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Home Publications Blogs Beat the Press Robert Samuelson Has Not Heard About the Collapse of the Housing Bubble and the Recession

Robert Samuelson Has Not Heard About the Collapse of the Housing Bubble and the Recession

Friday, 12 July 2013 05:11

That is what readers of his column on the state of the world economy will conclude.  He told readers:

"Europe, the United States and Japan also face unsavory choices. All wrestle with what the IMF calls “fiscal consolidation” — reducing budget deficits. The underlying problem: costly welfare states with aging populations."

Actually this is completely wrong. The United States and most other wealthy countries had relatively modest deficits until the collapse of the housing bubbles threw their economies into recessions. It's amazing that Samuelson somehow missed the crisis.

In the United States, the pre-recession deficit was around 1.5 percent of GDP and projected to stay in this range for a decade. The collapse of the economy was what led to large deficits. Even now with the economy still badly depressed, debt-to-GDP ratios have nearly stabilized.

There is a similar story in most other wealthy countries. Contrary to what Samuelson asserts about "costly welfare states," the extent of budget difficulties is almost inversely related to the extent of their welfare state. Countries with expensive welfare states like Denmark, Sweden, Germany and the Netherlands have few fiscal concerns. The large budget deficits are in the European countries with the least developed welfare states, Ireland, Portugal, and Spain.

Samuelson also implies that there is some great harm in the trade deficits that India is running. India has had trade deficits in recent years of around 5 percent of GDP. This is quite sustainable for a country experiencing the sort of growth that India has been seeing and in fact exactly what standard economic theory would predict. By contrast, trade deficits of this size in a relatively slow growing country like the United States is a more serious issue.

Comments (7)Add Comment
Reduce Unemployment; reduce deficits
written by jonny bakho, July 12, 2013 5:48
Best way to reduce the deficits is to put people to work. More people at work means more tax revenue and less transfer payments. The experience in the late 1990s was as unemployment decreased, the budget gradually and unexpectedly went into surplus.
Now Social Security is going to ruin the world's economy
written by Jennifer, July 12, 2013 7:02
'Though the decisions are domestic, the repercussions may be global, because these advanced nations represent roughly 40 percent of the world economy."

If we don't cut the most important social service program we are at risk of ruining not just our economy, but Europe and Asia! To get more revenue, don't focus on the super-rich or the military, or unemployment, but steal from the old people. That'll work.
Iraq & Afgan Wars: $4-6 Trillion - Washington Post
written by Paul Mathis, July 12, 2013 8:34
Maybe if Samuelson actually read the WaPo, he could do some arithmetic on war costs compared to SS and Medicare.

All For One Percent and One Percent For All
written by Last Mover, July 12, 2013 9:33
"The underlying problem: costly welfare states with aging populations."

Exactly. Welfare must be buried before it decays into an unproductive cesspool of capital and labor currently held by the 1% who engineered the bubble that brought the economy down in the first place.

Samuelson should be commended for standing tall and drawing a line in the sand based on all for one and one for all. The 99% on welfare will not crowd out the 1% on welfare.
written by NWsteve, July 12, 2013 3:32
@Paul Mathis:
yes, indeed...
and, by comparison to a Brookings Institute study, the US has now spent more on the I&A wars than was spent on all of WWII...

and the I&A is still going-on...

and: for what?
what a travesty...

treading in on last mover's territory
written by watermelonpunch, July 12, 2013 9:09
@ jonny bakho - didn't you get the memo? People just don't want to work.

Oh, yeah, and the people who do just haven't gone into enough debt with for profit colleges to get worthless degrees to qualify for all the many jobs available.

/end nonsense
written by Juanita de Talmas, July 15, 2013 1:49
You are generous to refer to Samuelson as an "economist". In actuality, he has no formal training in Economics, and trades on the fact that people confuse his name with that of Paul Samuelson.

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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.