomb/researchers-finally-replicated-reinhart-rogoff-and-there-are-serious-problems .. on the paper's conclusions, but the UMass team had other, weightier criticisms that taken together called R&R's conclusions into serious question. Still, under ordinary circumstances the whole thing would have been little more than a dry academic debate.
But these were far from ordinary circumstances. Like a well-aimed snowball that sets off an avalanche, the UMass paper changed everything.
To fully understand the R&R affair, let's return to that moment .. http://www.nber.org/cycles.html .. in January 2010. Technically, the Great Recession had ended several months earlier .. http://www.nber.org/cycles.html . But the economic reality of working Americans remained bleak. The unemployment rate continued to hover near 10 percent .. http://research.stlouisfed.org/fred2/data/UNRATE.txt . A broader measure that includes discouraged job seekers and those forced to accept part-time work was near 17 percent .. http://research.stlouisfed.org/fred2/data/U6RATE.txt . GDP was growing again after a disastrous 2009, but at an anemic rate of about 2 percent a year. Wage growth, adjusted for inflation, was actually negative: Salaries were shrinking, and still no one was getting work.
----------
The obsession with cutting back cost us 2 percent in GDP growth—and as many as 3 million jobs.
----------
The problem, from an economist's perspective, was a simple one: The housing bubble had burst, and banks were stuck with enormous losses on their housing-related securities .. http://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf . They desperately needed to sell assets to remain solvent, but when everyone wants to sell all at once, and nobody wants to buy, the result is a death spiral: Falling prices require ever more asset sales, which in turn produce ever steeper price drops and further asset sales. This vicious cycle eventually transformed an ordinary recession into something far more threatening—a banking crisis recession.
Ironically, it was none other than Reinhart and Rogoff who had warned us of this in their magisterial—and sardonically titled—study of financial crises throughout history, This Time Is Different .. http://www.amazon.com/This-Time-Different-Centuries-Financial/dp/0691152640 . They found that while government action might rescue broken financial systems fairly quickly (in this latest case via bank bailouts and emergency cash injections by the Federal Reserve), the wider recessions brought on by financial crises typically last a very long time. Five years is hardly unusual.
This wasn't a counsel of despair. If anything, This Time Is Different should have been taken as a well-timed warning to respond to this recession even more forcefully than usual. What was needed was for the federal government to apply the same urgency to rescuing the economy that it had to rescuing the banks.
No Stimulus For You
In every recent recession, rising government spending provided a backstop to the recovery except this one.
http://www.motherjones.com/politics/2013/09/austerity-reinhart-rogoff-stimulus-debt-ceiling
===== .. that one is old, yet worthy .. this one, i was surprised to see from YAHOO! FINANCE
.. surprised to see they were on the 'austerity is bad' road .. hope i'm wrong, just it feels new to them ..
How Washington has choked off the recovery
By Rick Newman December 19, 2013 6:38 PM The Exchange
U.S. Capitol dome
.
View gallery .. [ Yahoo .. please .. wtf don't you have images easy to reproduce, as
most all others do? .. why, not provide a link to your gallery? .. sorry, it's inside .. ]
A woman walks past the U.S. Capitol dome, seen through a porthole in nearby brick-work, in Washington, August 2, 2011. (REUTERS/Jonathan Ernst)
Ben Bernanke is known as “Gentle Ben” because of his avuncular demeanor and discreet use of words. But the Federal Reserve chairman made one comment in his latest (and last) official press conference that would make many voters angry if it had been expressed in a different manner.
“People don’t appreciate how tight fiscal policy has been,” Bernanke said, in his typical folksy econospeak. Put another way, that means Washington has been hurting the economy and holding back job growth when it should have been doing everything possible to help.
“Fiscal policy” refers to the government’s tax-and-spending plans, which are determined by Congress at the prodding of the president. Monetary policy — pushing interest rates up or down using a variety of measures — is the Fed’s responsibility. And one reason monetary policy has been so aggressive and controversial during much of Bernanke’s 8-year tenure is that fiscal policy has been so weak. With the Fed now starting to rein in one of its key tools — “quantitative easing” — Congress faces more pressure to act like grownups and stop relying on the Fed to do all the heavy lifting on the economy.
In his final press conference, Bernanke referred specifically to government jobs that have been lost since the recession ended in 2009, cutting into economic growth. We dug up the numbers to see what usually happens with government hiring after a recession. Bernanke is right — the distinction between the latest recovery and prior ones is startling.
