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Thursday, September 06, 2012
It's the economy, stupid
The current economic crisis is generally said to have started on September 15, 2008 with the bankruptcy of Lehman Brothers. Most of the reasons for the crisis, from the housing bubble to the debt accumulation of many first-world countries, built up in the decades before that. And there is solid economic theory explaining why a debt crisis leads to longer recessions and slower recoveries than other forms of financial crisis. Nevertheless voters in many recent and upcoming elections are asking the Reagan question: "Are you better off today than you were 4 years ago?", and end up punishing the incumbents. Or as Clinton said about what decides an election, "It's the economy, stupid".
To quote an English politician, Winston Churchill: "Democracy is the worst form of government except for all those others that have been tried.". So while I don't have a better solution, I nevertheless despair sometimes at the realities of Democracy, about how elections are decided. Voters are completely unable to decide whether the economic program of the people they are voting for will make them better off or worse off, but instead vote based on past economic factors, most of which are completely outside the reach of politicians anyway. I saw a caricature about the French elections this year, where the posters of the two main candidates said "Sarkozy" and "Not Sarkozy". Change the faces, and you could re-use it to have the American people decide between "Obama" and "Not Obama".
Of course voters aren't the only ones to blame. We are still far from November, but fact checkers have already declared this election the least truthful in decades. Both the Republicans and the Democrats spent much of their nomination convention and their advertising budget on lying about their opponents (with the fact checkers declaring the Republicans as being less truthful, which is probably due to them having to overcome the incumbent advantage). Even if voters weren't idiots, election advertising is clearly designed for idiots. If it isn't outright lying, it condenses any complex message into a simplistic "factoid" which might or might not be representative of the larger issue.
I don't know if the American people in November will choose the best candidate for president (nor do I know with scientific certainty which one it is). What I do know is that if they happen to choose the best candidate, it probably was for all the wrong reasons. That is the advantage of a two-party system, you always have a 50% chance to select the better choice by pure accident. We Europeans are not so lucky, we manage to hold elections that lead to no government at all, or elect a bunch of obvious hooligans to punish the politicians we had for an economy they couldn't influence. We even started a world war like this once.
Of course voters aren't the only ones to blame. We are still far from November, but fact checkers have already declared this election the least truthful in decades. Both the Republicans and the Democrats spent much of their nomination convention and their advertising budget on lying about their opponents (with the fact checkers declaring the Republicans as being less truthful, which is probably due to them having to overcome the incumbent advantage). Even if voters weren't idiots, election advertising is clearly designed for idiots. If it isn't outright lying, it condenses any complex message into a simplistic "factoid" which might or might not be representative of the larger issue.
I don't know if the American people in November will choose the best candidate for president (nor do I know with scientific certainty which one it is). What I do know is that if they happen to choose the best candidate, it probably was for all the wrong reasons. That is the advantage of a two-party system, you always have a 50% chance to select the better choice by pure accident. We Europeans are not so lucky, we manage to hold elections that lead to no government at all, or elect a bunch of obvious hooligans to punish the politicians we had for an economy they couldn't influence. We even started a world war like this once.
- posted by Tobold @ 2:52 PM Permanent Link
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The Dems are pushing the agenda that the Bush years were SO bad and SO destructive that they can't possibly be expected to clean up the mess in just 4 years. I'd buy this argument if it were 2009, or maybe 2010, but at some point have you stop blaming those that came before you and take responsibility for your own track record. By Obama's own admission, he said that if he couldn't turn things around in 3 years his presidency would be a one-term proposition.
Unfortunately for us, his opponent hasn't done or said anything to make us feel like he'll be any better. So we're stuck with "bad" and "worse". It saddens me that the one person who might have actually made an impact was labeled an "old kook" and largely ignored by the media and subsequently the voters.
Unfortunately for us, his opponent hasn't done or said anything to make us feel like he'll be any better. So we're stuck with "bad" and "worse". It saddens me that the one person who might have actually made an impact was labeled an "old kook" and largely ignored by the media and subsequently the voters.
Heh. That's very charitable of Tobold. The fact checkers last election found the Republicans were still ahead in the 'less truthful' stakes. And they were the ones with the incumbent at that point.
It's for this reason I favor smaller nations eith smaller governments (America had it right at first with it's powerful state goverments and weaker federal). Government is necessary obviously but with a high risk of causing more problems then it solves.
