Aspen Ideas Festival: Niall Ferguson, David Gergen & Mort Zuckerman Fear-monger on Deficits

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aspen ideas festival twn.jpg
The opening forum at the political celebrity and policy wonk packed Aspen Ideas Festival which opened yesterday was titled “The Financial Crisis: Will It Lead to America’s Decline?” and featured historian Niall Ferguson, US News & World Report owner and real estate mogul Mort Zuckerman, and presidential adviser David Gergen.
The discussion was interesting on a number of fronts — mostly because Zuckerman, who is normally someone who has been making a strong case for more substantial infrastructure investment in the US (and to his credit, he did raise this in this session) and Ferguson decided to use their time in the Aspen sun to fear-monger about deficits and fiscal responsibility.
Ferguson argues that fiscal reform and austerity are the path America must take to reinvent itself, if it can. Zuckerman too hammered on the big spending of recent years, particularly the ineffectiveness of the stimulus when it came to infrastructure and job creation.
I agree with Ferguson that America’s spending on two power-sapping wars is one of the major drivers of America’s political and economic weakness today, but his policy prescriptions could move America right back where it was in 1937 — when the US cut back its economic stimulus during the Depression thus deepening and lengthening America’s economic mess then.
Gergen didn’t call on me — though you’ll see me continue to put my hand up in the video above. But if he had, I would have asked “1937??”
Even center-right economists Kenneth Rogoff and Carmen Reinhardt, both fiscal conservatives, fear that the US should not cut back spending too much at the moment.
As Niall Ferguson was racing out — mouthing from the stage to Pom and Fiji Water entrepreneur Lynda Resnick that he just couldn’t do dinner with her and Barbra Streisand that night — to get to London to give a talk at St. Paul’s Cathedral titled “‘Men, Money and Morality: How Can Trust in Banking Be Restored”, I asked him whether he had any concern about a 1937 redux.
He responded by emphasizing that he wouldn’t make “near term cuts.” Fair enough.
But that point needs a lot more punctuation and Fergusonesque emphasis at a forum like this where many need to hear about what the consequences of a collapse in demand are for American workers and the American middle class.
If the government doesn’t create that demand when private households are deleveraging, firms are holding back investment, and Europe is posturing itself as a global deflationary ball and chain around global growth, then America is heading back into recession.
That should have been a view represented more squarely — and debated — at the Aspen Ideas Festival which is sponsored jointly by the Aspen Institute and The Atlantic.
I should add that this ideas festival is an amazing experience — eclectic participants, high quality debate and discussion. I’ll be speaking on the “soft power” panel this morning along with Harvard scholar Joseph Nye and former US AID Administrator Henrietta Fore.
— Steve Clemons

Comments

58 comments on “Aspen Ideas Festival: Niall Ferguson, David Gergen & Mort Zuckerman Fear-monger on Deficits

  1. GlennO says:

    The idea that you could compare Fed Tax receipts from the Clinton and Bush admins leaves out an important footnote: the Dotcom Crash and the 9/11 Crash during Bush; both of which must have had a major effect on Income/Growth disparity during those admins.

    Reply

  2. nadine says:

    Amity Shlaes weighs in on the “1937?” question:
    “With unemployment high and the Dow Jones industrial average bumping about, the big debate this summer is how to prevent a double-dip recession resembling that of the late 1930s. Some say Washington should spend more, arguing that government austerity triggered the collapse in 1937 that erased previous gains. Others say that cutting spending now will strengthen the economy generally and preclude dramatic downturns.
    President Obama may be about to repeat Franklin D. Roosevelt’s mistakes — but not the ones captured in this narrow discussion.
    By fixating on the debt and stimulus plans, Obama and Congress are overlooking challenges to the economy from taxes, employment and the entrepreneurial environment. President Roosevelt’s great error was to ignore such factors — and the result was that sickening double dip.”
    http://www.washingtonpost.com/wp-dyn/content/article/2010/07/08/AR2010070804272.html

