This summer, New York Times columnist Paul Krugman went on CNBC to talk about his book and ended up getting ambushed by a pack of smug, out of touch, and/or misinformed journalists, something I wrote was emblematic of the network’s financial capture.
Now CNBC’s Becky Quick, one of the more level heads over there, takes to the pages of Fortune to attack the Nobel-winning Princeton economist’s “downright dangerous” idea that we’re not in a fiscal crisis and don’t need Simpson-Bowles’ advice, writing that “It is hard to find anyone who actually agrees with him.”
It’s hard to find anyone on CNBC or in Fortune, perhaps, but it’s not if you look outside those two dispensers of business world propaganda conventional wisdom.
Here’s Berkeley economist and former Clinton official Brad DeLong, Berkeley economist and former Obama administration official Christina Romer, former IMF chief economist Simon Johnson, Dean Baker, Harvard economist and crisis researcher Carmen Reinhart, the University of Texas economist James K. Galbraith, MIT economist Daron Acemoglu, Columbia U.’s Nobel-winning economist Joseph Stiglitz, MIT’s Nobel-winning economist Peter A. Diamond, and Yale’s Robert J. Shiller, Wharton economists Betsey Stevenson and Justin Wolfers, and many, many more. Heck, let’s throw in the most credible economics journalist, someone who has the ear of central bankers around the globe, Financial Times wise man Martin Wolf.
But fine, ignore all these esteemed economists if you want. What does Mr. Market have to say:
That’s the 10 year Treasury bond, the critical gauge on how much investors are charging the government to borrow money. The government today has to pay 1.72 percent a year to borrow money for a decade, which is near an all-time low. We’ve been told repeatedly, for years now, by the likes of Quick that the “bond vigilantes” will be showing up any minute to impose discipline on the free-spending gubmint by driving up interest rates. Instead, they are effectively begging the U.S. to borrow their money.
It’s really not very hard to understand what Krugman has been saying all along through the crisis. Let me try to sum it up: The housing bust and financial crisis created a “Lesser Depression” with the private sector is paying down decades of overborrowing. That has seriously weakened demand, and government should spend in the near to medium term to prop it up. Once the recovery is robust enough, then the government should remove stimulus, a la Keynes’s “the boom, not the slump, is the time for austerity”. Growth will ameliorate much of the deficit problem by increasing revenue, and the rich paying more in taxes will help too. Social Security’s long term problems are minor and easily fixed and claims to the contrary are ideologically driven. The overarching long run deficit problem is almost entirely about health care spending, which can be best fixed by adopting European style health care systems. Simpson-Bowles is far too tilted to spending cuts on the poor and middle class as opposed to tax increases on the wealthy. The “bond vigilantes” are not coming to trigger a fiscal crisis. Their willingness to accept low returns signals a still depressed economy.
Quick might be surprised to learn that U.S. debt levels are actually falling at the fastest pace in sixty years, as MarketWatch’s Rex Nutting pointed out this summer:
As Audit contributor Felix Salmon says:
If it wasn’t for the Federal deficit, the debt-to-GDP chart would be declining even more precipitously, and the economy would be a disaster. Deleveraging is a painful process, and the Federal government is — rightly — easing that pain right now.
Anyway, it’s just not true that it’s hard to find people who agree with Krugman’s view of the crisis. Go down the IDEAS list of top economists and add them up.
UPDATE: And read commenter David Heath below on how Clinton’s supposedly “damning” statement really isn’t.
What was so interesting about the column is that Quick asked Bill Clinton's office for a comment on Krugman's views. She calls the response, "a damning retort to Krugman -- and a bold statement about a plan the Obama administration has failed to embrace."
Yet, the statement from Clinton actually agrees with Krugman. Here's the Clinton statement in its entirety:
"While everyone can find things to disagree with in the recommendations of the Simpson-Bowles commission, I believe it got some big things right: The debt will become a much bigger problem when normal economic growth returns and causes interest rates to rise; passing a credible 10-year plan now will keep the government's borrowing costs much lower than they will be without one; it's important not to impose austerity now before a growth trend is clearly established, because as the austerity policies in the eurozone and the U.S. show, that will slow the economy, cut jobs, and increase deficits; and any credible deficit-reduction plan requires three things -- spending reductions, revenue increases, and economic growth."
