On ABC’s This Week, Paul Krugman warned that the proposed debt ceiling deal is going to make unemployment worse and cause more misery for the American people.
Here is the video from ABC News:
When asked about the spending cuts in the debt ceiling deal Krugman said,
We shouldn’t even be talking about spending cuts right at all now. We have 9% unemployment. These spending cuts are going to worsen unemployment. It’s even going to hurt the long run fiscal picture, because we have a situation in which more and more people are becoming permanent long term unemployed, and if you have a situation in which you are going to permanently raise the unemployment rate, which is what this is going to do that’s actually going to reduce future revenue, so these spending cuts are ever going to hurt the long run fiscal position let alone cause lots of misery, and then on top of we’ve got these budget cuts which are entirely, basically the Republicans we’ll blow up the world economy unless you give us exactly what we want, and the president said, ok. That’s what happened.
Krugman laid out the scenario for America if we cut spending and don’t increase revenue,
We’re looking; I mean we used to talk about the Japanese and their lost decade. We’re going to look to them as a role model. They did better than we’re doing. This is going to go on. I have nobody I know who thinks the unemployment rate is going to be below 8% at the end of next year. With these spending cuts, it might well be above 9% at the end of next year. There is no light at the end of this tunnel, and the revenue debate in Washington, which is all about gee, we’re going to make this economy worse, but are we going to make it worse on 90% of the Republicans’ terms or 100% the Republicans’ terms and the answer is 100%.
While we have all gotten caught up in the politics of determining winners and losers the debt ceiling battle, it is important to look at the actual economic impact of any deal that is based on the framework that is being reported right now. Recessionary economies don’t improve with spending cuts only. Cuts without addition revenue strangles the system even more, and makes things worse.
Democrats have completely lost sight of the fact that Republicans aren’t trying to rationally or logically solve the problem. The people on the other side of the aisle are governing strictly by ideology. What matters to them isn’t the outcome, but the implementation of their belief system about the economy.
The most frustrating thing about this debate is how, not just Obama, but all Democrats have been willing to discuss the debt ceiling on Republican terms. Spending cuts should have never factored in to raising the debt ceiling. Yet, I have not heard a single progressive or Democrat in Congress or the White House stand up and ask why are we talking about spending cuts? This is about the debt ceiling. The two aren’t the same thing.
This isn’t just on Obama. It is also on all of those progressive activists who are screaming don’t touch entitlements. They also bought into the Republican construct. The left should have been screaming in unison with the Democrats in Congress that that there will be NO votes for any deal that ties spending cuts to raising the debt ceiling.
Those on the left who are angry at Obama tend to forget that leadership goes both ways. If they feel that this president is getting off course, then the pressure should be placed on congressional Democrats to lead, and right the ship. As it stands, only our resident socialist Sen. Bernie Sanders, who isn’t a Democrat, has called this what it really is.
The most frustrating thing that all of Washington seems to be oblivious to the fact that millions of people in this country are going to lose or not be able to find a new job because of this deal. By averting a crisis they have added to our problems.
It is still debatable whether this deal will have the votes to pass. Our government is so dysfunctional that nothing may pass. The economic consequences of doing nothing and going into default would certainly be worse than this deal, but the millions of Americans who are struggling right now are likely to be screwed either way.
Related posts:
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- Grover Norquist Is The Biggest Hurdle To A Debt Ceiling Deal
- John Boehner Unveils New Debt Ceiling Plan: Bitch, Bail, and Flail
- Listen To Ronald Reagan Side With The Democrats On The Debt Ceiling
- Paul Krugman Labels GOP Argument the Most Dishonest in Political History
this isn’t news; this is the facts. there is no way to “meet in the middle” if one side has no desire to agree at all, and the gop/bagger/rad-right/dominionists have never had any intention to agree.
sometimes you need to push back, and what the dem/soc/lib-progs need to do at this point is push back HARD, and do it now. change may take time, and reasoned discourse always does: but we need to go beyond letting the u.s. electorate see that they’re nuts, and show just how insane they are… it’ll hurt, but growth always does.
Raising taxes and closing loopholes would have been the better deal.
This is done in the Statehouses of America; how can you keep cutting more revenue thinking you get out of the hole????
