Mike has a great piece up on the fallacy of austerity of a means of spurring economic growth. I encourage you to read it. Playing off of last week's discussion of the Magic Black Box theory offered by Carly Fiorina and Ron Johnson, let's do a quick thought experiment on this topic.

It's the morning after the election. Teabagger America has delivered. The GOP has won not only the seats predicted before the election but dozens and dozens more.
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Almost every Democrat in America has lost. When the new Congress is sworn in on January 3rd it will have 75 Republicans in the Senate and 380 in the House.

Immediately the new GOP Supermajority goes to work on the Federal budget, just as they promised. Through a series of cuts ranging from the draconian to the merely brutal they manage to debride the budget of over $1.3 trillion in just a few short weeks. Although it seems unthinkable now, the budget is successfully brought into balance. Huzzahs abound.

So, great. Now what? (Cue the Dude, Where's My Car "And then…" skit.)

What changes? What gets better? No one has been willing or able to explain what the benefits of "lower spending" will be, either in the real-world or abstract economics textbook sense. The Ron Johnsons of the world can't explain how their magical remedy will reduce unemployment. I mean, are there businesses in the U.S. right now that aren't able to hire because the Federal government spends too much money, especially bearing in mind that a vast portion of the private sector depends on government contracts? How will the balanced budget make up for, let alone stimulate, the drop in consumer demand that will result from kicking millions of people off of their current benefits (which would presumably be necessary) such as unemployment compensation, Social Security, and so on?

This dilemma speaks directly to a fundamental misunderstanding – or should I say misrepresentation – of the core economic issues in the current crisis. Unemployment is not high because of the deficit. Interest rates aren't high because of the deficit. In fact, they aren't high at all. They're mind-numbingly low, with 30-year fixed rates available at just over 3% and the Federal funds rate still pegged at zero. Property values have not plummeted because Congress spends too much. The only relationship between the Federal budget and any of these problems is that they would be worse if Washington and our various state capitols were not propping up a sizable portion of our economy.

The problem, the one whose name we dare not speak, is that 30 years of stagnant wages (except for the top 10%, they're doing great!) have killed demand. The void was filled with cheap, easy credit concurrent to political and technological changes that persuaded growing industries to expand in China or India rather than in the United States.
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And that's why this whole argument is so very, very stupid independently of the absurd notion that Republicans are going to do anything but nibble at our budgetary issues. Congress spending less doesn't solve any of these problems.
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Cutting taxes? Yes, that might provide a cheap, transient bump in demand, which will certainly be a boon to the Chinese factories churning out all of our consumer products.
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And then?

31 thoughts on “AND THEN…”

  • THANK YOU. The notion that the government has some kind of magical button it can press, switch it can throw, secret deity it can appease with the blood of a goat, and BAM, everybody's got good jobs at good wages…where in the flying fuck did this idea come from? Americans as a whole are often accused of indulging in "magical thinking"–succumbing to the illusion that a belief held strongly enough makes said belief true. "My taxes are too high and it's the government's fault" is not magical thinking. "I've been laid off from my private sector job and it's the government's fault" is, especially when it's followed up with "because they're spending all *my* money to solve *other* people's problems, illegal immigrants, most likely."

    Say what you will about "values voters"–and there's plenty to be said–but at least they can get *some* watered-down payoff for their vote. Don't like abortion on demand? Elect Republicans who will cut off government funding and nominate judges who will make access more difficult. Hate gays? Elect Republicans and spineless Democrats who will pass things like The Defense of Marriage Act. Though the Constitution (thank God) remains a bulwark against radical social change, you can, at least, see someone with your values seeing to it than money doesn't get spent that contradicts those values. (At least, not when the cameras are on. Or even if they are–nobody watches C-SPAN.)

    But voters who seek redress for the fucking they've received from the private sector are kind of missing the point contained in the adjective "private." When the GOP wins big in November, congratulate your neighbor with the red signs on his front lawn, then ask him if he's any less shit-poor than he was yesterday. And tell him you'll ask him again in a year. Don't worry–he won't be around for that awkward conversation; foreclosure proceedings don't change just because majorities do.

  • Teabaggery isn't about solving anything- its an adolescent shit fit, aimed at getting back at " them", whoever the fuck they are.
    The fact that the teabaggers get fucked along with the people they hate doesn't even enter into their reptilian minds.

