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* From former domestic policy adviser to President Ronald Reagan and Treasury official under President George H.W. Bush Bruce Bartlett…
I think when the history of the current crisis is written much of blame will be placed on the sharp fiscal contraction of state and local governments, which offset almost all of the fiscal stimulus at the federal level. I think economists will view this as a preventable error equivalent to the Fed’s passive shrinkage of the money supply in the early 1930s.
Many others, including myself, have been warning about this very real phenomenon for well over a year now, but DC just isn’t paying attention.
Bartlett backs up his claims with some recent studies…
A June 3 report from the National Governors Association and the National Association of State Budget Officers shows that the states have cut aggregate spending by $74.4 billion, or 10.8 percent, since 2008. The expiration of $55 billion in temporary federal aid to the states could lead to further substantial spending cuts beginning on July 1.
Budget expert Stan Collender warned on June 8 that a sharp cutback in state spending mandated by state balanced budget requirements could have a negative effect on the economy as a whole. […]
A May paper from the Institute for the Study of Labor looks at the distributional consequences of cutting the pay of public sector workers based on the recent experience of Ireland. […]
A February study by economists Joshua Aizenman and Gurnain Kaur Pasricha found that fiscal contraction in the states offset almost 100% of the fiscal stimulus at the federal level in 2009.
Via a friend who saw it first at Ezra Klein’s place.
posted by Rich Miller
Tuesday, Jun 15, 10 @ 1:11 pm
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As usual, the problem is that government is not fleecing the taxpayers more instead of… *Gasp* sound financial planning in the first place.
Comment by John Bambenek Tuesday, Jun 15, 10 @ 1:24 pm
The House version of the stimulus had some major money dedicated to state budget stabilization. Ben Nelson (D-NE) led the charge in the Senate to remove that funding. The Senate version also dumped a lot of capital funding for shovel-ready projects that would have jump-started construction hiring.
Nelson must think the D stands for doofus. Illinois, California and other states are too big to fail, and Obama’s request for state and local budget relief needs to be passed as soon as possible. I would hope even Republicans would see the need for this type of economic policy despite the deficit.
But as usual, I won’t hold my breath waiting for Republicans to do the right thing.
Comment by 47th Ward Tuesday, Jun 15, 10 @ 1:24 pm
47th, I don’t quite follow how you at one point blast at least one Democrat, then claim it’s the GOP’s fault. The president should’ve pushed much harder, plain and simple.
Comment by Rich Miller Tuesday, Jun 15, 10 @ 1:26 pm
Well that is an opinion.
A contrasting opinion might point out that the stimulus package artificially propped up the economy and set us up for a crash in the future. All the while strapping the nation with debt that will reside on the shoulders of future generations. From this perspective one could argue that the best answer was to allow the economic correction to happen and rebuild from the rubble.
Not sure I believe this perspective, but figured I’d play a little devil’s advocate.
Comment by A.B. Tuesday, Jun 15, 10 @ 1:29 pm
I agree. The problem has been that to spur our economy we need to circulate more money. Th current budget hole represents a roughly 13billion loss to Illinois economy; not to mention the loss from the cutbacks etc.
I would go further and say a tax increase could have addressed this together with additional fed stimulus.
Comment by Ghost Tuesday, Jun 15, 10 @ 1:33 pm
Sorry Rich, I conflated two points and the result was a mushy comment.
Nelson is the Senate’s most conservative Democrat. He led the charge to water down the stimulus bill, in an effort aimed at securing Republican votes. As we know, that effort failed miserably.
Now the issue is federal aid to states and local governments, and Obama is pushing hard. Economists from a variety of political view points are in general agreement that this needs to happen. I suspect the Republicans in Washington will ignore the economists and listen instead to their political consultants.
Party before country, once again.
Comment by 47th Ward Tuesday, Jun 15, 10 @ 1:41 pm
Rich, its not that DC is ignoring the fiscal problems that locals are facing, its that another bailout (especially one for government) is just politically unpalatable. They dont want to vote on it.