Mr. Easley is right…the blame doesn’t belong to Obama only, but the Democrats who forgot that Social Security and Medicare are Social Contracts in America
I am so disgusted with this country that we are going to hell in a hand basket because of the extreme right political machine. Everyone is buckling to these kooks and all of us should rise and let Obama, the Right and Tea Partiers that we should overthrow our Government. It is time for American’s to rise up for their rights and have a revolution the way the Egyptians showed us. Those who claim we’re a democracy when we have not had one for the past 10 years are a bunch of ideological extremists who should be overthrown. Revolution America, Revolution!
As always, Krugman nails it
As always–
I hope this deal DOES NOT PASS.
i agree, from what is now coming from sources, dems are getting reamed again from the prez….. what is up with this guy?…
maher on realtime this week had some great bits on this..
Last I heard today it was the WH that may be holding out on this deal, as well as Boehner warning that he still might not have the votes. We’ll see.
Actually this guy bends the Dems down over a table and ties them down onto it with arms and legs apart so the GOP elephant can do what it likes to do most. A scary Ouch!
everything krugman has been saying since the day bush left office, has come true. read all his stuf in the NYT. the fact the stim wasnt big enough, the slight of hand economics being played by geithner. krugman, and robert reich have been the only smart guys in the room for years….
and Obama should have made them part of his cabinet, not these goldman sachs guys………..
And Leo Hindery Jr. He’s also very concerned about what this has done to our young adults who have no career beginning.
just ask my niece and nephew recent college grads with great degrees from great schools, and no gigs….
oh, and those pesky school loans….
Thank you, Paul Krugman. Always look forward to your wonderful articles.
For years, we’ve heard The Middle Class is Shrinking.
It’s very strange to hopelessly live it/watch it happen at an accelerated rate while the politicians ignore the permanently destroyed fates of tens of millions. Incredible devastation.
No middle class means the America we love no longer exists. That’s hard to fathom.
I totally agree!
what about the trillions of debt we are leaving to kids and grandkids. Each kid born today has a 45k credit card debt attached. Is this not a problem to anyone on the forum? Never seen a bigger group of idiots.
You guys on the right should have screamed at Bush about it when we still had an annual surplus and (horrors!) paek national debt and he proposed an immense tax cut, and again when he wanted to take us to war. Twice.
billie bob- Where were you during the Bush years.Remember the surplus he inherent,the death to America Bush tax cut,the three trillion dollar Iraq war. Now who’s the idiot you mindless ZOMBIE.
Robert Reich said essentially the same thing over at Huffpoop the other day. What we need are more jobs which bring in more revenue.
And for crying out loud, those Bush era tax cuts should be allowed to EXPIRE. It’s criminal that the ‘bagger types are being allowed to be let the whole thing come crashing down, for the sake of ideology (which I think is seditious), when the effect on people will be so devastating, including their own retirement funds and a rise in interest rates which would have us giving even more to the banksters in tribute.
‘Scuse me, they are seditious. They swore oaths to Grover Norquist which they hold paramount to their oaths to uphold the Constitution and the law of the land, and they’re seditious.
Last night around midnight, my godson took me to Walmart, just to escape the heat. Our clerk looked about eighty, and she was working the graveyard shift, on her feet: surely not for pleasure. In a society of any decency or humanity, this wouldn’t happen, but the GOTea has spoken: financiers and oil barons are entitled to government benefits; she is not.
WalMart is part of main Street even though it’s a large corporation and it’s starting to feel the pain. Look for cutbacks there.
Paul Krugman is obviously the only economically literate individual in that room.
What is wrong here…
For some people a cut is when you keep spending at the same level and then remove some cost.
In Government lingo, a cut is a reduction in growth, seems counter intuitive. That’s A REDUCTION IN GROWTH.
Wouldn’t you rather hear the government tell you every year they are going to increase spending by 7%, then 8% the next year, then 9%. So a cut in growth isn’t that bad if the GDP isn’t growing. A company couldn’t keep spending this way if it isn’t growing, how can the government? That goes for state and local too. A government doesn’t make commodity to sell and make a profit, only take in taxes and spends money, our money.