  • Republicans have been clinging to their anti-spending life raft for far too long; a perverse piece of me almost wants to see them get their midterm wish so that we can all be entertained when the life raft springs a leak and deposits its sorry load into shark-infested waters.

  • I think the Republicans will be successful in deflecting the blame onto the "Other." Used to be black people, now it's 'illegal' immigrants and Muslims. Another group, the Chinese, are waiting around the bend. Enough people will always be convinced that it's always someone else's fault; they will never acknowledge their own ignorance and stupidity. The Republicans only need a little more time to completely destroy this country.

    I'm 57. Grew up in the '60's but was a more conservative Democrat. Enthusiastically worked the phones and knocked on doors for Hubert Humphrey and was never a fan of the sainted Bobby. I can 't believe that I'm about to say this but where are the Weathermen when we REALLY

  • The Man, The Myth says:

    Good post Ed. You summarized the problems quite well. Its striking that somehow I have not run across this question (and then…) from any other source. As your post explains, cutting spending really doesn't solve any of these problems… what a rotten day and a rotten week/month. At least I can throw myself into GIS and ignore teabaggers.

  • displaced Capitalist says:

    Reminds me of that constant theme in Atlas Shrugged where the populace resorts to using candles for light because the evil government has stopped all tech innovation.

    And yet, in reality it seems like it's the GOP/TEA party who wants us to use candles for light. Odd huh?

    (Sorry for bringing up Ayn Rand.)

  • As an anthropologist who's been researching public understandings of policy issues (including attitudes toward deficit spending) I can tell you that the overspending-is-the-problem idea is completely entrenched up and down the political spectrum. And as long as people think that taxes and spending mean money to these (*&%%$-ing) politicians and their cronies – no one is going to view government spending as anything but a boondoggle (thanks Ronnie!). Until people (again, up and down the spectra) have faith that their taxes might go into actual public investments (rather than "bailouts", stupid wars, foreign aid and welfare), the enthusiasm for government spending is gonna stay down there around 2 or 3 degrees Kelvin.

  • This is exactly what I needed to read this morning so re-calibrate my 'political circus' circuits. I really wish more of the spineless democratic politicians could articulate this point as clearly and effectively as you do. Like Bette Noir a little part of me hopes that the teabaggers and far-right wingnuts get their wish this election, just for the satisfaction of seeing them flail about when they realize their grand plan is a load of crap.

    But then I wake up and realize they already know that. They just want power and don't actually give a shit about the rest of us anyway. If the Republicans win the House as expected, and the Democratic Party keeps the Senate as expected, we will see two years of unmitigated gridlock. At least in this first two years SOME headway has been made. That will all disappear and there's not likely to be any changes for good or bad if things turn out as predicted.

  • One would think that grown adults would have heard of the old saying "careful what you wish for" because that's exactly what the 'Baggers have going on.

    They are so bent on their goal they wouldn't know what to do with it once they got there.

  • @Bette Noir, "a perverse piece of me almost wants to see them get their midterm wish so that we can all be entertained when the life raft springs a leak and deposits its sorry load into shark-infested waters."

    Yes, but keep in mind: When it happens — and it will happen — it won't be that their policies once again failed. It'll be that the Lib'ruls once again thwarted them, somehow.

    Because remember, the housing collapse wasn't because banks were giving mortgages to people who couldn't possibly afford them, collecting a few payments, foreclosing and then turning the house right back around for even more than it was before — it was because that mean ol' Gub'mint *forced* them to sell to unqualified buyers.

    Forget the fact that they were making a shit ton of money in the process, and all of the fraud involved in packaging known bad debts into obfuscating derivatives and rating them AAA ++ Good Good. That couldn't *possibly* have been the motivation. It was definitely The Gub'mintâ„¢.

    George Bush was president for eight years. And he had a triple-lock on the government for two of those eight years. But even though he managed to take the largest surplus in history and turn it into a raging deficit, it's the Democrats' fault.


    Because it's not about being rational. It's not about what does and doesn't work. It's about hating the Democrats and everything they do and stand for regardless of facts or reality. The GOP is not a political party, it is a cult.