Comment by not sure Tuesday, Jun 15, 10 @ 1:47 pm
If DC is not paying attention, neither are voters writ large. The stimulus is unpopular in polling across the board, as is the idea of local project/government support. “Party before country” is a nice slogan, but ultimately “listening to their political consultants” is what keeps politicians employed.
Comment by Dirt Digger Tuesday, Jun 15, 10 @ 1:54 pm
DD, what you’re missing is the long game. If the economy continues to tank, the voters will just get angrier.
Comment by Rich Miller Tuesday, Jun 15, 10 @ 1:55 pm
The statement referred to the feasibility of pushing more stimulus, not its wisdom. I’m happy to entertain proposals to push policy in the face of massive opposition and also stop the opposition party from capitalizing on it.
Comment by Dirt Digger Tuesday, Jun 15, 10 @ 2:02 pm
Economies don’t grow by borrowing, unless what is bought with the borrowing gains value enough to offset the costs of borrowing.
There is a difference between spending credit to purchase an asset, and spending credit to buy food. We’ve been spending credit to make ends meet for over a decade in Illinois.
Imagine trying to raise the water level of a swimming pool by taking water out of the deep end, and then dumping into the shallow. The waves you created shows action, but in the end, the water level doesn’t go up. That is what happens when you borrow money. You take money already in the economy and simply divert it. If you do not use the money to purchase additional productivity or value, then the economy will not grow.
If we had money that was being saved and wasn’t in the economy, then we could raise the economy by having that saving spent. But that isn’t the situation we are in.
Our economic growth over the past twenty years is due to additional productivity thanks to technologies. That productivity offset the costs of borrowing. The value of the productivity caused the economy to grow. That isn’t happening now.
Too much of the Stimulus went to food. Consequentially the costs of borrowing the trillion wasn’t offset by the level of economic growth necessary to pay off those borrowing costs, which has worsened our situation.
We will likely see a double-dip recession if we aren’t already in one.
Comment by VanillaMan Tuesday, Jun 15, 10 @ 2:11 pm
I just left the Thompson building a few hours ago. There was someone trimming the bushes and another guy on a mini street sweeper cleaning in front of the building. My first thought was “Is that type of work actually a priority?” Maybe we could save a few pennies chopping those jobs. Then I wondered why should a guy working hard at a job that, in the long run, is important to maintaining a state asset be the one to feel the pain. He probably could least afford it and him losing his job would cause reverberations back into his own neighborhood. Him and his family would spend less and that means less for businesses where he spends. While I think spending stimulus money on construction projects brings the most bang for the buck, there is also justification to just keeping people employed as long as they are doing something constructive.
Comment by Been There Tuesday, Jun 15, 10 @ 2:33 pm
Deficit spending saved the economy for Ronald Reagan, and it is the solution for the US now. The US can create $ out of thin air and should do it until inflation is a real threat. Right now deflation is what the economy is fighting off.
Comment by Lefty Lefty Tuesday, Jun 15, 10 @ 2:52 pm
Mr. Bartlett’s comments reflect his existence in the federal silo where he is unable to see the rest of the world. It is silly to try to argue that state and local governments are to blame for the recession because they cut back when faced with falling revenues. State and local governments can’t print money like the feds. They have no alternative but to cut back. What does he think state and local governments should have done in response to the world wide recession?
Comment by One of the 35 Tuesday, Jun 15, 10 @ 2:54 pm
The dems should propose an immediate rescinding of the Bush tax cut if they are serious about funding this. I don’t know the numbers but I am guessing this return to Clinton level tax rates would more than offset this sharing of taxes with the states. You can’t put all the blame on the Republicans.
Comment by Vole Tuesday, Jun 15, 10 @ 2:57 pm
===You can’t put all the blame on the Republicans.===
How many GOP votes do you think exist for an immediate sunset of the Bush tax cuts?
