Monday, January 9, 2017

Let's do a Krugman

Deficits Matter Again, by Paul Krugman, NY Times: Not long ago prominent Republicans like Paul Ryan ... liked to warn in apocalyptic terms about the dangers of budget deficits, declaring that a Greek-style crisis was just around the corner. But ... tax cuts ... would, according to their own estimates, add $9 trillion in debt over the next decade. Hey, no problem. ...
Horsermanue. Ryan has been a historically large deficit spended, racking up trillions while head of House finance under Bush.  That man is not happy unless the deficit is at least a trillion, and he left it at a trilluion the day Obama took office.
All that posturing about the deficit was obvious flimflam, whose purpose was to hobble a Democratic president... But running big deficits is no longer harmless, let alone desirable.
Deficit spending is mostly, always flim flam.
The way it was: Eight years ago, with the economy in free fall, I wrote that we had entered an era of “depression economics,” in which the usual rules of economic policy no longer applied... In particular, deficit spending was essential to support the economy, and attempts to balance the budget would be destructive.
Eight years ago Obama was being inaugurated and the debt cartel in the Swamp had already decided a 10% GDP deficit was fine and dandy.  You were late to the game.
This diagnosis ... was ... always conditional, applying only to an economy far from full employment. That was the kind of economy President Obama inherited; but the Trump-Putin administration will, instead, come into power at a time when full employment has been more or less restored. ...
The deficits were an outcome, not a diagnosis. Bush spent the Swamp nearly to bankruptcy, and interest were not going to be made unless the central banker intervened.
What changes once we’re close to full employment? Basically, government borrowing once again competes with the private sector for a limited amount of money. This means that deficit spending no longer provides much if any economic boost, because it drives up interest rates and “crowds out” private investment.
We crowded in in late 2011, almost entered a double dip as the silly stimulus drove gas prices back up to $120/gallon.  Fracking saved our ass, for a while. You were late to the game.
Now, government borrowing can still be justified if it serves an important purpose..., infrastructure is still a very good idea... But while candidate Trump talked about increasing public investment, there’s no sign at all that congressional Republicans are going to make such investment a priority.
No, borrowing is not justified, in fact, the debt cartel has discovered that the original bail out of Texas S&Ls may never be paid back and we are stuck with a permanent interest payment on the cost of that bail out.  Now Texas cities suddenly become bankrupt, our debt costs ate going up, we cannot to borrow any more. You are late to the gamer.

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