In short, he says, the deficit will be an issue after the economy picks up and interest rates start to rise. But if you impose austerity now, the economy will slow down. That's precisely what Krugman says day after day.
#1 Posted by David Heath, CJR on Tue 30 Oct 2012 at 08:25 AM
The other thing that's interesting is how absent the bond vigilantes were during the criminally fiscally irresponsible Bush Administration. That was something even Paul Krugman was surprised by.
The only time bond vigilantes and deficits are brought up in conversation is when there's a possibility of an increase of the new deal state.
And oldie but goodie article explains the game:
http://www.theatlantic.com/magazine/archive/1981/12/the-education-of-david-stockman/305760/
"An OMB computer, programmed as a model of the nation's economic behavior, was instructed to estimate the impact of Reagan's program on the federal budget. It predicted that if the new President went ahead with his promised three-year tax reduction and his increase in defense spending, the Reagan Administration would be faced with a series of federal deficits without precedent in peacetime—ranging from $82 billion in 1982 to $116 billion in 1984. Even Stockman blinked. If those were the numbers included in President Reagan's first budget message, the following month, the financial markets that Stockman sought to reassure would instead be panicked. Interest rates, already high, would go higher; the expectation of long-term inflation would be confirmed.
Stockman saw opportunity in these shocking projections. "All the conventional estimates just wind up as mud," he said. "As absurdities. What they basically say, to boil it down, is that the world doesn't work.""
Romney redux? How did the
Romney version oneReagan administration deal with fiscal absurdity?"Stockman set about doing two things. First, he changed the OMB computer. Assisted by like-minded supply-side economists, the new team discarded orthodox premises of how the economy would behave. Instead of a continuing double-digit inflation, the new computer model assumed a swift decline in prices and interest rates. Instead of the continuing pattern of slow economic growth, the new model was based on a dramatic surge in the nation's productivity. New investment, new jobs, and growing profits—and Stockman's historic bull market. "It's based on valid economic analysis," he said, "but it's the inverse of the last four years. When we go public, this is going to set off a wide-open debate on how the economy works, a great battle over the conventional theories of economic performance."
And, when Reagan put Ayn Randite hack and Charles Keating defender, Alan Greenspan, as Fed chief, these predictions eventually materialized - after a great deal of pain and turmoil documented in the article.
"Stockman thought he had taken care of embarrassing questions about future deficits with a device he referred to as the "magic asterisk." (Senator Howard Baker had dubbed it that in strategy sessions, Stockman said.) The "magic asterisk" would blithely denote all of the future deficit problems that were to be taken care of with additional budget reductions, to be announced by the President at a later date. Thus, everyone could finesse the hard questions, for now."
Wow, is Stockman Paul Ryan redux?
""The hard part of the supply-side tax cut is dropping the top rate from 70 to 50 percent—the rest of it is a secondary matter," Stockman explained. "The original argument was that the top bracket was too high, and that's having the most devastating effect on the economy. Then, the general argument was that, in order to make this palatable as a political matter, you had to bring down all the brackets. But, I mean, Kemp-Roth was always a Trojan horse to bring down the top rate.""
It is always about bringing down the top rate. ALWAYS. The republicans consider tax cuts for the poor a necessary sacrifice to be revoked late
#2 Posted by Thimbles, CJR on Tue 30 Oct 2012 at 02:20 PM
Sorry, had to jump off..
"The republicans consider tax cuts for the poor a necessary sacrifice to be revoked later..." when the time comes for the '47% losers who don't pay taxes' to 'get their skin back in the game'.
Even Simpson Bowles tries to use top rate tax cuts and magic to fight the deficit.
Anyone who talks about tax cuts does not care about the deficit PERIOD. Anyone who talks about the deficit and neglects to mention tax increases just wants to offload the burden's of their state they don't like onto someone else PERIOD.
Stockman (though he's denied the conversation later) talked about tax cuts and their strategic import against spending they don't like:
http://flaglerlive.com/8577/david-stockman-reagan-nixon-bush-trickledown/
“The plan,” Stockman told Sen. Daniel Patrick Moynihan at the time, ” was to have a strategic deficit that would give you an argument for cutting back the programs that weren’t desired. It got out of hand.”
That's what deficits are - a club used to beat expansions of state which gets put away in a locked closet when people are making arguments for tax cuts.
Anyone remember when Greenspan was arguing the danger of having government pay its debt and run surpluses during Bush? I do.