Since the mid 1950s there have been nine official recessions. Government employment — including federal, state and local jobs — rose after eight of them. The only exception is the latest recession. During the four years following the end of the downturn, in June 2009, government employment fell by 748,000.
Here’s a breakdown: .. View gallery ..
[ a kinda cute image, if an picture you can't reproduce is still called an image on this f*ing net sometimes ]
.
In most instances, state and local government added more post-recession jobs than the feds, which makes sense since those two levels of government employ the most people to start with. But federal grants — usually in the form of traditional “Keynesian” stimulus spending — often provided a lot of the money municipalities used to hire cops, teachers and other types of workers.
[ almost felt a hedge, but guess ok ]
That also happened in 2009, with the $800 billion American Reinvestment and Recovery Act, which turned out to be controversial because it didn’t help the economy nearly as much as President Obama promised it would. But it did help protect or create nearly 3 million jobs .. https://www.economy.com/mark-zandi/documents/End-of-Great-Recession.pdf , according to mainstream economists. The basic problem was the recession turned out to be more stubborn and virulent than most economists believed, even in the middle of it. In fact, it might have turned into a depression, with even greater job losses, without aggressive government intervention.
The stimulus spending peaked around the middle of 2010, which is when the total number of government jobs began to decline. Had this been a normal recovery, the number of government jobs would have continued to tick upward as the economy improved and tax receipts bounced back. The deep real-estate bust cut sharply into tax receipts at many state and local governments, however, and helped keep the whole economy depressed. That’s one of the things the Fed has tried mightily to turn around, by forcing interest rates far below normal levels. It finally began to work in 2013, with a housing recovery now firmly underway. That’s one reason the Fed recently said it would pare back the bond purchases that constitute quantitative easing, with the whole program possibly coming to an end within a year or so.
A considerable toll
Still, budget-cutting in Washington since 2010 has taken a considerable toll on the job market, through spending cuts and tax increases both. [ my emph. ] And histrionics such as the threats to default on U.S. debt in 2011 and 2013 certainly haven’t helped. The government's huge debt load — more than $17 trillion — is a real problem, but many economists agree the optimal solution is to do more to stimulate the economy now while addressing the debt in a few years, when the economy is healthier.
After a year of tightening fiscal policy, the recent budget deal in Congress loosened things up a bit, with a small amount of additional spending coming in 2014. But that won’t reverse trends in fiscal policy that have made the job market worse. If government employment since the end of the recession had followed the historical pattern, another 1.2 million people would be working and the unemployment rate, now 7%, would probably be closer to 6.5%, or even lower. The Fed may also have begun to rein in quantitative easing much earlier, since goosing the labor market is one of its jobs, and there would have been less need.
There will be arguments forever over the question of whether government spending that goes directly to create jobs is good for the economy or not, in the long run. There’s evidence to buttress both sides. Government spending does tend to crowd out private spending, and the money has to come from somewhere, which can push taxes and public debt loads higher. But there have also been decades’ worth of real-world instances in which Keynesian-style spending helped compensate for a drop in private demand during a crisis, ending a recession sooner than would have happened otherwise.
There may ultimately be more agreement around the idea that we got lucky during the latest recession and the weak recovery that followed, because it could have been a lot worse. The history books may give Bernanke and his colleagues at the Fed a lot of credit for that, if their policies don’t eventually generate runaway inflation or other nasty surprises. At the moment, the worst unintended consequence of the Fed’s aggressive policies seems to be a Congress that can afford to be reckless because somebody else is there to bail it out.
Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman. [ links inside ]
http://finance.yahoo.com/blogs/the-exchange/how-washington-has-choked-off-the-recovery-190355229.html
.. i'm probably wrong, lol, just feel Yahoo have just recently jumped on board .. lol ..
See also:
Fear of Froth
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=90480588
The Corporate Right-Wing Agenda Is Driving Thousands of Americans to Attempt Suicide
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=90654230
Bruce Bartlett Is A Mensch
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=92545756
Republican Debt Crises Have Killed 900,000 Jobs: Study
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=93045609
Widening Income Inequality Bad For Economic Growth: IMF Report
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=93468706
Allyson Schwartz Signed Onto Bill Expanding Social Security After Third Way Panned It
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=94738763
It was Plato who said, “He, O men, is the wisest, who like Socrates, knows that his wisdom is in truth worth nothing”
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