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If New York Times Reporters Won’t Read Krugman about Austerity Will they Read Brooks?

By       Message William K. Black, J.D., Ph.D.       (Page 2 of 3 pages) Become a premium member to see this article and all articles as one long page.     Permalink

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Don't fall for news accounts that tell you that Geithner wasn't from Wall Street -- the NY Fed is the true center (it has no "heart") of Wall Street.  Geithner represented Wall Street, not the U.S. public, when he was its president.  That's why he was promoted to run Treasury after finishing in a dead tie with Greenspan and Bernanke as the most destructive anti-regulators in U.S. history.  If any of those three individuals, now thankfully removed from any pretense that they serve the American people, had been even a minimally effective financial regulator and had acted against the accounting control fraud epidemics driving the crisis there would have been no crisis and no Great Recession.

Shear's column doesn't mention six terms that any article about the grand betrayal or his preferred euphemism ("grand compromise") would logically have to contain:  "austerity," "stimulus," "recession," "unemployment," "demand," or "safety net."  Here's an example of how to use these terms if one were actually discussing the issues Shear purports to be discussing.

  • The financial crisis triggered such a sharp fall in demand that the United States suffered a "Great Recession" in which unemployment surged.  The U.S. responded with a limited stimulus program that provided sufficient demand that the sharp fall in the U.S. economy was soon brought to an end and a modest recovery in unemployment began.  From 2011 on, however, U.S. policy has swung increasingly toward austerity, slowing the rate of the U.S. economic recovery and rendering it more fragile to potential external shocks.  The safety net has proven critical both in reducing harm to Americans from the Great Recession and in acting as an "automatic stabilizer" that aids recovery.  The targeted U.S. budget deficit is currently too small.

It would be very bad economics and inhumane to reduce Social Security payments.  What I have written is standard macroeconomics.  Surveys indicate overwhelming support among academic economists for stimulus in response to the Great Recession.  "Revealed preferences" demonstrate that when Republicans control the U.S. government and confront a recession in the modern era they use stimulus.  It is only when Democrats inherit recessions that began under Republican administrations that Republicans oppose stimulus as a response.

To reiterate, I have no problem with Shear, after acknowledging these facts, adopting and defending a different view.  It is intellectually dishonest and a disservice to the readers, however, to frame the issue in a way that the issue disappears.  It is not acceptable to have the Great Recession or unemployment disappear from consideration under Shear's framing.  This is how Shear presents the issue of whether Obama will begin to unravel the safety net by cutting future Social Security payments that would have normally risen to cover lost purchasing power due to inflation.

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""This reaffirms what has become all too apparent: The president has no interest in doing anything, even modest, to address our looming debt crisis,' said Brendan Buck, a spokesman for the House speaker, John A. Boehner of Ohio."

Notice that Shear treats the "looming debt crisis" and desirability of deficit reduction as facts so obviously true that they require no analysis.  There is no "looming debt crisis" for the U.S. government and the deficit has been reduced too quickly.  Notice that Shear implicitly treats federal budget deficits as harmful.  There are circumstances where that could be true due to inflation and very high capacity utilization.  We are not remotely in those circumstances.

Shear quotes the even more revealing, and financially illiterate, series of statements by the administration and its critics.

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"The budget plan, which will be out in early March, a month late, will abide by the overall spending guidelines agreed to by Republicans and Democrats late last year. But included in those spending limits will be a $56 billion proposal to increase spending on some of Mr. Obama's key initiatives, officials said.

Mr. Earnest [Obama's wondrously named deputy press flack] said that would include spending on manufacturing "hubs' that the president has promoted over the last year; additional government programs aimed at helping people develop new skills; and funding for early childhood education programs like preschool.

Mr. Earnest said this new spending would be offset by revenue increases, and cuts in other parts of the budget.

"This initiative that the president will propose will be fully paid for,' Mr. Earnest said. White House officials declined to describe the revenue increases, but said they would include closing corporate loopholes, a move the president has supported in the past.

Mr. Buck [Boehner's wondrously named aide] criticized the $56 billion proposal as another effort by the president to spend more taxpayer money than the government can afford."

Notice that the administration and its critics both treat austerity as sound and say things that demonstrate that they are financially illiterate.  Obama wants to add skills training.  Fine, but the reason that we have such massive loss of employment (remember that the unemployment rate is being held down by the staggering number of Americans who have become so discouraged that they have given up trying to find a job) is that demand is so inadequate that there are near record levels of unemployed relative to job openings.  Inadequate demand is the critical problem we face -- and the administration, its critics, and the NYT all the frame the issue to ignore the Great Recession, the unemployment, and the lack of demand while implicitly assuming that greater austerity must be the answer to these problems.  We do not need to "pay for" job training initiatives through tax increases or program cuts in the sense that the administration spokesman uses.  The deficit the administration is aiming for is already too small.

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Buck's comments ("spend more taxpayer money than the government can afford") are simply more extreme versions of the administration fallacy as set forth by Earnest.  One can hardly fault Earnest for parroting his boss' infamous absurdity about "running" "out of money" in his May 23, 2009 C-SPAN interview with Steve Scully.

SCULLY: You know the numbers, $1.7 trillion debt, a national deficit of $11 trillion. At what point do we run out of money?

OBAMA: Well, we are out of money now. We are operating in deep deficits, not caused by any decisions we've made on health care so far. This is a consequence of the crisis that we've seen and in fact our failure to make some good decisions on health care over the last several decades.

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William K Black , J.D., Ph.D. is Associate Professor of Law and Economics at the University of Missouri-Kansas City. Bill Black has testified before the Senate Agricultural Committee on the regulation of financial derivatives and House (more...)

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