Comment by 47th Ward Tuesday, Jun 15, 10 @ 3:03 pm
“How many GOP votes do you think exist for an immediate sunset of the Bush tax cuts?”
That would be zero. Negative zero.
And few dems too. That is the point. They are for zeroing out spending but won’t back that up with some sacrificial actions.
Comment by Vole Tuesday, Jun 15, 10 @ 3:07 pm
So I can only put 95% of the blame on Republicans? I can live with that.
Comment by 47th Ward Tuesday, Jun 15, 10 @ 3:10 pm
One of the realities of being in the majority is that you are the party with the power to effect change. Obama and congress passed the health care bill. They appear to be unstoppable. But there is 47th Ward, heaping it on the GOP again. Really, why would the dems want to share all the glory for solving this financial mess? A president with personal power can effect that kind of change by appealing to both sides. Reagan did it with his tax code revamp. Johnson did it with his civil rights laws. But you have to start with the party in power and cross the aisle for help as it is needed and valued. It won’t happen if you abdicate your responsbility as the party in power and blame it on the other party. People see that for what it is. Failure to lead.
Comment by dupage dan Tuesday, Jun 15, 10 @ 3:11 pm
Been There-
If you had a meeting in the Thompson Center all you had to do is look down at the carpet or use a restroom to understand that upkeep isn’t a “priority”. The place is a dump.
One of the 35-
You’re missing the point. He’s not blaming them for cutting spending, they have no choice. He’s simply pointing out that DC is ignoring the recession’s on states’ spending, and the effect of the reduced spending on the nation’s economy.
Comment by Wizard of Ozzie Tuesday, Jun 15, 10 @ 3:15 pm
In one sense, the analysis is very correct. An immediate loss of hundreds of thousands of jobs in the state and local government sector does have a negative affect.
HOWEVER, why did the State and the local governments get into this situation should be the real question. When times were great, programs were expanded, capital projects were undertaken (ever look at how many new Village Halls, police stations, libraries, etc. were built in the last decade?) and pensions were escalated. There have been fundamental problems with just about EVERY state and local budget for the past decade. Yes - Rich, I give you a lot of credit. We don’t agree politically on a lot of things, but you have mentioned quite often the problems with underfunding the pension. We might disagree on the solution, but you were at least pointing out the problem, which many just kept ignoring.
We have built up state and local spending which was only sustainable with high revenues, which were high because of lots of sales tax dollars and higher wages. Instead of looking at this with the thought of “gee, we are doing really well, maybe we should pay off debt or sock some money away”, too many just found extra ways to spend the money. Now were are in a pickle and now we have lots of layoffs, which are counterbalancing the Federal stimulus.
Comment by Ghost of John Brown Tuesday, Jun 15, 10 @ 3:15 pm
Rich: “DC just isn’t paying attention.”
Oh they’re paying attention, but GOPers and too many Dems at the state and federal levels are bought into the disastrous idea that deficit reduction will somehow create or save jobs - or that a paycheck is somehow more valuable to a family and a local economy if it comes from a business than a teacher or police officer (see STAR bonds).
Even IL Congressional Dems like Quigley, Lipinski and Costello have shown - by their inaction on the pending bill to extend unemployment benefits and Medicaid help to states - that they just don’t get it, with potentially devastating consequences for the economy.
Comment by Reality Check Tuesday, Jun 15, 10 @ 3:21 pm
I can see Bartlett’s point, but I think he might be overstating the significance.
So much of the economic growth in recent decades was dependent on housing and consumer debt. Housing remains in the tank and people aren’t flashing the plastic like they used to.
Comment by wordslinger Tuesday, Jun 15, 10 @ 3:23 pm
GoJB: That is why we need a combined shot of short term revenue and a simultaneous trimming of the sails to find balance in what appears to be a prolonged, long term recession. Government spending just has to be cut down to what is sustainable. We have to find what we are willing to pay for — less than what we currently have. So far, our leaders can’t find their direction down this path.
