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Thread: The growth of federal debt is exceeding GDP growth

  1. #1
    SiriuslyLong is offline
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    The growth of federal debt is exceeding GDP growth

    By Cate Long
    May 9, 2012

    As the U.S. economy continues to move at near-stall speed, there seems to be a swelling chorus arguing that a lot of the weakness can be traced to state and local government job losses. Mark Thoma, a professor of economics at the University of Oregon, wrote this today:

    One of the biggest policy mistakes that has been made during this recession is allowing government employment to fall by this magnitude. Stabilization policy calls for the opposite, a temporary increase in employment to provide employment for people who cannot find private sector jobs, and at the very least we should have kept government employment stable.

    Because muniland cannot fund continuing operations by issuing debt, maintaining state and local employment would have required another round of fiscal stimulus, meaning that the Treasury would have to issue additional debt over and above what is currently funding the federal deficit. As the chart above shows, new federal debt is approximately equivalent to the amount of growth the economy is experiencing. Basically, debt-financed deficit spending has been what is keeping the economy afloat, but in each of the last three quarters of 2011, the growth rate in federal debt issuance surpassed the growth rate of the U.S. economy.

    I have argued in the past that it’s unwise to use state and local governments as a jobs programs:

    What [Paul] Krugman’s analysis overlooks is that government at the state and local levels has been ballooning for decades and that a contraction may be necessary to purge the system of bureaucracy and outdated programs. Krugman’s borrowing plan would simply freeze budgets which, on their own, are basically unsustainable for state and local governments. As their costs increase, there is no more “fiscal space” in many state and local budgets to maintain the status quo without large tax increases. So after Krugman’s proposed federal stimulus expired, states and municipalities would likely have to raise revenues to support their expanded size.

    Hoping that state and local government can provide a large number of jobs is unwise policy, since government employees have substantial attendant costs, notably generous pensions. Unlike private corporations, government cannot quickly add and reduce jobs as public budgets must go through the legislative process, which is infinitely more complex than corporate planning.

    That said, it is necessary for the federal government to provide a minimum guaranteed income for those who have been displaced due to municipal downsizing. This can be done through the unemployment benefit system, and additional funds to extend the term on those benefits would be very helpful.

    http://blogs.reuters.com/muniland/20...ng-gdp-growth/

    Clearly unsustainable.

  2. #2
    SiriuslyLong is offline
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    Obama’s Stimulus Helped Grow Debt, Not Economy: Ramesh Ponnuru

    Last week’s release of the February employment report set off the predictable partisan squabbling, with Democrats emphasizing the positive (227,000 new jobs) and Republicans the negative (the still-shrunken labor force and still-high unemployment rate).

    Democrats say the economic recovery shows that the stimulus bill that President Barack Obama signed in 2009 worked. Republicans deny it. Although we can’t know how the economy would be faring if Congress hadn’t passed a stimulus, we have good reason to doubt that it did much good.

    Media fact-check organizations have no such doubts. Factcheck.org says it’s “just false” to deny that the stimulus has created jobs. It cites the Congressional Budget Office’s estimate that the stimulus had saved or created millions of jobs. But the CBO, as its director has explained, hasn’t really checked the effect of the stimulus. It has merely reported what the results of additional federal spending and tax credits would be if you assume that spending and tax credits are stimulative.

    In other words: If you assume that stimulus works, it must have worked. This circularity doesn’t bother PolitiFact, a group that seeks to elevate the tone of our political debates but usually lowers it. Relying on the CBO and other groups that use similar methods, it says people who deny the effectiveness of the stimulus have their “pants on fire.”

    The Research

    Last summer, Dylan Matthews reviewed the research on the stimulus for the Washington Post and dug up six studies that found a positive effect. Three of them were based on models that assume the stimulus worked. Three of them were supposedly empirical confirmations of this effect. These three all found that states (or counties) that got more stimulus money had stronger economic performances than places that received less.

    But nobody denies that the federal government can shift the distribution of economic activity. If Congress were to give me $50 billion, I am sure car dealerships and liquor stores in my area would see an uptick in sales. That doesn’t mean the nation as a whole would come out ahead. (I am willing to go along with the experiment if Congress doubts this.)

