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  1. Havakasha is offline
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    03-04-2011, 02:38 PM #1

    How to Kill a Recovery

    OP-ED COLUMNIST
    How to Kill a Recovery
    By PAUL KRUGMAN
    Published: March 3, 2011


    The economic news has been better lately. New claims for unemployment insurance are down; business and consumer surveys suggest solid growth. We’re still near the bottom of a very deep hole, but at least we’re climbing.

    It’s too bad that so many people, mainly on the political right, want to send us sliding right back down again.

    Before we get to that, let’s talk about why economic recovery has been so long in coming.

    Some economists expected a rapid bounce-back once we were past the acute phase of the financial crisis — what I think of as the oh-God-we’re-all-gonna-die period — which lasted roughly from September 2008 to March 2009. But that was never in the cards. The bubble economy of the Bush years left many Americans with too much debt; once the bubble burst, consumers were forced to cut back, and it was inevitably going to take them time to repair their finances. And business investment was bound to be depressed, too. Why add to capacity when consumer demand is weak and you aren’t using the factories and office buildings you have?

    The only way we could have avoided a prolonged slump would have been for government spending to take up the slack. But that didn’t happen: growth in total government spending actually slowed after the recession hit, as an underpowered federal stimulus was swamped by cuts at the state and local level.

    So we’ve gone through years of high unemployment and inadequate growth. Despite the pain, however, American families have gradually improved their financial position. And in the past few months there have been signs of an emerging virtuous circle. As families have repaired their finances, they have increased their spending; as consumer demand has started to revive, businesses have become more willing to invest; and all this has led to an expanding economy, which further improves families’ financial situation.

    But it’s still a fragile process, especially given the effects of rising oil and food prices. These price rises have little to do with U.S. policy; they’re mainly because of growing demand from China and other emerging markets, on one side, and disruption of supply from political turmoil and terrible weather on the other. But they’re a hit to purchasing power at an especially awkward time. And things will be much worse if the Federal Reserve and other central banks mistakenly respond to higher headline inflation by raising interest rates.

    The clear and present danger to recovery, however, comes from politics — specifically, the demand from House Republicans that the government immediately slash spending on infant nutrition, disease control, clean water and more. Quite aside from their negative long-run consequences, these cuts would lead, directly and indirectly, to the elimination of hundreds of thousands of jobs — and this could short-circuit the virtuous circle of rising incomes and improving finances.

    Of course, Republicans believe, or at least pretend to believe, that the direct job-destroying effects of their proposals would be more than offset by a rise in business confidence. As I like to put it, they believe that the Confidence Fairy will make everything all right.

    But there’s no reason for the rest of us to share that belief. For one thing, it’s hard to see how such an obviously irresponsible plan — since when does starving the I.R.S. for funds help reduce the deficit? — can improve confidence.

    Beyond that, we have a lot of evidence from other countries about the prospects for “expansionary austerity” — and that evidence is all negative. Last October, a comprehensive study by the International Monetary Fund concluded that “the idea that fiscal austerity stimulates economic activity in the short term finds little support in the data.”

    And do you remember the lavish praise heaped on Britain’s conservative government, which announced harsh austerity measures after it took office last May? How’s that going? Well, business confidence did not, in fact, rise when the plan was announced; it plunged, and has yet to recover. And recent surveys suggest that confidence has fallen even further among both businesses and consumers, indicating, as one report put it, that the private sector is “unprepared to fill the hole left by public sector cuts.”

    Which brings us back to the U.S. budget debate.

    Over the next few weeks, House Republicans will try to blackmail the Obama administration into accepting their proposed spending cuts, using the threat of a government shutdown. They’ll claim that those cuts would be good for America in both the short term and the long term.

    But the truth is exactly the reverse: Republicans have managed to come up with spending cuts that would do double duty, both undermining America’s future and threatening to abort a nascent economic recovery.

