The Sequester Debacle in the US

[Clinton Huxley]

Germany is now also faltering.

It must be the Yellow Peril. Kaiser Bill might have been onto something after all.

It don't look good, I shall be having a quiet word with cousin Jackie about the Naval Estimates.

[laklak]

Despite the late unpleasantness, the Kaiser had his good points.

[Clinton Huxley]

Despite the late unpleasantness, the Kaiser had his good points.

He was a dab hand at table tennis.

[Coito ergo sum]

Hey lookee here, red bars and blue bars. It's all history now.
http://www.whitehouse.gov/infographics/us-national-debt

No no no. 1.4 trillion as the cost of both the wars in Iraq and Afghanistan? And labeling all the domestic and defense spending as Bush policies? Do you seriously believe that bullshit?

I don't think they should've labeled all the domestic and defense spending as Bush policies, though the spending on them (esp. defense) did increase a lot during the Bush years. But I do think the big grey one at the top ought to have a good tint of red to it.

There seems to be a major line of thought out there that Obama is on some kind of unprecedented spending spree. When confronted by contradictory information, dismissing it as "bullshit" helps to avert what might be an uncomfortable discussion.

As The Architect says, "Denial is the most predictable of all human responses."

He's on an unprecedented deficit spending spree. I mean, it is uncontroverted that he raised the debt in 4 years more than Bush did in 8. The only answer given to that is "it's Bush's fault, because Bush's policies required Obama's administration to continue spending...." -- that kind of thing.

[Ian]

It's uncontroverted, really? The US federal debt when Bush took office was under $6T and actually shrinking a bit. When Obama took office it was around $12T, and it's about $16T today. So that means the rate of spending is higher if you want to divide the latter difference by four and the former by eight, but there's a rather huge mitigating factor to consider there, besides "Obama's on a spending spree": the recession. Nevermind blaming Bush for what Obama inherited, but do you suppose the recession (however it started) might've also had a huge impact on the amount of debt that was generated during the last few years? I'd say so. Along those lines, what do you suppose Obama should've done coming into office in the middle of a massive recession - cut spending? That flies in the face of so much history and sound economic principle that it's not even funny. It's a miracle he's been able to constrict government as much as he has, which is something which I'm rather opposed to btw.

[Warren Dew]

It's not like Bush didn't inherit a bursting bubble too.

Harding cut government in the face of a recession and prevented it from becoming a depression.

[FBM]

OK, so now what? Global economy going to take a shot in the gob over this or what?

http://edition.cnn.com/2013/03/01/polit ... ?hpt=hp_t1

Countdown to spending cuts: A matter of hours

Washington (CNN) -- With no deal in place in Congress, $85 billion in sweeping federal spending cuts will take effect Friday, targeting everything, from defense to education.
There is little hope of a last-minute deal to stave off the automatic cuts after the Senate failed to strike a deal and a large number of the members of the House left Washington on Thursday for the weekend.
The pending budget cuts are the result of impasse along primarily party lines, whose origins stem from an August 2011 deal to increase the debt ceiling.
Expectations are low that a meeting Friday morning between President Barack Obama and congressional leaders will yield a solution.

...

Story continues in link, link has vid.

[Tyrannical]

A shame it's only $85B.

[FBM]

A shame it's only $85B.

Yeah, but if this happens a few more times, eventually we'll be talking real money.

[Coito ergo sum]

It's uncontroverted, really? The US federal debt when Bush took office was under $6T and actually shrinking a bit.

This is a myth. It was not shrinking. Public debt went down, yes, but the total national debt went up every year under Clinton. National debt = public debt + intragovernmental holdings (another kind of debt). So, while public debt did go down, intragovernment holdings went up by a greater amount, and the national debt went up as a result.

That isn't to defend Bush's spending. It's a point of accuracy. If you want to say "public debt" went down, sure. Fine. But, public debt is only part of the national debtsd.

When Obama took office it was around $12T, and it's about $16T today. So that means the rate of spending is higher if you want to divide the latter difference by four and the former by eight, but there's a rather huge mitigating factor to consider there, besides "Obama's on a spending spree": the recession. Nevermind blaming Bush for what Obama inherited, but do you suppose the recession (however it started) might've also had a huge impact on the amount of debt that was generated during the last few years? I'd say so.

So, you find it justified. That doesn't mean spending wasn't higher. It was higher. You just think it was justifiably so. One might also defend Bush in the same manner. Clinton had a much better budget situation, but then again, Clinton didn't have to address 9/11/01 either and fight a war in Afghanistan, and boost the military budget as a result, etc. Those who favor Bush's policies post-9/11 can also point all that out as "rather huge mitigating factors." In their opinion...

