Posted by AzBlueMeanie:
I find it disturbing that so-called "public servants" can turn abject failure — The National Commission on Fiscal Responsibility and Reform, i.e., the "Catfood Commission" (h/t Graphic by Twolf) which never completed its task and never adopted any recommendations — into a profit making venture on the lecture circuit and in the Beltway media. Public servants my ass!
Alan Simpson and Erskine Bowles are only interested in profiting off their faux celebrity.
I am not the only one who shares disdain for these two charlatans. Samuel Knight writes at the Political Animal blog, Simpson and Bowles, “spending problem” voodoo economics ignores the lack of “crowding out”:
Alan Simpson and Erskine Bowles – co-founders of the corporate lobby
Campaign to Fix the Debt – were on Meet the Press this morning. I
couldn’t drag myself to watch it because I am sick and tired of hearing
every oligarch’s favorite lackeys argue that the national debt is a
reason to gut the welfare state. Which is exactly what they were doing this morning:
“Yes, the president has taken some steps forward on the
entitlement programs, but has he done enough? Absolutely not,” Bowles
said.
But they and their disciples couldn’t be more wrong. The U.S.
government has no “spending problem” from a macroeconomist’s point of
view. Of course, the country can’t indefinitely continue to borrow more
than it earns, but the idea that we must somehow tackle debt by cutting
spending — and do it right now — is voodoo economics of the highest
order.
For spending to be an immediate problem, it would have to be
problematic. And the primary reason that government spending is
problematic is due to “the crowding out effect.”
I could find some haughty economist to quote on the issue, but for simplicity’s sake here’s Wikipedia:
“…crowding out is a phenomenon occurring when expansionary
fiscal policy causes interest rates to rise, thereby reducing investment
spending.”
Yet interest rates are rock bottom and aren’t expected to rise anytime soon, and demand for U.S. Treasury bonds remains high.
Thus, government spending appears to be having no averse effect on
financial markets, which, according to Treasury yields, actually seem to
think that lending the U.S. government money is a wise idea. The debt
“crisis” is only caused by a “spending problem” when one considers
government spending to be an issue from an ideological standpoint.
If Simpson and Bowles were serious about tackling the debt without
completely undermining the economy, they’d advocate higher taxes on
those that can afford to pay more [actually, their chairmen's mark report did call for higher taxes than was recently agreed to by Congress]. Corporations are awash with cash, and capital is taking a larger slice of the pie than ever. But aggregate demand is lagging,
and to undermine social safety nets would further weaken it. Sound
economic policy would, therefore, have the rich finance deficit
reduction — if it must be done in this fragile economy.
What is causing the deficit is the worst economic contraction since the Great Depression. It is the loss of consumer demand and the concomitant loss of jobs (and thus tax revenue). The recovery is slowed by Republican obsession with conservative "austerity" measures to reduce debt when we should be doing just the opposite by priming the economy with stimulus spending. As Paul Krugman writes today in The Big Fail:
So what went wrong? The answer, mainly, is the triumph of bad ideas.
It’s tempting to argue that the economic failures of recent years prove
that economists don’t have the answers. But the truth is actually worse:
in reality, standard economics offered good answers, but political
leaders — and all too many economists — chose to forget or ignore what
they should have known.
The story, at this point, is fairly straightforward. The financial
crisis led, through several channels, to a sharp fall in private
spending: residential investment plunged as the housing bubble burst;
consumers began saving more as the illusory wealth created by the bubble
vanished, while the mortgage debt remained. And this fall in private
spending led, inevitably, to a global recession.
For an economy is not like a household. A family can decide to spend
less and try to earn more. But in the economy as a whole, spending and
earning go together: my spending is your income; your spending is my
income. If everyone tries to slash spending at the same time, incomes
will fall — and unemployment will soar.
[T]he crisis of 2008 was far bigger, and even cutting rates all the way to zero wasn’t nearly enough.
At that point governments needed to step in, spending to support their
economies while the private sector regained its balance. And to some
extent that did happen: revenue dropped sharply in the slump, but
spending actually rose as programs like unemployment insurance expanded
and temporary economic stimulus went into effect. Budget deficits rose,
but this was actually a good thing, probably the most important reason
we didn’t have a full replay of the Great Depression.
* * *
Of the papers presented at [the annual meeting of the American Economic Association], probably the biggest flash came
from one by Olivier Blanchard and Daniel Leigh of the International
Monetary Fund. Formally, the paper represents the views only of the
authors; but Mr. Blanchard, the I.M.F.’s chief economist, isn’t an
ordinary researcher, and the paper has been widely taken as a sign that
the fund has had a major rethinking of economic policy.
For what the paper concludes is not just that austerity has a depressing
effect on weak economies, but that the adverse effect is much stronger
than previously believed. The premature turn to austerity, it turns out,
was a terrible mistake.
* * *
The really bad news is how few other players are doing the same.
European leaders, having created Depression-level suffering in debtor
countries without restoring financial confidence, still insist that the
answer is even more pain. The current British government, which killed a
promising recovery by turning to austerity, completely refuses to
consider the possibility that it made a mistake.
And here in America, Republicans insist that they’ll use a confrontation
over the debt ceiling — a deeply illegitimate action in itself — to
demand spending cuts that would drive us back into recession.
The truth is that we’ve just experienced a colossal failure of economic
policy — and far too many of those responsible for that failure both
retain power and refuse to learn from experience.
The Beltway media villagers continue to trot out these failures Simpson and Bowles on the Sunday talk shows as if they have anything relevant or constructive to say. Government spending is not the problem. It is the contraction of consumer demand and the need to create tax-paying jobs. We are having the wrong conversation.