The reality is that republican economics only creates growth in the economy by "pulling the threads out of that regulatory fabric" which benefits those who can game the system, not those who make up the middle class.
When it comes to things that would benefit the middle class (like regulation and funding of things like weather satellites and FEMA) time to pull out the deficit club and scream "BOND VIGILANTE".
It's a mind game.
#3 Posted by Thimbles, CJR on Tue 30 Oct 2012 at 03:22 PM
It is CNBS after all.
#4 Posted by OldVet, CJR on Tue 30 Oct 2012 at 03:31 PM
And you can tell it's a mind game because, as mentioned earlier, when deficits can be eliminated and debts retired, these conservatives and centrists are the first in line to say "HEY.. hey.. wait now a minute. Do we really want to reduce the deficit?"
As Krugman points out from a Chait column-
Chait:
http://nymag.com/daily/intel/2012/10/bank-ceos-fear-dont-understand-fiscal-cliff.html
"The fiscal cliff doesn’t refer to the deficit spiking, it refers to the deficit going away really, really fast, beginning on January 1.
Republicans hate the fiscal cliff because it eliminates the deficit in ways they hate — mostly by ending all of the Bush tax cuts, along with some spending cuts that take a huge bite out of the Pentagon. But another group also hates the fiscal cliff for different reasons. The centrist anti-deficit groups funded by Pete Peterson hate the fiscal cliff because it creates an avenue for bringing revenue and outlays in line in a way that they don’t want. It basically creates a situation where the deficit is solved in ways that are more left-wing than even Obama proposes, giving him leverage to craft a solution largely along his own preferred lines, rather than through the “grand bargain” they have been fruitlessly trying to craft since 2010. And so they are issuing dire warnings about the fiscal cliff that are either completely disingenuous or reveal a total failure to understand what they’re complaining about...
So, for instance, a group of financial executives, including JPMorgan's Jamie Dimon and Lloyd Blankfein of Goldman Sachs, warns in a letter, “interest rates could spike significantly if policymakers do not agree to stop the series of automatic tax hikes and spending cuts and replace them with a long-term plan to tame the federal debt.” Uh, no, that is not how it works. Interest rates can spike when the deficit gets too high. The fiscal cliff involves the deficit getting very low very quickly. The problem is that it’s too quickly, and if it stays that way for months and months on end, it could throw the economy back into recession. But interest rates would remain very low in that case...
If they actually wanted a deal to reduce the deficit, they would want to put everything off until January. Instead they’re saying a bunch of stuff that makes no sense."
Krugman:
http://krugman.blogs.nytimes.com/2012/10/29/cliff-confusions/
"[L]et me point you to an excellent post by Suzy Khimm making a point I should have made: the only reason to worry about the fiscal cliff is if you’re a Keynesian, who thinks that bringing down the budget deficit when the economy is already depressed makes the depression deeper. And the same logic actually says that we should not just avoid spending cuts, we should raise spending right now...
What Khimm doesn’t mention is that a lot of the Very Serious People don’t seem to get that... The only way I can make sense of that letter is cognitive dissonance — they’re so wedded to the notion that the danger is that the invisible bond vigilantes will scare off the confidence fairy that they can’t admit, even to themselves, that what’s really worrying them right now is straight Keynesian concerns.
And the supposed deficit hawks, who should be celebrating the prospect of such a big move in their direction, aren’t. Why? As Khimm suggests, this isn’t the deficit reduction they wanted — it was supposed to involve hurting the working class, not raising tax rates at the top (which were supposed to be cut!).
Call it a teachable moment."
The reason why the fiscal cliff is bad policy is because austerity in the middle of a balance sheet recession is bad policy.
But that makes all arguments fo
#5 Posted by Thimbles, CJR on Tue 30 Oct 2012 at 03:47 PM
"The reason why the fiscal cliff is bad policy is because austerity in the middle of a balance sheet recession is bad policy.
But that makes all arguments for..." immediate deficit reduction bad policy and, if you're going by merit, makes the raising of tax rates by the fiscal cliff is much less bad than the lowering of government spending (which has a much higher multiplier) as proposed by all the "Grand Bargain" folks. The priorities of the influential are reversed from what they should be based on sound analysis.
Which brings us to the question, who should we really be afraid of this Halloween?