  • John Johnson is right!
    In a nutshell – 'anything good is my doing and is done in spite of my opponents; anything bad is because of my opponents' thwarting my efforts to make things better for us all'. If I shoot a puppy and it dies, it's your fault for not [underpants gnomes!].
    People like simple. People demand simple. The press gives them simple, but unfortunately nowadays the press only gives people the GOP simple, which is "liberals bad; conservatives good!". Repeat enough and it becomes (and has generally become) the unquestioned, understood fundamental rule of political life. Then it's merely a matter of defining things as "liberal" and off you go. The sad thing is, attempting to redefine stuff back, by having respected, admired figures say "I'm liberal, and this is what liberals are.." is now pretty much doomed to failure. We're in Monty Python "She's a witch!" territory now. Changing what we understand is confusing and scary. This is bad. So we cling to our fervent beliefs even in the teeth of reality, complaining about the disruption in bar service as the Titanic sinks under us. I wish I could think of a solution, but I don't see one – perhaps our grandchildren will be able to make a fresh start, but in the meantime, I'm playing a lot of Fallout.

  • Does anyone think a GOP supermajority would actually make significant spending cuts? Remember dubya's 8 years?

    They'd make small politically-motivated cuts to the programs that democrats favor while increasing spending on programs that republicans favor. Net result might be a slight decline in spending. Remember, there's this war on terror thing that we need to spend hundreds of billions on because we *obviously* need more high-tech equipment designed to fight Russians.

    It's a hypothetical based on a hypothetical, neither of which are in the realm of possibility.

    That being said, very few economists would make the case that austerity makes much of a different in the short run, either way (when it comes to the US).

  • Monkey Business says:

    The only way to make meaningful dents in our deficit spending is the same as it's always been: cut military spending and entitlements. Everything else is like scraping the icing off a shit cake.

    Of course the military mostly votes Republican, and defense contractors aren't going to be happy with having their funding cut.

    Of course the elderly, who are the primary recipients of those entitlement benefits, vote in large numbers and are primarily Republican.

    So basically, if the GOP gets overrun with Teatards, and they magically come up with more political capital than any party ever, and manage to cut entitlement and defense spending, they're basically just shooting themselves in the face, because all those old and military voters that swept them into office will sweep them right out.

    We've reached a point where there is a group of voters that is no longer concerned for their own well being. They have their beliefs, and come hell or high water they will stick to them. There is something to be admired in their obstinate refusal to accept facts, logic, reason, or anything that doesn't fit with their carefully constructed worldview. At the same time, I'd really rather appreciate it if they quit trying to take a gigantic dump on America.

  • To be fair, the modern era of deficit spending has been correlated with high unemployment, stagnant wages, and increasing income inequality–the modern era for these purposes after the second world war, and the deficit spending beginning in 1980 or so, when deficits came about due to tax cuts and extra military spending. I don't think deficits caused those other things exactly, but they were part and parcel with the adoption a general set of conservatarian principles, which included tax cuts for wealthy people, financial deregulation, union marginalization, and a strong dollar policy. I am sure, however, that that's not the sort of argument conservatives would care to make.

    Before 1980, the federal budget was generally balanced when we were not in a major war. There were booms and busts, as well as some, um, categorical problems with social and economic equality (or mobility) if we go back very far. That's why I'm not convinced that debt has really correlated well on its own with bad consequences, and I imagine it has more to do with the social/economic environment and policies.

    (Although saddling us with debt right now, under any and all economic circumstances, is putting a lot of faith in long-term growth.)

  • Paul W. Luscher says:

    Look, it's the old distraction game. Since the Repubs know their ideas are the same old ones that got us into mess, and would not get them elected. they gin up a big uproar abou the "deficit"…which they created n the first place.

    See how easy it is to fuck up, blame it on the people who're trying to fix it, and use the whole mess to advance yourself even further?

  • After the mental blurt-reaction (overspending? think WRONG spending), I had a horrible moment of empathy for the low-rent tea baggers — not the John Birchers or the crypto-racists, but the poor, the disabled, the elderly folks who buy into the quasi-libertarian ideals marketed and sold by the party drivers. They are buying a fantasy vision of themselves as independent, strong, healthy, wealthy, and in control of their lives — all things they most certainly are not, right now, but would like to be. They may be self-defeating, hypocritical, hysterical, and stupid, but they are also very scared and feeling desperate. I honestly don't think they realize that their lots will worsen with GOP/Tea Party members in power.

    An old, poor neighbor lady of ours used to send money to a televangelist who lived like a king, and preached health and wealth to the faithful. He sold it, she bought it. The Koch brothers and their fellow travelers are no different.

  • Why on earth did Keynsian economics fall out of favor around the world? Didn't they learn about the paradox of thrift in Econ 101?

    Starving everyone until confidence returns is not going to make anything better. Soveriegn debt is not like personal debt.