  2. SiriuslyLong is offline
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    Joined: Jan 2009 Location: Ann Arbor, MI Posts: 3,560
    03-04-2011, 05:48 PM #2
    "The clear and present danger to recovery, however, comes from politics — specifically, the demand from House Republicans that the government immediately slash spending on infant nutrition, disease control, clean water and more. Quite aside from their negative long-run consequences, these cuts would lead, directly and indirectly, to the elimination of hundreds of thousands of jobs "

    For once I wish he would elaborate. He continues to paint broad strokes, but the direct line isn't clear. The only link I see benefits the greedy companies who make infant formula, disease control products.... The same companies who pay their CEO's exhorbinant salaries.

  3. Havakasha is offline
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    03-04-2011, 09:34 PM #3
    FRIDAY, MAR 4, 2011 14:03 ET
    HOW THE WORLD WORKS
    How to make sure the unemployment rate keeps dropping
    State worker layoffs are hurting the labor market. Maybe now is not the time to fire a bunch of federal workers?
    BY ANDREW LEONARD

    In February, private sector payrolls added 220,000 jobs, the best performance of Obama's tenure. That should be reason to cheer. Yes, it will take many years for the labor market to recover to pre-recession levels if job growth going forward merely matches February's performance, but we shouldn't get bogged down by such glum extrapolations. The important thing to pay attention to is the direction the job market is headed, not the absolute number of jobs created. Viewed thusly, February's numbers are very encouraging. Job growth was widely distributed, and the sharp fall in the unemployment rate over the last three months seems to be real, instead of the statistical abnormality many observers had feared. And who knows, the report may even be understating actual job growth.

    But it's no time for complacency. We can still screw this up. State and local governments trimmed payrolls by 30,000 in February, and virtually everyone is convinced that such cuts will continue for the foreseeable future. Indeed, they could get a lot worse, as states move into new fiscal years minus the big federal government aid provided by the stimulus and other supplements. And that's without taking into consideration the near certainty of additional federal layoffs.

    There has been much debate over how many layoffs would ensue if Republicans succeed in getting all $61 billion of their proposed spending cuts pushed through before the end of the year. Economist Mark Zandi projected 700,000 jobs lost in the economy at large over the next two years. Ben Bernanke says only a couple of hundred thousand. Making a direct calculation about the connection between reduced government spending, depressed demand and economy-wide layoffs is tricky. But there's no question that, at the very least, a significant number of federal workers will lose their jobs.

  4. SiriuslyLong is offline
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    03-04-2011, 09:49 PM #4
    Quote Originally Posted by Havakasha View Post
    FRIDAY, MAR 4, 2011 14:03 ET
    HOW THE WORLD WORKS
    How to make sure the unemployment rate keeps dropping
    State worker layoffs are hurting the labor market. Maybe now is not the time to fire a bunch of federal workers?
    BY ANDREW LEONARD

    In February, private sector payrolls added 220,000 jobs, the best performance of Obama's tenure. That should be reason to cheer. Yes, it will take many years for the labor market to recover to pre-recession levels if job growth going forward merely matches February's performance, but we shouldn't get bogged down by such glum extrapolations. The important thing to pay attention to is the direction the job market is headed, not the absolute number of jobs created. Viewed thusly, February's numbers are very encouraging. Job growth was widely distributed, and the sharp fall in the unemployment rate over the last three months seems to be real, instead of the statistical abnormality many observers had feared. And who knows, the report may even be understating actual job growth.

    But it's no time for complacency. We can still screw this up. State and local governments trimmed payrolls by 30,000 in February, and virtually everyone is convinced that such cuts will continue for the foreseeable future. Indeed, they could get a lot worse, as states move into new fiscal years minus the big federal government aid provided by the stimulus and other supplements. And that's without taking into consideration the near certainty of additional federal layoffs.

    There has been much debate over how many layoffs would ensue if Republicans succeed in getting all $61 billion of their proposed spending cuts pushed through before the end of the year. Economist Mark Zandi projected 700,000 jobs lost in the economy at large over the next two years. Ben Bernanke says only a couple of hundred thousand. Making a direct calculation about the connection between reduced government spending, depressed demand and economy-wide layoffs is tricky. But there's no question that, at the very least, a significant number of federal workers will lose their jobs.
    If that was supposed to be an answer, it didn't work.