#6 Posted by Thimbles, CJR on Tue 30 Oct 2012 at 03:53 PM
Quick is a Light-Weight and should be demoted if maintaining its credibility means anything to CNBC.
#7 Posted by GSCraw, CJR on Tue 30 Oct 2012 at 06:36 PM
A Halloween Story
Once upon a time, 2 friends, Paul & Barry, decided to start a business.
They bought pumpkins in the country for $1 apiece.
Then they went to town to sell them for $1 apiece.
Halloween was just a few days off and sales were brisk.
"Looks like we're STIMULATIN' the ECONOMY!" shouted Paul, the excitable partner.
"Yes, indeed," Barry agreed.
And before sunset, all the pumpkins were sold!
But that night, after working the books, Barry said: "Mr. Krugman, I have bad news, we're not making any money."
To which Paul replied: "Dammit, Mr. Obama -- I told you we needed a bigger truck!"
The End?
Happy Halloween
and Vote November 6
#8 Posted by oddsox, CJR on Wed 31 Oct 2012 at 09:59 AM
The gubmint austerity gang in America are not concerned with saving money. They're concerned about who has and who is controlling money. E.G. They'd love to get their hands on all that S.S. money , divide it into individual accounts
and play with it in a ' market '. Money saved?. They'd love to end Medicare and turn the seniors over to the health insurance racket . This would cost much more. More money would be spent but it would go to satisfy money profit wishes . Money saved? But hey gubmint is spendin less. A lot of this austerity stuff is pretext to dismember decent non-profit instruments of government and replace them with money profit seeking . This is called privatization. It should be called profitization and it's simply more redistribution of money to corp. America and the wealthy. No money is saved by this sort of austerity . It's just shifted.
Michel Olivier
#9 Posted by Michel Olivier, CJR on Wed 31 Oct 2012 at 12:57 PM
Another story.
Barry was the mayor of a great city. Paul was one of his many advisors. An incredible disaster was suffered within the city and people were walking around wondering what to do. Their jobs were lost, their houses were gone, their savings were as missing as banker paperwork it was removed by.
Some guys suggest tossing them pumpkins while some other guys suggest this would be a waste. Luckily people ignore that discussion because this is about rebuilding what's been lost before more falls into the sea.
Barry gets enough resources together to rebuild half the city, particularily the richer halves. Paul says, "It's not enough to rebuild half the city. Parts of the city will likely never recover!" Barry's opponents say, "It's not the government's role to rebuild cities. We aren't city builders!"
And the rich, who had their parts of the city rebuilt, are not just upset at the idea that they might be tasked for paying for further rebuilding, they're upset at those who mention that they never built the city to begin with, that the reason the disaster has been so severe was because the rich stopped paying their bills for the city's maintenance.
They believe rebuilding should be paid by the poors. That their job is to create jobs by creating demand. That the economy was no longer powered by the middle classes selling goods to each other, it was powered by the poors offering their cheap labor for the needs of the rich.
And Paul said, "Isn't that the road to serfdom?"
And people responded, "Don't listen to that guy, he's shrill. He's dangerous even."
And so, since Barry listened to the rich most of the time, and his opponents listened to them all of the time, the people just sent tweets to each other as the city slowly slid into the muck.
And some pretty good memes came out of that.
The End.
#10 Posted by Thimbles, CJR on Wed 31 Oct 2012 at 02:00 PM
Hey Ryan, turns out you can add Bill Black (and Romney) to your list:
http://neweconomicperspectives.org/2012/10/cnbcs-quick-uses-clinton-to-aim-at-krugman-but-shoots-herself-in-the-foot.html
"Governor Romney agreed with Krugman’s position in his May 23, 2012 interview with Mark Halperin...
“Halperin: Why not in the first year, if you’re elected — why not in 2013, go all the way and propose the kind of budget with spending restraints, that you’d like to see after four years in office? Why not do it more quickly?
Romney: Well because, if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%. That is by definition throwing us into recession or depression. So I’m not going to do that, of course.”
Contrary to Quick’s assertion that no one agrees with Krugman, it turns out that Clinton, Obama, and Romney, plus the IMF, agree with Krugman (and most economists) that it is essential that we “wait” “longer” before we even consider austerity. It turns out the policy that they all agree is “dangerous” is Quick’s desired policy of “austerity now.””
#11 Posted by Thimbles, CJR on Thu 1 Nov 2012 at 04:11 AM