    Other research on the stimulus, meanwhile, has uncovered reasons for skepticism about its effect. John F. Cogan of the Hoover Institution and John B. Taylor of Stanford University have found that the federal aid to states that was in the stimulus reduced states’ borrowing. The transfer may have helped state balance sheets, but shifting debt from states to the federal government cannot have been stimulative. The stimulus didn’t increase federal purchases significantly, they said.

    Valerie Ramey of the University of California, San Diego, has found that the stimulus didn’t increase economic output or private-sector employment, although it boosted public-sector employment. (Maybe PolitiFact will give these economists a pants-on-fire citation, too.)

    In a recent debate about the stimulus with Taylor, former Obama adviser Lawrence Summers made the point -- a dubious one, as we’ve seen -- that states with more stimulus funding have done better. He also urged the audience to “use your common sense.” That’s probably the best argument for the stimulus: Keynesian theorists can tell a plausible story about why one would expect additional federal borrowing to help a depressed economy.

    But what’s often left out of that story is the role of the Federal Reserve. Take account of how fiscal policy is likely to affect monetary policy, and it becomes a lot harder to see how stimulus can do much to help the economy.

    Fed’s Effect

    http://www.bloomberg.com/news/2012-0...h-ponnuru.html

    Seems to me that many have high ideas, but fail to recognize the concept of marginal cost to marginal benefit. Clearly they take our tax dollars lightly which should be a crime.

    Or is it simply a case of this? http://www.youtube.com/watch?v=O55aRrvXtio

    Funny, isn't it? haha. Let's all laugh.
    Last edited by SiriuslyLong; 05-24-2012 at 02:27 PM.

  3. #3
    Havakasha is offline
    http://www.washingtonpost.com/blogs/...g.html?hpid=z2


    Posted at 12:18 PM ET, 05/24/2012
    Romney lets his inner Keyensian out
    By Jamelle Bouie
    Earlier this year, while campaigning in Michigan, Mitt Romney made the mistake of expressing his inner Keynesian. “If you just cut, if all you’re thinking about doing is cutting spending, as you cut spending you’ll slow down the economy,” he said, earning the immediate scorn of anti-tax conservatives. From that point on, the former Massachusetts governor has been careful to hew to the GOP’s traditional line, reiterating the party’s belief that tax and spending cuts will lead to economic growth and new revenues. But in his recent interview with Time’s Mark Halperin — which you should read in full — he relies on Keynes to show why he wouldn’t commit to deep spending cuts in the first year of his administration:

    Halperin: Why not in the first year, if you’re elected — why not in 2013, go all the way and propose the kind of budget with spending restraints, that you’d like to see after four years in office? Why not do it more quickly?

    Romney: Well because, if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%. That is by definition throwing us into recession or depression. So I’m not going to do that, of course. [Emphasis mine]

    Now that Romney is the nominee, I’d be surprised if he received pushback from conservative activists for this rhetorical embrace of Keynesian logic. They may not like it, but they also want to win, and an attack would be counterproductive.

    That said, this does raise questions about the dynamic between Romney and congressional Republicans if he’s elected president. Republicans are eager to implement the Ryan plan, and have made it the centerpiece of their domestic policy agenda. Romney is committed to the same agenda, but he also seems willing to pass the Ryan tax cuts and then delay the more radical elements, in order to maintain economic growth (and boost his popularity).

    I have no doubt that party leaders and more typical Republicans would go along with this; they’re most concerned with cutting taxes on the rich, and spending cuts or not, I don’t think they would forgo the opportunity. But I can’t say the same for the more ideological Republicans who were elected in 2010, and nearly sparked a second recession out of pique with the administration. They seem to actually believe in the need for radical spending cuts, and it’s unclear whether they would go along with Romney’s plan to push cuts down the road. If the primary against Richard Lugar is any indication, the Tea Party is still unsatisfied with the orthodoxy of the GOP establishment, and its affiliated members might revolt against a package that doesn’t include a significant reduction in the size of government.

    If the past Republican administration is any indication, most conservative will rediscover their belief in Keynesian economics, and go along with Romney’s plan to cut taxes without any offsets.

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