Krugman’s Blog, 2/7/13

There were 3 posts yesterday.  First up was “The Undecade:”

John Boehner speaks:

“At some point, Washington has to deal with its spending problem,” Speaker John A. Boehner of Ohio said Wednesday. “I’ve watched them kick this can down the road for 22 years since I’ve been here. I’ve had enough of it. It’s time to act.”

22 years, huh? Indeed, Boehner was elected in 1990, and entered the House at the beginning of 1991. So what kind of can-kicking was going on during his first, say, decade in office? Here’s the picture:

Hmm — it sort of looks as if the US was sharply reducing its debt during the presidency of a guy named, I don’t know, Bill something or other.

OK, joking aside, this is important. Republicans have invented a history in which it has been fiscal irresponsibility all along — and far too many centrists have bought into the premise. The reality is that we had low debt and no fiscal problem before Reagan; then an unprecedented surge in peacetime, non-depression deficits under Reagan/Bush; then a major improvement under Clinton; then a squandering of the Clinton surplus via tax cuts and unfunded wars of choice under Bush. And yes, a surge in debt once the Great Recession hit, but that’s exactly when you should be running deficits.

The point about the fake history that expunges the Clinton years is that it turns the budget into a story in which nobody is at fault because everyone is at fault, and the problem is a generic issue of runaway spending. No, it isn’t; we would have come into this crisis with very little debt if the GOP hadn’t always insisted on tax cuts.

The next post of the day was “The Human Disaster:”

Catherine Rampell:

While about 8 percent of Americans are unemployed, nearly a quarter of Americans say they were laid off at some point during the recession or afterward, according to the survey. More broadly, nearly eight in 10 say they know someone in their circle of family and friends who has lost a job.

Of those laid off in recent years, nearly a quarter said they still had not found a job. Re-employment rates for older workers have been particularly bad, with nearly two-thirds of unemployed people 55 and older saying they actively sought a job for more than a year before finding one or had still not found work.

But the Very Serious People — who, I would guess, are for the most part members of the 1 in five who *don’t* have anyone in their circle who lost a job — insist that all of this is as nothing compared with the threat from invisible bond vigilantes.

The last post of the day was “Spending Cuts and Monetary Policy:”

I’ve often argued on this blog and in the column that now is a particularly bad time to cut spending, because unlike in normal times, the adverse effects on demand can’t be offset by cutting interest rates. One way to highlight the point is to compare where we are now with a historical episode: the fairly large cuts in federal purchases of goods and services that took place in the early 1990s, as the US military shrank with the end of the Cold War. Here’s federal consumption and investment spending as a share of potential GDP (blue, left scale) versus the Fed funds rate (red, right scale):

The Fed could and did cut rates, helping to cushion the impact of spending cuts. It can’t do anything like this now, because the Fed funds rate has already been cut more or less to zero in an attempt to fight the effects of financial crisis.

Austerity right now is a really, really bad idea.

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One Response to “Krugman’s Blog, 2/7/13”

  1. Karl McClendon Says:

    I guess there would be no reason to discuss economics if there was a starting point from which one postulates, makes assumptions, compares and concludes. But as Mr. Krugman has so often said the Chicago group continues to debunk his theories with less than factual information. I would add and I’m sure there have been entire forests gleaned to provide the paper sufficient for economists to explain why they are the leading thinker in the field of gloomy statistics. Why is it all the economists are able to successfully tell us why things went bad, but no one can repeat the experiment in the present? Don’t imagine politics plays a role. But if social sciences are to be taken seriously, i.e, used to implement and devise an improvement than one must have a school of thought or two or three whereby they introduce their subject matter with facts that are comparable. Everyone simply nitpicks. Yet they get prizes and priceless speaking engagements, books and what not and all for a veritable collection of unsubscribed wealth of information. I can imagine Mr. Krugman and Mr. Stiglitz adjusting their monitor as they type today’s 5000 word essay on why they are right and the other side is wrong. You shouldn’t entertain us with your bravado. You should make your ideas catalysts for change. I believe u think u have done all u can do realistically. Perhaps. If so write a novel which will make it to the best sellers list with economic twists and easily defined narrative which maintains interest at a level intelligent thoughtful individuals could be preoccupied with. I say this because every time I read your articles I am inclined to think I am one of the characters in “South Park”. The one who scratches his head and wonders what’s going on? Why can’t the rest of them see this is so? And of course they never do.

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