Comment by Vole Tuesday, Jun 15, 10 @ 3:30 pm
===Reagan did it with his tax code revamp===
Which was authored by Dan Rostenkowski and Bill Bradley.
===Johnson did it with his civil rights laws===
Which passed with the votes of Northeastern GOP Reps and Senators and was opposed by Dixie Democrats. Today there are few NE GOP members and almost every Dixie Democrat morphed into to the GOP, which exploited civil rights under the Nixonian “Southern Strategy.”
===Obama and congress passed the health care bill===
Without a single GOP vote despite major policy concessions designed to reach out for GOP support.
Dan, what would it take for the GOP to put some votes on an Obama-sponsored economic recovery plan? What would it take for Pat Quinn to get some GOP votes for a fiscally responsible budget?
You’re right though. People do see it for what it is.
Comment by 47th Ward Tuesday, Jun 15, 10 @ 3:32 pm
47 you should call your own Congressman. Mike Quigley right now is part of the problem: Blue Dogs in the House that have voted against, stripped down and stood in the way of jobs legislation last year and now.
Comment by Reality Check Tuesday, Jun 15, 10 @ 3:55 pm
I would suspect that there was also a contraction of state and local government in the Great Depression, on top of a contraction in the federal government (under Hoover at the beginning and even under Rooseveldt in the late 30’s) and the bank failures. True, state and local governments are bigger now than they were then, but expansion of the relatively even bigger federal government and the existence of deposit insurance today are a big offset.
Comment by Pat Robertson Tuesday, Jun 15, 10 @ 4:03 pm
Quigley is neither technically (http://www.house.gov/melancon/BlueDogs/Member%20Page.html) nor actually a Blue Dog.
Comment by Dirt Digger Tuesday, Jun 15, 10 @ 4:05 pm
This is a tired argument re the health bill. Obama had nearly finished the process and held a dog and pony show for the media. I do NOT call that cooperation. But you stick with that story if it makes you feel better.
Really, now, we can pick fights with each other over this stuff. Not hard to do. Enough subjectiveness to the whole thing that all involved sides can be blamed. This info scares the bejeebees out of me. It doesn’t seem as tho anyone in a position to do something about it can figure out what is going wrong and what to do about it. I am always game for the back and forth but somehow am not enjoying this very much.
Comment by dupage dan Tuesday, Jun 15, 10 @ 4:10 pm
Ralph Martire of the Center for Tax & Budget Accountability has been a voice in the wilderness warning about the harmful effects on the economy when the State slashes spending and fails to pay its bills. At a time of rising unemployment, this State policy causes the lay off of tens of thousands of workers when the State doesn’t pay their agencies or greatly contracts funding. With fewer people working, State revenues continue to contract and it’s a vicious circle.
Comment by Reformer Tuesday, Jun 15, 10 @ 4:17 pm
Massive overspending at all levels of government was the catalyst for this economic mess. I’ve never heard a credible argument for an economy crashing because they government wasn’t spending (or printing) enough. The consumer debt ratio is finally falling and might be at acceptable levels in a couple of years at this rate. If the governments at all levels can follow this common sense strategy, our path to recovery will be much shorter. The course we’re on now only prolongs the inevitable.
Comment by Steve-O Tuesday, Jun 15, 10 @ 4:24 pm
===I’ve never heard a credible argument for an economy crashing because they government wasn’t spending (or printing) enough.===
You never heard about Herbert Hoover or the Japanese? Are you that daft?
Comment by Rich Miller Tuesday, Jun 15, 10 @ 4:32 pm
One half of the $787 billion stimulus package is currently unspent. Instead of some new pie-in-the-sky son-of-stimulus package, reprogram the unspent funds.
During good times, governments increase in size beyond the size they need to be. Why is it that year in and year out we see ever increasing numbers and pages of laws, statutes, regulation and edicts from lawmakers? Is all this regulation necessary? Were the laws of 10 years ago so bad that we need to create tens of thousands of pages of new regulations to modify them? Each page of new law creates a burden on the citizens, taxpayer and businesses in Illinois. Each page requires a bureaucrat to monitor, police, and determine compliance. We need a serious discussion on the proper role of government.