Now since the government just grew 10% and we 3x our dept, I can’t see how anyone can believe that a cut is going to be so bad that anyone is going to get hurt or granny is going to get thrown off the cliff. They just increased that spending already. Even if we freeze spending at 2011 spending levels how will that hurt?
Now wouldn’t it be prudent to at least think about freezing spending rates here at the 2011 rate which is already out of control. We can all agree on that. Remember “BUSH GOT US HERE” isn’t that the old mantra? Bush spending per day 1.6 B Obama spending per day 4.1 B.
We can’t afford more debt.
How about we just put just 4.1% of the 9.2% unemployed back to work and stop this class warfare we’d get more taxes back and make more people proud and happy again and this will feed on its self.
I agree we need to fix the tax code and close the loop holes so companies can’t park their money in off shore accounts like GE did. Get rid of subsidies for everything. Simplify the tax code, maybe a kind of flat tax. But this is a discussion for another time, not now.
If we cap spending and fix it to our GDP which is what the S&P and Moodys is looking for, this may stop our down grade from AAA.
Put a Balance budget amendment attachment on it. What is everyone afraid of a Balance budget amendment??
The Fed has been playing games with our money and we are going to see hyperinflation like we have never seen before after QE1 and QE2. Someone is going to have to buy back all that paper. Out dollar is already worth $0.74 now. Bernanke wants to do another QE3 which will inflate our money again and Krugman agrees.
One thing he is right about, the unemployment is going to go up and the wrong people will be affected. The minorities have been hit the worst and it’s time we start to think of them and get them work. Since the policies over the last 3 years didn’t help much, isn’t worth it to at least think about some kind of tax incentive to companies to hire those out of work?
Worked for me in the 70′s and I never looked back.
Convince me I’m wrong.
Tax breaks don’t make for employment, consumption does. I once asked my boss how many people he was going to hire if the company’s taxes were cut by $150,000, and he answered “none”. I then asked if a government contract were pending and he needed a guy to work on it, would he hire the guy, “of course.”, he said. Even without a tax incentive? “Yes!”
So, if the government provides tax incentives, that will have some indirect effect. If the government spends money directly, (say, infrastructure improvements) there is a direct effect.
Stop peddling the tax cut mumbo-jumbo. We need to invest in America, and to follow that with real reform of both spending and the tax code, including increases in the corporate and high-end tax brackets, along with a reform of the capital gains giveaway or we will keep repeating this downward spiral.
We invested in our country remember stimulus and like I said QE1 and QE2? Doesn’t that count? You want more? How much more taxes do you want? I never said not to close loop holes.
But this is not a revenue problem, it is a spending issue. We did increase spending over 3X above what G. W. Bush did and he was out of control. They want to increase spending again, shouldn’t we at least slow it down a bit to try and balance the budget like what Clinton had?
Yeah but lets be serious. That stimulus did not work because almost half of it was used for tax breaks which again goes back to the previous poster’s argument about tax breaks=employment. If the stimulus was employed ‘properly’ and not for bs tax breaks it might have done a better job stimulating growth.
Ask yourself what good the tax breaks did. They allowed people to spend money they might not spend otherwise. While jobs are incredibly important, so is spending
But what you forget is that that government contract may not be an efficient use of money and may be the result of contacts/cronyism. FREE MARKET, only way to make sure resources are allocated in the proper manner to maximize social resources. Bigger government only leads to the mess we are in now.
There is no such thing as the “free market” in this country. How do the federal oil subsidies reflect the free market? What about farm subsidies for agribusiness? What about the tax breaks that cities and towns give multi-national corporations to locate in their areas? How about the no bid contracts that Republicans champion as a method of privatization? Is there anything that could be more anti-free market than no bid contracts? Republicans don’t believe in the “free market.” The economic ideas that Republicans champion involve just as much meddling in the “free market” as they accuse Democrats of. You need to wake up and realize this before you come here and try to argue with people armed with only your corporate propaganda Fox News talking points.
Everything you just described reflects government getting in the way of the free market. Andy Republicans can be just as guilty as Dem’s, you’re right about that.
There is definitely a place for government in our market system. It includes balancing out the imbalance of power that comes from private wealth concentrated in the hands of capitalists. Things like labor unions, minimum wage laws, etc. And I agree, subsidies for oil companies, etc. are not utility maximizing. But you don’t fix the problem by growing the inefficient sector of the economy and racking up trillions in debt. Not sustainable.