Along those lines, what do you suppose Obama should've done coming into office in the middle of a massive recession - cut spending? That flies in the face of so much history and sound economic principle that it's not even funny. It's a miracle he's been able to constrict government as much as he has, which is something which I'm rather opposed to btw.

Yes, actually. But, the devil is in the details. It's the KIND of spending that matters. And, just because it flies in the face of Keynesian economics doesn't mean that it flies in the face of all sound economic principles.

He hasn't "constricted" government at all. No President in living memory has. That kind of statement bugs me. It's like the claim that "spending was cut." Nobody has cut spending. Sure, one or another program was cut, but overall spending always increases.

The Keynesian view that the spending is stimulative assumes that the funds the government borrows would not otherwise have been invested in the private capital market, but came simply from cash held in hoards by individuals from under the mattress, as it were. In addition, it assumes that there are unemployed resources that can readily be brought into the work force by activating the excess funds held by individuals, without raising prices or wages.

That is a possibility in some special cases, such as the Great Depression in the 1930s, when there had been a major reduction in total output and prices were very far from their equilibrium level. More generally, however, theory suggests and experience confirms that government spending financed by borrowing from the public does not provide a stimulus to the economy.

Japan provides a dramatic recent example. During the 1990s, the Japanese economy was depressed. The government tried repeated fiscals stimulus packages, each involving increases in government spending financed by borrowing. Yet -- or maybe therefore -- the Japanese economy remained depressed.

-Milton Friedman

And, he wrote --

An increase in government spending clearly benefits the individuals who receive the additional spending. Considered by itself, it looks as if the additional spending is a stimulus to the economy.

But that is hardly the end of the story. We have to ask where the government gets the money it spends. The government can get the money in only three ways: increased taxes; borrowing from the public; creating new money. Let us examine each of these in turn.

■Additional taxation. In this situation, the dollar cost to the persons who pay the taxes is exactly equal to the dollar gain to the persons who receive the spending. It looks like a washout.

Getting the extra taxes, however, requires raising the rate of taxation. As a result, the taxpayer gets to keep less of each dollar earned or received as a return on investment, which reduces his or her incentive to work and to save. The resulting reduction in effort or in savings is a hidden cost of the extra spending. Far from being a stimulus to the economy, extra spending financed through higher taxes is a drag on the economy.

This does not mean that the extra spending can never be justified. However, it can only be justified on the ground that the benefit to the people who receive the spending, or to the community from the activity to be financed by the spending, is greater than the direct harm to the taxpayers plus the hidden cost. It cannot be justified as a way to stimulate the overall economy.

And,

Government spending financed by borrowing from the public. Individuals who purchase the securities that finance the additional expenditure would have done something else with the money. If they had not purchased the government securities, they presumably would have purchased private securities that would have financed private investment. In other words, government spending crowds out private investment. At this level, it is again a washout: those who receive the extra government spending benefit, but the private investors, who are deprived of the same amount of funds, lose.

But again, that is too simple a story. The overall effect is an increase in the demand for loanable funds, which tends to raise interest rates. The rise in interest rates discourages private demand for funds to make way for the increased government demand. Thus, there is a hidden cost in the form of a lowered stock of productive capital and lower future income.

[Coito ergo sum]

The answer as to spending is "it depends on where the money comes from and how it is spent." The Keynesian model posits that it really doesn't matter much where the government gets the money and it doesn't much matter how it is spent. That basic aspect of Keynesian economics does not strike me as being very persuasive.

[pErvinalia]

I find these Obama vs Bush things a bit ridiculous. They are both neoliberals. Neither of them is functionally that different from the other. Well, actually I have seen some graphic which suggested that Bush spent like a drunken sailor compared to other presidents, but Bush was an atypical president. Democrat or Republican on the economy isn't really that functionally different, as long as we are talking about the moderate centre of each party.

[Coito ergo sum]

It's not like Bush didn't inherit a bursting bubble too.

Harding cut government in the face of a recession and prevented it from becoming a depression.

Very true -- in Bush's 1st year the Clinton Budget through September 30, 2001 had a $133 billion deficit, which is, of course, looking back, a dream. But, the point is that already things were teetering under Clinton. Then 9/11 happened. So, for Bush there were mitigating factors too.

But, both Presidents and their Congresses spent way too much. Yes, I opposed the deficit spending under Bush, but I oppose it more as debt becomes a higher and higher percentage of GDP.

[FBM]

Merged with my thread on the same topic.

[pErvinalia]

Merged with my thread on the same topic.

I was confoozled!