Comment by Cincinnatus Tuesday, Jun 15, 10 @ 4:44 pm
Quigley is neither technically (http://www.house.gov/melancon/BlueDogs/Member%20Page.html) nor actually a Blue Dog.
You can call him whatever you want, but like the Blue Dogs he voted against the jobs bill in December and like the Blue Dogs he is a problem on the current bill right now.
Meanwhile his biggest legislative “accomplishment” to date is co-sponsoring a sense of the house resolution on deficit reduction (with Blue Dog Jim Cooper).
At a minimum, Mike Quigley needs to clearly and unequivocally support the president’s efforts to stop massive layoffs at the state and local lvels. He’s failed to do that so far.
Comment by Reality Check Tuesday, Jun 15, 10 @ 4:47 pm
VM….It’s getting tiresome listening to you continue with your crowding-out argument applied to our zero bound interest rate environment. Businesses aren’t investing because we have excess capacity and not enough demand!!! Government borrowing isn’t crowding-out private investment. We’re facing a double-dip recession because Obama failed to provide ENOUGH stimulus, especially for infrastructure improvements and local and state government budgets. Get off the supply-side economics kick.
Comment by Louis Howe Tuesday, Jun 15, 10 @ 4:54 pm
Mr Howe,
When McDonalds decided to compete toe to toe w/Starbucks in the specialty coffee business it couldn’t secure financing because banks were not willing to lend. McDonalds. I’ll say it again, McDonalds. And you say they aren’t investing. You are right, they aren’t. Because they find it difficult to borrow. Is the fed crowding the businesses out due to their borrowing? Are the banks gun shy? That can be argued. But, businesses are trying to borrow. My brother was in a partnership in a small business in Wisc. Wanted to expand. Banks wouldn’t lend. Business is now shrinking because they can’t capitalize. Anecdotal evidence, to be sure. But McDonalds?
Comment by dupage dan Tuesday, Jun 15, 10 @ 5:01 pm
For a good discussion of what can happen when an otherwise healthy and influential state is addicted to borrowing and gets in over its head, read Citizens, Simon Schama’s moderately light (under 900 pages) history of the French Revolution. We think we can do what we want and there will be no consequences. So have others.
Comment by Excessively Rabid Tuesday, Jun 15, 10 @ 5:03 pm
===But, businesses are trying to borrow.===
Well, no kidding, but banks are paying off their own bad debts rather than lending money. When businesses make money, they tend to pay off their debts instead of spending. Consumers, the same. With so little spending, somebody has to do it.
Comment by Rich Miller Tuesday, Jun 15, 10 @ 5:04 pm
Hog wash. This theory is what got us in the mess that we are in today. The Feds saying we will send you X dollars if you put in X dollars. The States didn’t have the dollars so they borrowed them. What we need is production not services.
Comment by Hickory Tuesday, Jun 15, 10 @ 5:04 pm
===This theory is what got us in the mess that we are in today.===
Actually, that was a much different “theory.”
Comment by Rich Miller Tuesday, Jun 15, 10 @ 5:06 pm
Rich how big does the deficit have to get before you believe it is a problem. We can not continue to spend money we dont have. When the USA tanks like Greece we will be in for more than a lost decade it will take 25 plus years to recover. Printing more and more money can not go on forever. The medicine (Budget cuts)doesnt taste good but its the only way to stabalize the economy for the long run.
Comment by fed up Tuesday, Jun 15, 10 @ 5:32 pm
Dupage Dan….
Somehow McDonalds entered the high end coffee business, because I paid $1.63 for a large black coffee just a few days ago. Banks may not loan money to business, but it’s not because the government is floating more debt. McDonalds has unfettered access to the capital markets from issuing more stock to commercial short term paper. It’s not a problem at these rates compared to McDonald’s rate of return on capital.