The bad economy is part of it, but that's missing the other half of the equation.
The CBO (http://www.cbo.gov/topics/budget/historical-budget-data) shows that from 1980 to 2007 the government on average took in 18.3% of GDP from taxes, and spent 20.8%, thus creating a deficit.
In the last 4 years, from 2008 to 2011, the gov has on average pulled in 15.8% of gdp, or 2.5 lower than average, and spent 23.5% or 2.7 higher than the average.
Even if the economy were going along fine and dandy, that increase in spending would cause completely unsustainable debts.
Neither of the candidates have any intention of ever paying off that debt, which I find dishonest. Just as the economy floundered, we went nuts and created societal luxuries we cannot afford. Like a poor family with maxed out credit cards suddenly deciding to build a pool in their backyard. It's irresponsible and in another decade or two we'll be as bad off as Europe.
The CBO (http://www.cbo.gov/topics/budget/historical-budget-data) shows that from 1980 to 2007 the government on average took in 18.3% of GDP from taxes, and spent 20.8%, thus creating a deficit.
In the last 4 years, from 2008 to 2011, the gov has on average pulled in 15.8% of gdp, or 2.5 lower than average, and spent 23.5% or 2.7 higher than the average.
Even if the economy were going along fine and dandy, that increase in spending would cause completely unsustainable debts.
Neither of the candidates have any intention of ever paying off that debt, which I find dishonest. Just as the economy floundered, we went nuts and created societal luxuries we cannot afford. Like a poor family with maxed out credit cards suddenly deciding to build a pool in their backyard. It's irresponsible and in another decade or two we'll be as bad off as Europe.
I'll be voting for Obama in 2012 from here in Tokyo and am very happy to do so. Although we've seen only slow economic progress and less political upheaval than I would have liked, I'm still sticking with him for the few things that I really appreciate. One being "Obamacare" (which I really wish could've been even more comprehensive) and another being his historic endorsement of marriage equality.
I feel that Republicans have really resorted to a rhetoric of fear and hate to rouse their voters which only separates Americans in the end. I see it here in Japan as well, the Tokyo mayor has stirred the pot with China and the islands in a territorial dispute in order to drum up patriotic feelings in conservative Japanese citizens. It's not helpful in America and not helpful here.
@James: If you're talking about Ron Paul... omg. A gold standard for US currency? Not feasible. Isolationist foreign policy? Not feasible. I never saw him as an actual contender, more of an outlier who wanted to open eyes to other ways of seeing things, however unrealistic.
I feel that Republicans have really resorted to a rhetoric of fear and hate to rouse their voters which only separates Americans in the end. I see it here in Japan as well, the Tokyo mayor has stirred the pot with China and the islands in a territorial dispute in order to drum up patriotic feelings in conservative Japanese citizens. It's not helpful in America and not helpful here.
@James: If you're talking about Ron Paul... omg. A gold standard for US currency? Not feasible. Isolationist foreign policy? Not feasible. I never saw him as an actual contender, more of an outlier who wanted to open eyes to other ways of seeing things, however unrealistic.
@Paul
The gold standard is absolutely feasible (and was around in this country until Nixon, so not that long ago). It prevents dishonest governments from printing money whenever they feel like it.
I find it funny that if someone suggest that we don't need hundreds of thousands of troops permanently stationed around the world, or that we shouldn't meddle in the affairs of foreign nations that don't seem to want us there or thank us for our help, that someone is being "isolationist".
The gold standard is absolutely feasible (and was around in this country until Nixon, so not that long ago). It prevents dishonest governments from printing money whenever they feel like it.
I find it funny that if someone suggest that we don't need hundreds of thousands of troops permanently stationed around the world, or that we shouldn't meddle in the affairs of foreign nations that don't seem to want us there or thank us for our help, that someone is being "isolationist".
Suppose your house is on fire and the firefighters race to the scene. They set up their hoses and start spraying water on the blaze as quickly as possible. After the fire is put out, the courageous news reporter on the scene asks the chief firefighter, “is the house in better shape than when you got here?”
Yes, that would be a really ridiculous question.
http://krugman.blogs.nytimes.com/2012/09/04/the-fire-last-time/
Yes, that would be a really ridiculous question.
http://krugman.blogs.nytimes.com/2012/09/04/the-fire-last-time/
In the last 4 years, from 2008 to 2011, the gov has on average pulled in 15.8% of gdp, or 2.5 lower than average, and spent 23.5% or 2.7 higher than the average.