    Reply

  3. Don Bacon says:

    entitlements
    receipts
    42% — social security taxes
    expenditures
    39% — Social Security, Medicare & Medicaid

    Reply

  4. dlb next says:

    I am a person of numbers, I believe there is a thread of simplicity that runs through our financial problems. Two facts stand out. 1) 70% of our budget goes to social spending (entitlements), and 2) every area of American life is simply a balance sheet of debt. Obama’s trillion dollar a year debt takes America to a whole new level of debt never seen before. Our collective choice at this point falls under two major catagories. 1) Defaults or 2) the United States of Iceland. My guess is we will choose Iceland by default, via not making a choice. We most likely will pretend to believe in Fanstasyland until it’s too late. I hope I’m wrong.

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  5. Don Bacon says:

    Arne Duncan: “As we look to shut down and turn around the 5,000 lowest performing schools around the country, about 200 of those happen to be charter schools, and that to me is absolutely unacceptable.” (The unacceptable part refers to the charter schools.)
    ‘Hello, parents and children, I’m from Washington and I’m here to shut down your school.’ Shut down the DOE, I say.

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  6. questions says:

    Fishgrease speaks:
    http://www.dailykos.com/story/2010/7/8/882449/-Fishgrease:-Booming-Separation
    Worth a listen when this happens.
    http://www.dailykos.com/story/2010/7/8/882568/-An-incredibly-important-speech-on-education-by-Diane-Ravitch
    And I am not the only one who thinks Arne Duncan might do more for the world elsewhere.

    Reply

  7. nadine says:

    Lloyd Grove wrote up this panel as “The Elite Turn Against Obama” in the Daily Beast
    http://www.thedailybeast.com/blogs-and-stories/2010-07-07/aspen-ideas-festival-obama-loses-support-of-nations-elite/2/
    Some quotes Lloyd Grove picked from the panel:

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  8. David says:

    OK, now I really am a questions fan. Love the above comment.

    Reply

  9. questions says:

    http://pages.stern.nyu.edu/~nroubini/SUPPLY.HTM
    Roubini with some clear info about the Laffer Curve, including:
    “In a study published in 1995, Dan Feenberg and Prof. Martin Feldstein of Harvard University calculated that raising the taxes of the rich in 1993 collected only one third of the revenues expected if these taxpayers had not changed their economic behavior. Since the levy on individuals with taxable incomes below $150,000 ($135,000 if we include the elimination of the ceiling on the Medicare payroll tax), they argued that this group was a good control for an experiment about the effects of higher tax rates on revenues.
    They argued that if the adjusted gross income of the rich (defined as individuals with adjusted gross income above $200,000) had increased at the same rate as that of the upper middle class (incomes in the 50,000 to 200,000 range), it would have grown by 2.9%. Instead, the taxable income of the group with incomes above $200,000 fell by $ 31billion. So, instead of collecting an extra $ 16 billion in taxes from this group, the government ended up collecting only an extra $ 5 billion (a third of the amount it should have if the incomes of this group had grown at the same rate as the control group). This appeared to be the Laffer Curve at work, a basic tenent of supply side economics.
    Unfortunately for the hypothesis, the fall in the incomes of the very rich after 1993 was not due to a reduction in their labor supply but rather a simple tax- shifting of incomes from 1993 to 1992 in expectation of the increase in tax rates. In fact:
    1. If 1991 (rather than 1992) is compared with 1993, there is no reduction in expected income and no shortfall in revenues.
    2. As Clinton was elected in November 1992, high income earners anticipated higher tax rates in 1993 and tried to realize the income in 1992. A New York state survey shows that two-thirds of Wall Street year-end bonuses were paid in December 1992, well above the one-third usually paid before theend of the year.
    3. Treasury Department studies suggests that all in told $ 20 billlion of income was shifted back from 1993 to 1992. Therefore most of the income that Feldstein and Feenberg argued that was destroyed by a reduction in labor supply, was instead realized a year earlier. ”
    and:
    “So, in conclusion the verdict from history and empirical evidence is quite clear. Supply side economics is “voodoo economics”. Reductions in tax rates (starting from initial moderate tax rate levels) do not siginificantly increase labor supply and savings, do not increase economic growth, do not raise total tax revenue and do not reduce budget deficits. Their likely effect on the level and growth rate on output is close to zero while they lead to significantly larger budget deficits. ”
    He has some links to follow through with. And my guess is that issues pertaining to work, investment, and savings have a whole lot less to do with rational calculations based on tax rates than the conservatives would like to think.
    We work not just to make money but also to make status and dignity. Tax rates don’t affect that need for status.
    We save if we have extra money well beyond craving and social competition. If incomes are too low, we don’t save. Tax rates area a smaller part of this than wages and the amount of stuff out there that we “need” to survive. 25 years ago no one desperately needed cell phone service, cable service, internet service, hundreds of dollars worth of iPods and iPhones and X Boxes and the services that go with these. Think about how many hundreds of extra dollars in income you need over the year to support all of this.
    The move from defined benefit to defined contribution pensions increased the need for savings, but incomes didn’t increase to cover the difference. Once savings are up to us, we don’t do so well.
    While the economy is booming and we have “confidence” in the future, we save less because saving sucks.
    If we’re at the wrong end of the economy, we don’t save because we don’t have any extra money.
    I would think that these issues have a far greater impact on economic behavior than would an increase in the tax rate.
    What decreasing the tax rates significantly on the top end of the income scale did, near as I can tell, was to encourage speculative behavior that led to the downfall of all of us.
    But then, I’m not an economist. Roubini is, however. As is Krugman who seems to agree with Roubini. And the data seem to suggest that they have something right. But then, I’m not an economist.