    Why oh why are these people, and their chosen leaders, so ignorant to the basic facts?

  • Starving everyone until confidence returns is not going to make anything better.

    The beatings will continue until morale improves.

  • "Why oh why are these people, and their chosen leaders, so ignorant to the basic facts?"

    The people who follow may be ignorant about the outcome. The leaders know full well that the out come of their policies will cause the common man to suffer. The leaders are quite aware that they will be rewarded handsomely for kicking down and kissing up.

  • I get the impression that some of the theory behind this–not that your average teabagger knows this–is that too much sovereign debt makes businesses (who always seem to be shitting themselves) shit themselves monstrously and hold back on investment in new jobs, research, milk and cookies, etc. Reduce that sovereign debt–somehow–and businesses feel more confident about the long term future, tax-wise and all, and make more super great jobs.

    I dont' know how much evidence there is to support such a theory, nor do I buy it myself, but that's the theoretical basis I've inferred from some of the more considered anti-spending conservatives out there.

  • Historically speaking, ages with high unemployment are the direct result of reduced capital, which then obviously leads to companies shedding jobs because of reduced demand, etc. But this is not the case now. Large companies and banks have more capital at their disposal than ever before, they are just choosing not to invest it in the economy. Instead, as the NYT showed a few weeks ago, they are refinancing their debt because of low interest rates, buying up stocks, buying up bonds, etc. What we have seen over the last thirty years is the development of an alternate economy in this country for the select few; banks and other multinationals can make enormous sums of money without a necessarily healthy economy because of financial wizardry like credit-default swaps, investing in China and India, or simply hiding their money overseas. The main problem is that people in business are mainly stupid if not full-blown retarded; I remember in college thinking how all the BBA/MBA kids were essentially the least intelligent people on campus and how these fine, ethically-sound souls would be in command of the economy in the future (hence the reason why I did not invest in the stock market). Basically the only way that we are going to create well-paying jobs in this country is the Federal Government directly investing in American industry (not just half-assed tax cuts) to create jobs, nationalizing key industries and maybe even the banking system to direct money to areas that can actually create employment. Is this socialism? Yes! Its basically the same thing France, Germany, Italy, Britain, etc. did after the Second World War. Just sitting on our hands and waiting for Goldman Sachs to fix the economy is not going to do shit. But of course low taxes and deficit spending = jobs and magic ponies so this will obviously never happen.

  • @DS

    I think I am seeing the same thing…the glorious MBA path to "Masters of the Universe" these putzes all found as a "Get out of College FREE" card once they landed in college, indeed, such a route confirmed their Monopoly game-style worldview.

  • The position taken by republicans of cutting non-military spending is really just a 'dog whistle' for hurting the brown man? It is believed by the racists that African-Americans and Mexican-Americans benefit overwhelmingly from non-military spending, thus reducing 'entitlements' equals screwing over non-whites.

    Everytime some racist republican (redundant) hears cutting spending he thinks it means kicking some non-white off the dole.

  • Republicans borrow and spend. Democrats tax and spend (and thus are actually motre fiscally responsible). However, Americans these days don't want responsibility; they're rather borrow and spend and screw the country over.

  • I second DS's opinon regarding MBAs, and I've worked with A LOT of them.

    It's not that they're universally stupid but anyone who graduated from an MBA program post 1980 is absolutely without a conscience or even a thought for the damage they create with their new cost-savings measure or re-org genius, or that way they found to cut wages, benefits, or to just ship the whole damn thing overseas.

    Business is all about the obsessive focus on quarterly returns. There is no longer any long-term planning. Employees are expendible, platitudes have taken the place of pensions and any real innovation comes from the myriad of small companies that large companies buy out in droves all while shitcanning the people who actually made the companies successful.

    When I think of the real purpose, it is to protect its citizens. We have a bloated military that can fight several wars simultaneously but we've completely ignored the biggest threat to our financial lives – unregulated corporations.

    Without serious and sometimes heavy-handed regulations, they will continue to scuttle the lives of their employees on a whim and leave them to scramble to find the next company that will extract every ounce of energy they have until they decide to throw them on the scrap heap.

    Without unions and government oversight, the average working stiff no longer has a realistic expectation of any kind of stability or financial security. When I see these tea bagger dolts fighting to protect their abusive masters, I wonder just how much brainwashing it took to get them to never take a closer look at the severe screwing we've all taken since old Ronnie Reagan decided to starve the beast.

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