Yes, and those are just the US numbers. The picture is the same everywhere: Governments have jumped in to "save" the economy, by spending money they didn't have. Those governments that are reluctant to do more of this, e.g. Germany or Finland, are being heavily criticized for not "doing more for growth". Unfortunately a lot of the money went from the taxpayer's pocket into the pocket of people who were already richer than the average person to begin with. By saving the economy, governments also saved the bankers and rich investors.
It is clear that voters are upset about this, but not so clear that the Republicans will do anything to correct this.
I find it funny that if someone suggest that we don't need hundreds of thousands of troops permanently stationed around the world, or that we shouldn't meddle in the affairs of foreign nations that don't seem to want us there or thank us for our help, that someone is being "isolationist".
While I am not a big fan of Ron Paul, I do think that in this point his position is more realistic than the Republican plan to cap spending at 20 percent of GDP without reducing military spending. If there is one thing that is certain in this election is that this is an election promise of Romney which is impossible to fulfill.
Yes, and those are just the US numbers. The picture is the same everywhere: Governments have jumped in to "save" the economy, by spending money they didn't have. Those governments that are reluctant to do more of this, e.g. Germany or Finland, are being heavily criticized for not "doing more for growth". Unfortunately a lot of the money went from the taxpayer's pocket into the pocket of people who were already richer than the average person to begin with. By saving the economy, governments also saved the bankers and rich investors.
It is clear that voters are upset about this, but not so clear that the Republicans will do anything to correct this.
I find it funny that if someone suggest that we don't need hundreds of thousands of troops permanently stationed around the world, or that we shouldn't meddle in the affairs of foreign nations that don't seem to want us there or thank us for our help, that someone is being "isolationist".
While I am not a big fan of Ron Paul, I do think that in this point his position is more realistic than the Republican plan to cap spending at 20 percent of GDP without reducing military spending. If there is one thing that is certain in this election is that this is an election promise of Romney which is impossible to fulfill.
Don't trust the "fact checkers", do your own research. Like journalists, they tend to lean heavily on "interpretation" and opinion rather than actual reporting of facts.
# posted by 
: 6/9/12 18:46
: 6/9/12 18:46
I wouldn't place too much confidence in "fact checkers." Ironically, quite often they are rebutting opinions with other opinions. For examples see: http://online.wsj.com/article/SB10000872396390444301704577631470493495792.html?mod=rss_opinion_main
In fact, once of the themes on your blog is the confusion people seem to have between fact and opinion. Some "fact checkers" fall into the same trap, it seems.
In fact, once of the themes on your blog is the confusion people seem to have between fact and opinion. Some "fact checkers" fall into the same trap, it seems.
>Governments have jumped in to "save" the economy, by spending money they didn't have.
I'd be ok with this if there was some plan to turn it around. If the gov wants to spend more in bad times, it has to spend less in good times, to pay it off.
Instead we spend in good times, then spend more in bad times, and then say we can't ever cut back or bad times will come again. And then when they do anyway, there are shouts for people to spend ever more. It's unsustainable, and flat out immoral, to spend more and more money without any intent to ever pay it back.
This isn't about policy or good intentions, it's a structural issue. We can't have health programs whose expenses grow faster than gdp growth. We can't call declining to raise military funding as highly as people had wanted the same as a cut. You can't raise the minimum wage and then be upset when jobs go overseas or disappear. You can't expand healthcare coverage while maintaining the same health care costs without a loss of healthcare quality. You can't fight for lower taxes and also for lower deficits. You can't have higher taxes without also lowering gdp growth.
Politicians on all sides come out with sound bytes, "I'll give you this good thing!" and then try to hide or ignore or blame on the opposition the associated negative consequences. It's disgusting being part of a system that promotes such a lack of integrity. >.<
I'd be ok with this if there was some plan to turn it around. If the gov wants to spend more in bad times, it has to spend less in good times, to pay it off.
Instead we spend in good times, then spend more in bad times, and then say we can't ever cut back or bad times will come again. And then when they do anyway, there are shouts for people to spend ever more. It's unsustainable, and flat out immoral, to spend more and more money without any intent to ever pay it back.