    Reply

  10. WigWag says:

    “Excuse me, that is simple-minded. The Laffer curve says tax cuts increase revenue DEPENDING where you are on the Laffer curve. If you cut rates from 15% to 10% you’ll probably lose revenue. If you cut from 70% to 35%, you’ll gain revenue.” (Nadine)
    With all due respect Nadine, your response to me is a non sequitur. The Clinton increase in marginal tax rates (which mostly impacted higher income Americans) and the Bush reduction in marginal tax rates (which again mostly impacted higher income Americans) were approximately of the same order of magnitude. Marginal tax rates that approached 70 percent disappeared in the 1980s along with most of the tax loopholes that insured that effective tax rates on the wealthy never approached marginal rates that high. The Laffer curve is highly dubious, but even granting that it

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  11. questions says:

    nadine, not weeping yet. I will wait til there is significantly more information. Your skimmer info regarding the Gulf/BP hole in the bottom of the sea was off a bit too.
    I have nothin’ but time…..

    Reply

  12. samuelburke says:

    here nadine, read what MJ Rosenberg has to say about why
    petraeus was so worried about his testimony.
    “The latest evidence of the fear and trembling produced by the
    lobby was evidenced last week when it was revealed that General
    David Petraeus was upset and worried by a column I wrote in
    March. I praised him for testifying that the continuation of the
    Israeli-Palestinian conflict threatens all US interests in the
    Middle East, including our troops.”
    “Boot’s straw-man argument about settlements notwithstanding,
    the story here is not that Petraeus believes that the Israeli-
    Palestinian conflict negatively affects US interests throughout the
    Middle East

    Reply

  13. nadine says:

    questions, read it and weep. This, btw, is why I think Mitt Romney won’t be the Republican nominee: he signed this turkey into law, and it’s going to hang around his neck like an albatross:
    The Massachusetts Health-Care ‘Train Wreck’
    The future of ObamaCare is unfolding here: runaway spending, price controls, even limits on care and medical licensing.
    By JOSEPH RAGO
    President Obama said earlier this year that the health-care bill that Congress passed three months ago is “essentially identical” to the Massachusetts universal coverage plan that then-Gov. Mitt Romney signed into law in 2006. No one but Mr. Romney disagrees.
    As events are now unfolding, the Massachusetts plan couldn’t be a more damning indictment of ObamaCare. The state’s universal health-care prototype is growing more dysfunctional by the day, which is the inevitable result of a health system dominated by politics.