The federal government is not a business, an individual household, nor a small country like Greece. Those are false analogies.
In normal, non-recessionary times individuals make economic decisions (buy, sell, hire, lay off, invest, etc.) independently from one another. Independent in the sense that people don’t all agree on the state of the economy, some feel it’s a little better, some a little worse.
In contrast, during a recession everyone is in agreement that the economy stinks. It’s sensible to have fear. Retailers don’t restock their inventory because they fear they will hive no buyers. Since orders aren’t received manufacturers lay off employees. State governments collect less in tax revenue, so they also lay off employees. Workers are fearful for their jobs so they hoard what cash they have. The unemployed have little money to spend. This self-reinforcing situation can persist for many years.
According to ideas introduced by economist John Maynard Keynes
http://en.wikipedia.org/wiki/John_Maynard_Keynes
the government should break out of the self-reinforcing recession by action to stimulate the economy, as Obama attempted to do in the face of opposition from congress — deficit spending. When the economy recovers, tax revenues will be higher and the debt can be repaid. In other words, it’s a national investment in breaking out of a bad recession.
Just cutting taxes for business or the wealthy doesn’t necessarily do the job, because they can just hoard the money, feeling that it’s not a good time to invest. If market DEMAND is low, then business won’t hire or invest to meet a demand they can already meet. By unemployment benefits, public works projects, payroll tax cuts, etc. the government is attempting to put money into the hands of people who will spend it, that is, create DEMAND.
It’s not accurate to make simple projections that the economy can never recover because of the debt load. The debt is an INVESTMENT to improve the economy. Most of the current debt is due to lower tax revenues due to the recession, and to debt racked up by Bush (war, big tax cuts). For a fuller treatment see:
http://www.nytimes.com/2011/07/24/opinion/sunday/24sun4.html
Can you please point me to any place where Keynsian economics worked? I’d like to read about it. I know Krugman likes it but as of yet I haven’t found any place that it has worked successfully.
Try Singapore.
Look at Hong Kong
It worked in the US until neoliberals and the rich got the structure changed (deregulation, tax cuts, etc.). In the 60s and 70s, the gap between the rich and poor was the smallest in history, the middle class and poor were better off than ever before, and the rich were doing well too.
But they were greedy and wanted it all for themselves. That’s why we are in the boat we are now. Not because poor people are being helped, but because the rich are taking everything for themselves (and “trickle down” doesn’t happen).
Here’s an article that treats the conservative attack on Keynes:
http://www.huppi.com/kangaroo/Keynesianism.htm
Dem, If you want read this…
http://mises.org/daily/3788
Sorry I meant to say “Now since the government just grew 10% and we 3x our debt over the last 3 years”
Incorrect premise. The government growth was in VA Affairs which had been neglected by conservatives in war time, and additional spending for the military to treat active duty soldiers for service related disabilities before they are discharged.
The national debt grew from nearly $11 trillion to $14.3 trillion in 3 years, which is not tripling our debt. The biggest change in the last 3 years has been for war expenditures to be added to the budget instead of using a supplemental appropriation to pay for the costs. This means the budget deficit is larger because it is an honest accounting of the yearly spending.
Unemployment would not be at over 9% if not for the conservative legislation which deregulated financial market. Sure, 2% of the population saw their incomes rise, but it sent unemployment over 10%, cut revenue, and led to billions lost in retirement accounts.
But a few hardy conservatives still believe they will be welcomed in the club. A BBA is not a bad idea if it mandates tax increases along with spending cuts. See how many of your friends would vote for that.
My premise is still correct,
Since 2000 spending grew 75%+ faster than inflation due to large defense and domestic spending. Other programs that grew at alarming rates are anti-poverty programs that grew 89% faster than inflation, Medicare at 81% veterans spending at over 105% and K-12 at a whopping 219%. All parts of government grew over 10%. So you don’t think we can stop and freeze it here? It is still not enough for you?
Unemployment… don’t forget how unemployment is calculated.
There are a lot more unemployed people than 9%. Many people have dropped off the rolls or not counted. Example: because my last job fell under “work-study” (graduate research assistant), I am not counted even though I’m unemployed and actively seeking employment. The figure also doesn’t include people whose unemployment benefits ran out and still are unemployed, and there are several other categories of people that also aren’t included.