Comment by Louis Howe Tuesday, Jun 15, 10 @ 5:42 pm
Let’s just keep spending, even though we don’t have the money! Just print and borrow everything we can. Keep building up the house of cards.
The state & local governments can’t print money, so they have to live within their means (except for states like Illinos, California & NY, who just borrow when they run out of money). The federal government should be following suit.
I don’t want to hear the lame “Herbert Hoover” and “Japanese” argument. The federal reserve bank created the mess back in 1929, along with insider trading from guys like Joe Kennedy (the Father of Insider Trading). And Japan had what, 6 “stimulus plans”? And none of them worked. But, yeah, I’m sure it’s because they just didn’t spend enough.
Comment by Steve-O Tuesday, Jun 15, 10 @ 5:43 pm
Steve-O, your ignorance about Hoover, the Depression and the Japanese is only exceeded by your blustery willingness to make a fool of yourself.
Comment by Rich Miller Tuesday, Jun 15, 10 @ 5:47 pm
Why is it that liberals hate everything about Ronald Reagan’s economics…yet they’re always willing to quote his former advisers 30 years later when they make a comment that fits their own argument?
Comment by Steve-O Tuesday, Jun 15, 10 @ 5:51 pm
It goes back to the stimulus vote last year. The critical swing votes — Collins, Snowe and so on — wanted the extra state money out of the stimulus, and they got their way. I realize there’s a serious problem/lack of activity during 2010 by Democrats, but that was the price extracted by Republican swing votes in 2009.
And what did those swing votes demand instead of a state safety net? Tax cuts that scored absolutely horribly on any kind of cost benefit analysis. But empirical economics long since ceased to matter to “moderate” Republicans, and it never has mattered to “conservatives.”
That’s right. Stimulus items that scored well above a one on a cost-benefit were replaced by items that didn’t even score 0.5, because otherwise swing votes would not come aboard for the stimulus.
So the next time you hear someone blathering on about needing to reduce the deficit, just remember their priorities. They’re usually so skewed as to amount to rank hypocrisy.
Comment by Angry Chicagoan Tuesday, Jun 15, 10 @ 5:52 pm
If anyone can explain what Obama could do to get through to some of the conservative posters on this website, I’m all ears.
In the absence of that, the conservative base is enough to keep the Senate GOP in firm filibuster-opposition to any more stimulus. And I’m at a loss as to what Obama is supposed to do about that. It’s like saying Quinn should have “pushed much harder” to get Tom Cross to approve an income tax increase. The partisan gridlock is even worse in D.C. than it is in Springfield.
Comment by ZC Tuesday, Jun 15, 10 @ 6:09 pm
The Hoover part of the depression was more due to a collapse in international trade due to governmental protectionism.
Advocating infinite spending increases without revenue sources with immense increases in future entitlements is laughably irresponsible.
Comment by Plutocrat03 Tuesday, Jun 15, 10 @ 6:19 pm
ZC–O has no demonstrable economic knowledge or business experience. His ignorance is getting through loud and clear. The stimulus and health care laws were govt largesse 30 years in the waiting by the left wing of the Dem party.
Hoover’s economic plans were not much to write home about, though he tried. And some folks today argue that FDR policies (which O seeks to mimic) extended the Great Depression. As a general matter, govt spending and taxation crowd out private economic activity, the latter which we need for sustained economic growth. Printing more & more money is dangerous. See Weimar Republic, eg.
I’m generally of the view that budgets should not be manipulated for the sake of effecting a particular economic condition. The primary goal of a budget is to fund the agreed upon, necessary activities of the government–and no more. Needless to say, we are quite far from that ideal. I don’t expect a return to such ideas, however.
I’d recommend reading some Milton Friedman to understand better this and other economic problems we face.