    The deeper problem is that price controls seem to be the only way the political class can salvage a program that was supposed to reduce spending and manifestly has not. Massachusetts now has the highest average premiums in the nation.

    Liberals write off such consequences as unimportant under the revisionist history that the plan was never meant to reduce costs but only to cover the uninsured. Yet Mr. Romney wrote in these pages shortly after his plan became law that every resident “will soon have affordable health insurance and the costs of health care will be reduced.”
    http://online.wsj.com/article/SB10001424052748704324304575306861120760580.html

    Reply

  14. David says:

    Terrific piece on collateral damage, questions. Major thanks for that link.
    The stimulus was less than half what was needed, and even what was allocated was not applied to a sufficient degree.
    We are not members of a society that is about to pull together insightfully to solve our real problems. That does not serve the interests of those lusting for a return to national political power, no matter the cost to our collective well being.

    Reply

  15. nadine says:

    “you really shouldn’t ignore the elephant in the room.
    is petraeus offering himself as the lapdog, what’s up with that?”
    Talking to Max Boot is “offering himself as the lapdog”? How’s that? Was Max Boot speaking on behalf of “the Lobby” to threaten the head of CENTCOM? Perhaps Max Boot corrected Petraeus’ errant thinking with his telepathic Joooo-beams, who knows what tricks the neocon cabal is capable of. How deep does the “intrigue” go?
    If Petraeus did go out of his way to correct the record, that only speaks to how badly Mark Perry misrepresented his views. Sensible people will take note, and read Mark Perry with a large grain of salt from now on.

    Reply

  16. nadine says:

    “how much of those regulations apply to small businesses and how much of that sheer paginess will deal with issues that gigantic insurance companies will have to have spelled out?” (questions)
    Who knows, questions? Ask again after the regs get written.
    That’s why uncertainty is through the roof and nobody is hiring. There are real-world costs to these grand new social re-engineering plans.

    Reply

  17. Don Bacon says:

    Between the Lobby and Wall Street the Dems might be having their own campaign financial crisis.
    from the WaPo:
    Democratic campaign committees losing big Wall Street donors
    “A revolt among big donors on Wall Street is hurting fundraising for the Democrats’ two congressional campaign committees, with contributions from the world’s financial capital down 65 percent from two years ago.
    “The drop in support comes from many of the same bankers, hedge fund executives and financial services chief executives who are most upset about the financial regulatory reform bill that House Democrats passed last week with almost no Republican support. The Senate expects to take up the measure this month.”

    Reply

  18. Don Bacon says:

    I bet Alan Greenspan, an architect of the financial crisis, wasn’t invited. He has claimed that he was wrong 30% of the time but I bet it was more.

    Reply

  19. samuelburke says:

    you really shouldn’t ignore the elephant in the room.
    is petraeus offering himself as the lapdog, what’s up with that?
    “The emails show Petraeus encouraging Max Boot of
    Commentary
    to write a story– and offering the neoconservative writer choice
    details about his views on the Holocaust:”
    Does it help if folks know that I hosted Elie Wiesel and his wife at
    our quarters last Sun night?! And that I will be the speaker at
    the 65th anniversary of the liberation of the concentration camps
    in mid-Apr at the Capitol Dome…
    Petraeus passed the emails along himself through carelessness
    last March. He pasted a Boot column from Commentary’s blog
    into in an “FYI” email he sent to an activist who is highly critical
    of the U.S.’s special relationship with Israel. Some of the
    general’s emails to Boot were attached to the bottom of the
    story. The activist, James Morris, shared the emails with me.