I’d like to see more realistic figures, even though they make things look worse than the politicians would like (especially the conservative/neoliberal ones). If the realistic figures started being used, it would strengthen your argument greatly.
It might, just might even get the American public off their butts and out protesting against corporate/rich greed.
(That is, if fear of job loss didn’t keep them cowed.)
Yahoo Finance recently had an article that explained how the danger of escalating debt, due to decreased revenue through tax cuts AND high unemployment, will cause default eventually. According to the article, our Treasury will need to reduce the debt to GDP ratio by 8% every year for 75 years in order to keep the nation solvent.
The fair method would be 4% in spending cuts and 4% in revenue increases to satisfy the need to change the debt trajectory. The issue that few citizens seem to understand is that we just finished paying the debt that Reagan signed off on – after paying 30 years of interest on those bonds. Interest on the debt is not a fixed amount – it is based on the amount promised when the bond was sold. The $2 + trillion Reagan borrowed cost much more than to borrow.
Bush signed off on $6.1 trillion in loans, and for the next 30 years we will be paying interest in addition to that unimaginable amount. In contrast, Obama has signed off on $2.3 trillion in loans. We have to pay for the Bush loans first, at a higher rate than the post 2008 bonds.
If we do not allow the Bush tax cuts to expire, the wealthy will not have the services and security of the government they feel takes too much of their money as it is. When America no longer exists, where will they find a safe haven for their money?
Better for them to leave now, rather than spend money to fund elections to keep their tax cuts. It is cheaper, and gives them a head start so they can make a profit form those who are late to leave.
The real Americans will fill the void they leave behind. It turns out there are more of us anyway.
As I has stated before, Freeze spending where it is right now. I agree, close the loop holes, and stop the giveaway subsidies, like farm, tobacco, oil, green jobs all of this. If they have a good idea, get their own funding. Oil can afford it, farms don’t need it, tobacco doesn’t need it, green jobs should find their own funds if it is viable ideas, not good money after bad, fix those loop holes. Stop the companies from parking their money off shore like GE did, capital gains is another too. Did you get the impression I wasn’t for these?
But even with the deal they just struck, we will still be downgraded and we will all feel the pain because no one wants to do the right thing. Point fingers, yes, make it an “Us and Them” thing yes. What a shame. Did you hear me stand up for Bush? They both are bad. Give me a break.
Freezing spending is a pipe dream. What is Afghanistan needs a surge in troops, requiring more combat pay? The Department of the Interior bases it’s fire control budget on previous year costs – but next year the cost could double.
Not all Americans will feel the pain of a bond market downgrade. Some of us did not buy the myth that you can live in the present and pay in the future. Some of us paid cash for real estate – saving the price before committing to a purchase. Some of us pay our credit card balance every month, instead of paying for interest on items that will no longer be useful when payments have been completed.
Some of us learned during the Reagan recessions that one can not expect to have a job next week, so we learned to save money for long term unemployment, and to broaden our skill set so that would not be dependent on the health of any economy for sustainment.
All of us will be making sacrifices before the decade ends. The question remains as to who will be making a greater sacrifice – permanent unemployment means higher costs for retraining – and innovation in technology is our only way out.
It has become an ‘us versus them’ issue, because one group has drawn an ideological line in the sand on revenue increases. They would prefer to see you pay higher interest rates on everything than to compromise on ‘temporary’ tax cuts that have lasted for a decade, and have failed to produce the increased employment, revenue and innovation promised.
I wondered when those bonds would be paid, thanks for the info
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Excellent reply.
I tend to agree with Romney (politics aside) that uncertainty has a negative effect on consumers & businesses. I would speculate though that the effects of lower government spending during a recession are far more tangible than speculation regarding the fiscal strength of the federal government. I also think that slowing GDP growth during such a deep recession by .5%-1% as you said would have a much greater affect on the “momentum” of GDP growth, lengthening the recession unnecessarily.
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So let me get this straight here. They raised the debt ceiling by (at least) $2.1Trillion and slashed federal spending by $2.4Trillion. It took them all that bickering to come up with THAT?! LOL. We’re doomed.
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