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Home Publications Blogs Beat the Press Washington Post Runs Another Deficit Hawk Editorial In Its News Section

Washington Post Runs Another Deficit Hawk Editorial In Its News Section

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Wednesday, 23 February 2011 06:18

The Washington Post (a.ka. "Fox on 15th Street") long ago gave up any pretense of objectivity in its budget coverage. Today it ran a news article which can best be described as a tirade against budget deficits and debt, since it contained no real news. The article relies exclusively on deficit hawks as sources. It presents no one who could put current deficits/debt in context.

Had it gotten a broader range of opinions readers would have known that the claim that growth slows when a country's debt to GDP crosses 90 percent is dubious, since most of the countries in this group are like Japan, in the sense that their debt to GDP ratio rose because they were growing slowly. Japan's government actually had a very small debt before its stock and housing bubbles burst in 1990.

A wider range of sources would have pointed out that it is the combination of public and private sector debt together that pose a burden on an economy. Right now the U.S. is seeing its private sector debt diminish. They might have also pointed out that the Federal Reserve Board can and does hold large amounts of government debt, so that it poses no interest burden for taxpayers.

And, they would have also pointed out that productivity growth ultimately determines a country's standard of living in the long-run. Current and projected future levels of productivity are far higher than the deficit hawks ever dreamed possible in the mid-90s, so what are they whining about?

Comments (9)Add Comment
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written by izzatzo, February 23, 2011 8:21
... since most of the countries in this group are like Japan, in the sense that their debt to GDP ratio rose because they were growing slowly.


This is big egyptian lie. As Herrs Limbaugh and Beck have noted, unless free markets and Mubarek are restored, crippling debt will continue to suppress growth and bring down socialist countries like Japan, tarred by protestors who dare demonstrate against law and order.
You're not 100 right
written by scottindallas, February 23, 2011 10:47
Are you sure productivity growth determines the standard of living? I think you may be correct by definition but wrong in the particular. One could argue that what is as important is that those productivity gains are enjoyed by incomes across the economy. As you know, those were perfectly distrubuted ante-Reagan and have gone entirely to the top since Reagan.
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written by urban legend, February 23, 2011 5:16
Is there any way to get the Post to grow up? The relentless pursuit of this antediluvian stance by, I assume, Fred Hiatt acting on behalf of top management, only makes the management including its directors look like fools.
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written by Fed Up, February 23, 2011 8:39
I agree with scottindallas. Productivity gains need to be distributed evenly between economic entities and in time. The best way to do that with a positive price inflation target and/or positive nominal GDP target is to increase the amount of currency, not private debt and not gov't debt.
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written by Fed Up, February 23, 2011 8:42
"And, they would have also pointed out that productivity growth ultimately determines a country's standard of living in the long-run. Current and projected future levels of productivity are far higher than the deficit hawks ever dreamed possible in the mid-90s, so what are they whining about?"

Almost all economists can't come up with a model where positive productivity growth and other things can lead to a recession.
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written by Tony, February 23, 2011 9:20
Yes, private debt is coming down, but from very hight levels. It is still way above what it peaked at in the early 1930's. I believe debt is a major problem, and some level of austerity is needed, in order to get our financial house back in order.
Dams
written by Brett, February 23, 2011 10:36
Mr. Baker, did you catch this article in Tuesday's New York Times? It talks about how their is a widespread need for dam repair in America, with over 4,000 dams in disrepair and susceptible to failure. But it includes this choice paragraph:

"But repairing all those dams would cost billions of dollars, and it is far from clear who would provide all the money in a recessionary era."

http://www.nytimes.com/2011/02/22/science/22dam.html

Why don't journalists understand that a recessionary environment, like we have now, is a perfect time to fund these sorts of projects. 25 million people need jobs. Well some of them would gladly like to work building dams, especially if they are one of million+ people out of work from the construction business.
Theoretical Impact of fiat paid time off on unemployment
written by NewsFromAnnArbor, February 24, 2011 1:10
Dean,

Can you calculate for us the theoretical impact on the US economy today if say in 2000, starting with a Federal law mandating four weeks of paid time off per worker per year; the fiat paid time off were indexed to productivity changes at half the rate published by the BLS? For example, if average hours worked each year per worker is 1900 hours and productivity improves by 2%, the fiat paid time off should increase by 18.81 hours or 1900*(1-(1/[1+2%*0.5]) = 18.81 hours. Follow-up the previous example with the next year's iteration: if productivity again improves by 2%, the increase in paid time off would be 1881.19*(1-(1/[1+2%*0.5]) = 18.63 hours (you can never get to zero hours worked!)

Given that I am an engineer in the automotive industry, I believe manufacturing will come back to the US when automation reaches a point where most assembly lines are lights out facilities since only machines will do the work of manufacturing. At that point, why pay all that money to ship product from China to the US just to avoid and/or weaken union labor? The economy is increasingly moving towards white collar, exempt services oriented classifications (like my job.) If we wish to avoid complete social chaos, we need to start shortening the hours worked on the job per year for everyone! The Earth can only support so many people, so the solution cannot include increasing the consumption per individual forever; we need to spend higher productivity on more time off to save people and the planet. BTW, nature and human societies are full of examples of how success of a species/culture turns into its opposite; success tends to lay the foundation for extinction! The destruction mechanism is over-burdening and/or over consumption of natural resources until collapse (for example, Easter Island in the Pacific.)
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written by skeptonomist, February 24, 2011 10:09
The NYT claims "it is far from clear who would provide all the money in a recessionary era". We know who has the money, corporations and financiers - corporate profits have been astronomical since 2002:

http://research.stlouisfed.org/fred2/series/CP?cid=109

and does anyone think Goldman Sachs is suffering from a shortage of money? The problem is that they are not doing anything constructive with it.

Economists have been obsessed with the quantity of money for the last 50+ years and have supported augmentation of the role of the Fed for this reason. It should be clear from the present circumstances that the powers of the Fed, as well as the predilections of its leaders, have gone towards accumulation of money by those who thus have no incentive for constructive economic activity.

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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.

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