    Reply

  20. Don Bacon says:

    Damn, Michael Steele has just canceled an appearance at the Aspen Ideas Festival and we thereby miss a chance to get his fresh ideas on the financial crisis, which I claim is a deeper, structural problem which is immune to tinkering with taxes and subsidies.
    Hey — I’ll go! Me, over here! Nah, no un-famous people are welcome at these funfests which result in nothing substantial, because no un-famous people are welcome at these funfests.

    Reply

  21. questions says:

    Aargh. The regulations that will be generated by HCR — how much of those regulations apply to small businesses and how much of that sheer paginess will deal with issues that gigantic insurance companies will have to have spelled out? Do you understand that insurance companies themselves have massive quantities of regulation-like procedures to run through? Every drug and every procedure and every cost is coded, priced, given a range of allowances and disallowances….
    How many pages does a doctor have to read to get through med school?
    When regulations are too general, we cannot manage them. When they are specific, we can understand what we’re supposed to do and we might even have a harder time dodging the spirit because the spirit is in the letter.
    Things I hate: The laffer curve, talking points about page counts, ignoring evidence! Really, I do dislike this stuff.

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  22. nadine says:

    “None of that is particularly relevant, Nadine. You claimed that tax revenue increased by 40 percent after the Bush tax cut; but tax revenues increased more than 70 percent after the Clinton tax increase. Ipso facto the idea perpetrated by the vodoo economists, aka “supply-siders” that tax cuts increase receipts more than tax increases is demonstrably wrong.” (Wigwag)
    Excuse me, that is simple-minded. The Laffer curve says tax cuts increase revenue DEPENDING where you are on the Laffer curve. If you cut rates from 15% to 10% you’ll probably lose revenue. If you cut from 70% to 35%, you’ll gain revenue.
    It is tax hike proponents who claim that tax cuts ALWAYS lose revenue and tax hikes ALWAYS gain revenue, and that is the proposition that Bush’s tax cuts should have put to rest once and for all. Yet they go around talking about how Bush’s tax cuts COST money we couldn’t afford, as if investment activity is unaffected by 28% capital gains tax vs. 15%.

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  23. nadine says:

    “Back on March 13, Mark Perry broke the explosive story that Gen. David Petraeus was echoing Joe Biden’s view that the special relationship with Israel is endangering Americans… On March 16, neocon Max Boot, who is on the Council of Foreign
    Relations and holds militarist pro-Israel views (he’s an American Jew born in Russia), sought to refute Perry’s post at the Commentary blog…
    “I asked a military officer who is familiar with the briefing in question and with Petraeus

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  24. WigWag says:

    “Wigwag, you give far too much credit to Clinton, Rubin, etc. for budget surpluses. Proper credit should go to the 1994 midterms and the Republican Congress, just as proper credit for the very sharp hike it spending in Bush’s last two years should go to Nancy Pelosi and the Democratic Congress.” (Nadine)
    None of that is particularly relevant, Nadine. You claimed that tax revenue increased by 40 percent after the Bush tax cut; but tax revenues increased more than 70 percent after the Clinton tax increase. Ipso facto the idea perpetrated by the vodoo economists, aka “supply-siders” that tax cuts increase receipts more than tax increases is demonstrably wrong.

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  25. nadine says:

    “Correct me if I’m wrong…. And I really mean that, always.
    Didn’t Don Bacon claim that regulations were the problem? Not uncertainty, but regulations.” (questions)
    questions, I think you are thinking of regulations too narrowly: as the Department of Agriculture’s rulings on lettuce or OSHA’s ruling on workplace safety. They are much more than that. They are how every new regulatory and tax scheme gets translated from the language of the bill into reality.
    Obamacare was 2700 pages, but it will generate 50,000 pages of Dept of Health & Human Services regulations, at least, and until the regs get written and propagated and figured out by the battalions of lawyers that companies must hire to read them, nobody knows what the bill really means, and nobody can estimate the true costs of compliance. Certainly Congress didn’t stop to figure it out.
    We already saw how unpleasantly surprised Henry Waxman was, when Coca-Cola took a billion dollar write-down, just because of tax changes on write-offs for company’s medical coverage of its retirees; but Coca-Cola only did what it was legally required to do.
    The officers of corporations are the ones who can go to jail for breaking the law, so they will be the first ones to actually read the law & figure it out.