This isn't about policy or good intentions, it's a structural issue. We can't have health programs whose expenses grow faster than gdp growth. We can't call declining to raise military funding as highly as people had wanted the same as a cut. You can't raise the minimum wage and then be upset when jobs go overseas or disappear. You can't expand healthcare coverage while maintaining the same health care costs without a loss of healthcare quality. You can't fight for lower taxes and also for lower deficits. You can't have higher taxes without also lowering gdp growth.
Politicians on all sides come out with sound bytes, "I'll give you this good thing!" and then try to hide or ignore or blame on the opposition the associated negative consequences. It's disgusting being part of a system that promotes such a lack of integrity. >.<
It's unsustainable, and flat out immoral, to spend more and more money without any intent to ever pay it back.
I totally agree. I even think it is immoral to think about debt as "we will pay them back much later", because that basically is stealing money from your children.
I totally agree. I even think it is immoral to think about debt as "we will pay them back much later", because that basically is stealing money from your children.
And the rampant spending goes beyond the federal level. There are many state, county and city governments that are so far over their heads in debt that there's no hope other than to declare bankruptcy. This idea that there's an endless fountain of money to borrow from has got to stop.
I've heard that Canada had a similar debt crisis in the 90's and they managed to get things in order by drastically cutting spending.
What's even more immoral than the stupid levels of spending we've seen recently is the idea of reducing the debt by letting inflation take care of it. Just like the Demotivator says "the easiest way to steal your wealth is by cheapening your money".
I've heard that Canada had a similar debt crisis in the 90's and they managed to get things in order by drastically cutting spending.
What's even more immoral than the stupid levels of spending we've seen recently is the idea of reducing the debt by letting inflation take care of it. Just like the Demotivator says "the easiest way to steal your wealth is by cheapening your money".
Out of curiosity, how much effect (if any!) did it have on the day-to-day life of a normal person such as yourself when Belgium took a year and a half to actually form a government?
What's even more immoral than the stupid levels of spending we've seen recently is the idea of reducing the debt by letting inflation take care of it. Just like the Demotivator says "the easiest way to steal your wealth is by cheapening your money".
It's more complicated than that. Hyper-inflation is bad, but low inflation harms the economy in other ways. If there's no inflation, then there's a strong incentive to hoard money instead of putting it back into circulation. If too much money is hoarded, then the currency can go into a deflationary spiral.
Getting the inflation rate up to about 5%/year* would improve the economy by encouraging private investment, which would lead to lower unemployment.
This won't happen, because inflation has the side-effect of transferring wealth from the very rich to the poor and middle class, so the corporate-controlled media is working very hard to make sure no one talks about it.
[*I made that number up but it looks about right.]
It's more complicated than that. Hyper-inflation is bad, but low inflation harms the economy in other ways. If there's no inflation, then there's a strong incentive to hoard money instead of putting it back into circulation. If too much money is hoarded, then the currency can go into a deflationary spiral.
Getting the inflation rate up to about 5%/year* would improve the economy by encouraging private investment, which would lead to lower unemployment.
This won't happen, because inflation has the side-effect of transferring wealth from the very rich to the poor and middle class, so the corporate-controlled media is working very hard to make sure no one talks about it.
[*I made that number up but it looks about right.]
Out of curiosity, how much effect (if any!) did it have on the day-to-day life of a normal person such as yourself when Belgium took a year and a half to actually form a government?
As a fellow Belgian, I can answer that. None, whatsoever. We're heavily federalised, lower levels of goverment (like a state in US) have a lot of deciding power.
As a fellow Belgian, I can answer that. None, whatsoever. We're heavily federalised, lower levels of goverment (like a state in US) have a lot of deciding power.
Actually the rating agencies gave Belgium a better score when we didn't have a federal government, as the caretaker government didn't have the right to new spending.
Debt-ridden economies need some level of austerity at some point or you risk a flight of confidence and capital (Spain anyone?)
The problem with debt is that no one wants to pay for it and no politician will get elected by saying, "Let's pay off the debt!"
The problem with debt is that no one wants to pay for it and no politician will get elected by saying, "Let's pay off the debt!"
"The problem with socialism is that you eventually run out of other peoples money."
I think you need a fact checker for your fact checker stats... Even the left leaning MSM has exposed the whoppers being sold at the DNC.
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I think you need a fact checker for your fact checker stats... Even the left leaning MSM has exposed the whoppers being sold at the DNC.
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