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Home Publications Blogs Beat the Press Nonsense from Deficit Hawks Threatens to Keep Tens of Millions Needlessly Unemployed

Nonsense from Deficit Hawks Threatens to Keep Tens of Millions Needlessly Unemployed

Sunday, 29 August 2010 07:27

The NYT told readers that the Fed's ability to take steps to boost the economy are limited because:

"The dramatic expansion of the national debt — which began in the Bush administration, via hefty tax cuts and two wars — has ratcheted up fears that, one day, creditors like China and Japan might demand sharply higher interest rates to finance American spending."

It may be true that such "fears" may prevent the steps to raise employment in the same way that children fear monsters in the dark, and therefore feel the need to keep the light on when they sleep, but reporters should also point out that such fears have no basis in reality. If China and Japan "demand sharply higher interest rates," then it would mean that the dollar would fall sharply against their currencies.

This is exactly the policy that the Obama administration is ostensibly committed to. The lower value of the dollar would lead to a sharp boost to U.S. exports and a fall in imports, lifting growth and employment. It is difficult to understand why anyone would fear the outcome that we are ostensibly committed to seeing. In short, the "fears" have no basis in reality and are promoted either out of ignorance or by people who have ulterior motives.

At one point the article tells readers that Germany has done relatively well in this downturn without using stimulus:

"Germany, which has long harbored particularly powerful fears of inflation, has done relatively well in the current downturn without large stimulus spending, and that experience is now cited by adherents of austerity."

Dishonest adherents of austerity do cite this experience, but it is easy to show that the Germany history does not support their case. According to the OECD, government consumption expenditures increased more in Germany since the downturn than in the United States.



It is worth noting that Germany should have an easier time recovering from this downturn since its economy was not driven by a housing bubble. The main impact on Germany's economy has been through a decline in exports.

It would have been useful if this article had included the views of some economists who were able to see the $8 trillion housing, the collapse of which led to the downturn.




Comments (9)Add Comment
written by izzatzo, August 29, 2010 10:31
Never fear, Alan Simpson is so excited about the Fed meetings in Wyoming, he will soon straighten out all the unnecessary confusion on deficits with a new straightforward definition that anyone can understand - defiTITs.

Defitits is a comprehensive yet simple politically correct neutral term that avoids inflamatory political bias, to convey objective economic information on cost and benefits of debt incurred by the US Government - especially the benefits, or as Mr Simpson might say, the beneTITs.

Even someone born in a barn alongside a cow can understand who is really benetitting from defitits, the 310 million freeloaders on Social Security, for whom US Treasury bondholders are being held hostage by the likes of China and Japan who could pull the plug at any time, or as Mr Simpson might say, less tits now mean more tits later under his AusteriTITs Policy.
Too soon to make any claims about German fiscal policy
written by AndrewDover, August 29, 2010 1:19
These are the predictions for Germany:

and so let us wait until we see the results of the debt brake.
By the way, Germany spent $45 billion for military spending in 2009 to the U.S.'s $712 billion.

I recommend:

The Case for Reviving Revenue Sharing

Nice work
written by Tschäff, August 29, 2010 3:02
It sounds to me like Germany stimulated the economy more with larger automatic stabilizers, while the US had a relatively larger stimulus bill with smaller automatic stabilizers. That's the only way the Austarians can be technically right claiming that Germany had a smaller stimulus.

None of this should be taken in isolation and used as an apples to apples comparison. America may need a much larger stimulus than Germany to lower unemployment because it has greater leakages from the income stream. By draining savings from other eurozone countries, Germany forces other eurozone countries to run larger budget deficits than they would have had to otherwise to satisfy the savings desires of their citizens.

The point is, that has now been confirmed by the CBO and various other empirical studies is that fiscal stimulus works at creating demand in an economy that is experiencing insufficient demand to generate full employment. If the political will was there, we could create a job guarantee program that would act as a very powerful automatic stabilizer. For any of this to happen though we need people like you to stand up to dishonest and/or ignorant commentary. Keep up the good work.

Counter Insurgency, Deficit Terrorist Unit
written by Union Member, August 29, 2010 9:13
Is Goldman Sachs really just a giant tit wrapped around the face of humanity?

Simpson was trying to mimic Matt Taibi's truly funny and accurate caricature of Goldman
written by Union Member, August 29, 2010 11:25
It is inconceivable that Simpson's remark about Social Security was some unintended faux pas, just an unguarded slip of the tongue. It was a deliberate and calculated stab at Social Security, the favorite pinata of deficit/ chicken hawks today. There will be others.

Simpson has always displayed that fratboy neoliberal (Cold War) wit that flatters the Washington press corp into thinking they're sharing in something special -- reporting on something inside. Just ask Roger Mudd, whose son Daniel was CEO of Fannie Mae's demise, or Bob Schieffer of CBS whose brother Tom made millions from Government spending (bailout/subsidy) with his business partner George Bush owning the Texas Rangers These are the type of journalists chortle when Simpson talks.

Sen Simpson used to represent Wyoming (home privateer- in- cheif Dick Cheney), a state whose population just about equals the number of new unemployment claims for the month of July, 500,000.

Sorry, this is way off topic, but Simpson is way out a bounds!
and another thing...
written by Union Member, August 29, 2010 11:52
Not to subtract at all from Jane Mayer's excellent reporting on the Koch brothers; but they must be seen as just the tip of the oligarch iceberg, especially when comes to monetizing journalism.
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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.