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  26. nadine says:

    Wigwag, you give far too much credit to Clinton, Rubin, etc. for budget surpluses. Proper credit should go to the 1994 midterms and the Republican Congress, just as proper credit for the very sharp hike it spending in Bush’s last two years should go to Nancy Pelosi and the Democratic Congress.
    If Bill Clinton had had his way with Hillarycare, it would have exploded the budget just like every other attempt has done since then.
    When you compare Clinton’s figures to Bush’s you forget that Clinton inherited an economy that was already recovering from recession; Bush had to deal with the post 9/11 recession.

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  27. samuelburke says:

    Hey Steve what about the Petraeus emails?
    militant military leadership could mean more military spending
    at a time when what is needed is infrastructure job growth
    projects.
    “Petraeus emails show general scheming with journalist to get
    out pro-Israel storyline
    by PHILIP WEISS on JULY 2, 2010

    Reply

  28. Don Bacon says:

    erichwwk,
    My calculations were actually a test of the Emergency Math Calculations Response System and it took over four hours . . .
    Seriously, I completely lost it on that calculation by a thousand and you caught it. The stimulus over three years is 1.8% of GDP.
    I think my point is still valid, that this stimulus when compared to all the negative factors in play — particularly at the state level — is of no consequence statistically.

    Reply

  29. Linda says:

    2010 does look a lot like 1937 except there was no Aspen Institute that was founded in 1950 as the Aspen Institute for Humanistic Studies.
    I always consider the Aspen Festival to be summer camp for oligarchs.
    It’s hard to find any one speaking or attending who makes less than well into six figures–many who are in the high six figures and beyond. Only people like Lynda Resnick and Barbra Streisand can afford to attend in person when registration for the conference costs $4900 not to mention hotel and air fare.

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  30. Mr.Murder says:

    The leaves in Aspen are turning!

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  31. Mr.Murder says:

    Let’s not forget that the Aspen Institute used to prop up sham intelligence in the drum up for war. Judith Miller’s pen pals all still go there!

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  32. Carroll says:

    Here’s what doesn’t work.
    NC has a 1 billion dollar shortfall in their state employees insurance and heath care fund.
    A large part of the reason for that is state retirees pay nothing for their retirement health benefits. For years NC state employment policy was that an employee only had to work 5 years to be fully funded for their no cost health insurance in retirement. This produced a swarm of double dippers securing state jobs in NC. They have now changed that to 10 years before being fully vested…but too late…the damage is done.
    To cover this years expenses for retirees the state robbed the State Highway fund and transferred that money to the state retirees heath fund.
    The obvious logical thing would have been to make those retirees pay something for their coverage…But no, like the fed employees, the state employees are a special donor and voting block politicans to cater to.
    This of course didn’t sit well with the construction companies in the state who actually provide jobs and saw many contracts for road repairs and bridge construction go down the drain.
    Politicans are going to direct any stimulus to where it does them personally the most good for the next elections, not to what actually works…that is how Washington works. This recession Will continue…they have learned nothing except who to get money from and who to give money to stay in office.