Comment by Peggy SO-IL Tuesday, Jun 15, 10 @ 6:38 pm
Plutocrat03….Smoot Hawley was passed in June 1930 after the depression was well under way. In 1930 International trade was a minor part of the U.S. economy. You are echoing Hoover’s line that the depression started in Europe, ignoring that the U.S. Agriculture (1/3 of US economy) had been in a severe slump starting in the early 1920s….This line didn’t work for Hoover in 1932, but he kept playing that tune until his death 30 years later. Get over it.
Comment by Louis Howe Tuesday, Jun 15, 10 @ 7:07 pm
“In the absence of that, the conservative base is enough to keep the Senate GOP in firm filibuster-opposition to any more stimulus. And I’m at a loss as to what Obama is supposed to do about that. It’s like saying Quinn should have “pushed much harder” to get Tom Cross to approve an income tax increase. The partisan gridlock is even worse in D.C. than it is in Springfield”
Except the Dems in Springfield dont need any GOP votes but libs still like to spread the Blame. The person’s stopping the tax increase were Madigan and Cullerton and they did it for political reasons to help their party in the fall elections.
Comment by fed up Tuesday, Jun 15, 10 @ 8:47 pm
Oh yeah it appears that Quinn has broken an Ill law by using footage from the General Assembly in a campaign ad.
In addition to the General Assembly’s policy, state law clearly prohibits the use of public resources for political purposes. The use of this footage in a political ad could fall into a gray area, said Ronald Michaelson, a political consultant and former executive director of the Illinois State Board of Elections.
“This is a little obtuse, but I suppose one could argue this was public material,” he said. “This was footage produced by a public agency.”
Hmm I wonder how a Dem Gov was able to obtain this footage I mean Mike madigan would never allow this would he.
Comment by fed up Tuesday, Jun 15, 10 @ 8:54 pm
Every dollar taken in taxes and spent by the government is a dollar taken out of the hands of consumers. Plus you have to then take out the overhead of government transfers. So each dollar taken can only results in less than spent. If government builds something with the money taken, at least an infrastructure is left behind which is then used by the populous to for future growth purposes. The stimulus was mis-spent in that it did not emphasize building infrastructure, the money was badly spent.
Comment by Cincinnatus Tuesday, Jun 15, 10 @ 9:21 pm
Rich, what happened to the Austrian comments from earlier? This is not a debate between Keynesians and Monetarists. A lot of people thought it was risky borrowing from home equity to buy consumable goods like automobiles, and they were proven right when housing prices plunged, leaving those homeowners underwater.
The problem was when people encouraged by artificially low interest rates (by the Federal Reserve Open Market Committee) and mortgages backed by the government acquired more debt than they could responsibly handle.
What’s happening now is a correction, but people are doing anything to prevent the corrective action of the market. Kinda like being sick but not taking the medicine and hoping you’ll get better.
More spending won’t cure a problem brought on by overspending.
Comment by Realist Tuesday, Jun 15, 10 @ 9:37 pm
Big Ben is a student of history; Robertson got it closest to right today. I suppose they missed the impact of government spending at all levels as a percentage of GDP. I don’t know what government spending at all levels was in 1930, but I feel safe to say that today its far higher.I understand this is a political venue, but unlike Senator Nelson, understand this is a question of economics first, and politics second. Small leaders make small-minded decisions. Unfortunately this the way of federal and state government today.
Comment by git-er-done! Tuesday, Jun 15, 10 @ 10:56 pm
>
There is an argument to be made that Hoover did not do enough at the start of the Great Depression, but it is hard to make that same argument for the Japanese government. They’ve spent so much that their debt as a percentage of GDP is approaching 200% and is the second highest in the world behind Zimbabwe.
Comment by Pelon Wednesday, Jun 16, 10 @ 10:36 am
And their interest rates are about zero.
Comment by Rich Miller Wednesday, Jun 16, 10 @ 10:40 am
===So each dollar taken can only results in less than spent.===
Not when consumers and businesses aren’t spending. You have some very basic and thorough misconceptions about what’s going on out there.
Comment by Rich Miller Wednesday, Jun 16, 10 @ 11:46 am