    Reply

  33. WigWag says:

    “Since Federal tax revenue rose 40% in the five years after the Bush tax cuts, how do you make the case they cost anything at all? Do you regard economic activity as invariant wrt to tax levels?” (Nadine)
    Federal tax revenue climbed 71 percent in the seven years after the Clinton tax increase; I’ll take 71 percent in seven years over 40 percent after 5 years every day of the week. During Clinton’s years in office the unemployment rate was lower than in the Bush years; the percentage of Americans seeking jobs who actually found them was higher than in the Bush years. Productivity growth was higher, income inequality was marginally less bad and the deficit declined during the Clinton years as opposed to the Bush years. Levels of taxation were simply more appropriate during the Clinton years than during the Bush years.
    But its actually far worse than that. Had Gore assumed the Presidency instead of Bush, it is highly likely that Clinton’s fiscal policies would have been maintained. It is also highly likely that the budgetary surplusses that Rubin, Summers, Tyson (who Steve mentioned earlier), Robert Reich and even the Republican Congress were generating would have completely wiped out the Federal debt.
    With the debt eliminated, how difficult would it have been to implement the fiscal stimlus that we need now? The fact that we had a generation of iressponsible fiscal behavior is almost exclusively the fault of the Republican Party and its idiotic tax cutting mantra.
    If Nadine thinks the Bush economic performance was good after he cut taxes, surely she thinks that Clinton’s economic performance was better after he raised taxes; the facts make that assertion irrefutable.
    With no federal debt, when the current economic calamity hit; the spending necessary to pull out of the current crisis might have raised the debt to a mere 20 or 30 percent of GDP; an amount incredibly small by historical standards.
    But its not just Nadine who is wrong; so are all of her opponents on the left. Rubin, Summers and the rest of the Clinton economic team did an extraordinarily good job managing fiscal policy during the 1990s (despite their miserable performance on regulatory matters that did come back to bite us).
    Left to their own devices, Geithner and Summers would recapitulate the extraordinary success they had during the 1990s. That’s because they’re Keynesians so they understand how the macro economy actually works.
    When the Tea Partiers and all their fellow travelers get finished, the irony is that it will be them who face economic disaster; the people living in Greenwich, Connecticut and Palm Beach, Florida will be doing just fine.

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  34. questions says:

    http://www.dailykos.com/storyonly/2010/7/6/882041/-Giant-skimmer-captures-just-1,100-barrels-in-24-hour-period
    Nadine, just thought you might like to read about just how much oil the state of the art skimmers are skimming thus far…..
    Pretty interesting stuff.
    We’re literally at sea regarding the oil spill.

    Reply

  35. Carroll says:

    TIME’S June 28th issue cover…The Broken States”
    http://www.time.com/time/nation/article/0,8599,1997284,00.html
    Some excerpts:
    “Already, 11 states are projecting major budget gaps

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  36. erichwwk says:

    “Ferguson argues that fiscal reform and austerity are the path America must take to reinvent itself, if it can.”
    Shame on Niall. But then I don’t consider him an economist in that he has made the effort to develop a coherent model of how things work.
    Kudos to Steve for his interest in the US economy. I’ll take his judgment over that of Niall any day.
    Unfortunately comments seem to want to win arguments, and on rather flimsy evidence, rather than to further understanding. So i’ll stay out of the discussion here for now.
    Don, you might want to check your calculations. 1% of $14T = $140B, 0.1% = 14 B. You lost a lot of zero’s somewhere ;-).

    Reply

  37. questions says:

    Correct me if I’m wrong…. And I really mean that, always.
    Didn’t Don Bacon claim that regulations were the problem? Not uncertainty, but regulations.
    As for HCR, my guess is the following — if a small shop has 100 customers lining up down the block, they’ll hire someone then and there and worry about the health care premiums later.
    If 100 shops hire people, then the suppliers of STUFF to those shops or businesses will also hire.
    The problem with the demand and supply cycle is actually one of those game theory things we cannot really get ourselves out of without support from above because of assurance, communication and coordination problems.
    Who’s going to be the first person to start spending wildly and hiring wildly if the stream of customers might go away?
    The stock market is highly volatile for now, which makes people hold off on spending. The unemployment rate is a drag on the whole economy as even people who are fairly secure don’t necessarily identify as such.
    We have, then, a structure of uncertainty that has less to do with regulation and more to do with cycles and a lack of coordinated investment.
    What might actually work, in a funny way, is some kind of governmental semi-fiat maybe worked through the tax code that gets EVERYONE incentivized to invest in a bunch of stuff in waves over the next n months. Start with some sectors of the economy that are easy to move (needing fewer periods of study or impact statements or contracting out) and moving through a variety of areas.
    The car and home sale pushes did move some sales forward a bit, even if at some level they didn’t create sales that wouldn’t have happened eventually.
    The credit crunch is its own problem, and differs from other issues. The fed could probably back some loans and push banks to make them, but that seems to cause problems when the banks have no incentive to care much about the loan-worthiness of their customers. It might be interesting to set up some medium risk community banking system so that local businesses can get local credit for local purchases, and maybe there could be some risk sharing between municipalities, people in the community, and businesses in the community. I have no finance background, so this is all total guess work and may be total nonsense. But it seems that certain kinds of jump starts can be effective.
    I think, as WigWag may have noted above, the states are likely to undo what the feds have been trying to do, and the municipalities will pass all of that on. So there’s probably more room for stimulus here.
    Kos has an endlessly linked to chart up on the front page that shows how much of our deficit can be ascribed to the Bush tax cuts. Maybe we should give up on those.
    And finally, below is a link to the effects on small businesses of HCR:
    http://money.cnn.com/2010/03/22/smallbusiness/small_business_health_reform/
    Small businesses for HCR according to this piece are those with 100 or fewer employees. So the 500 number the SBA uses is useless…..
    Until we’re all talking about the same things, we’re going to have a hard time talking.

    Reply

  38. nadine says:

    “Jonst — yes, Niall Ferguson in response to a question said that the US got itself in this position in a number of ways — including poorly designed and perhaps inappropriate tax cuts during the Bush administration.” (Steve Clemons)
    Since Federal tax revenue rose 40% in the five years after the Bush tax cuts, how do you make the case they cost anything at all? Do you regard economic activity as invariant wrt to tax levels?

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  39. nadine says:

    “The questions have to be asked, then, what regulations [affect small business]” (questions)
    questions, no business in the country understands what taxes it will be paying next year or what health care costs it will be bearing. But everybody knows taxes and health care costs are both going UP.
    Furthermore, while the big banks are getting bailed out and protected, small business still can’t get credit. In fact, financial “reform” means government snots in the guise of bank inspectors are insisting that banks call loans from good quality existing customers to “improve” their balance sheet, so credit is super tight.
    Regime uncertainty = no hiring. No credit = no business expansion = no hiring. Recession = no hiring.
    Get it? No lettuce regulations needed.

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  40. nadine says:

    “The idea that stimulus spending didn’t do anything to spur infrastructure or job creation is just absurd. Tens of billions were spent on infrastructure development and the construction projects can be found everywhere in America to prove it” (Wigwag)
    Yes; tens of billions were spent on infrastructure. Unfortunately the stimulus amounted to a Trillion dollars, most of which went to bail out the states’ unsustainable spending and fully half of which is still unspent. The amount that went to stimulative activities (i.e. “shovel ready jobs”) was quite small and the claimed multiplier effect non-existent.
    “If unemployment were at 15 percent, what would that mean to the value of homes as more and more people defaulted on their mortgages? What would it mean for police and fire protection as local communities saw their tax base erode? What would it mean for business investment as unemployed consumers simply stopped consuming?”
    We’ll find out. Real unemployment is closer to 18%, once you count in the discouraged workers. The official rate only went down to 9.5% because the labor force shrank by 650,000 in June.
    Private sector hiring has effectively ground to a halt. We need 125,000 new jobs per month just to keep even with population growth, and we are nowhere near that.
    Michael Barone attributes the absence of private sector hirign it to “regime uncertainty” and finds he’s not alone in noticing:
    “Why aren

    Reply

  41. Don Bacon says:

    questions,
    I’ll humor your demands this time, at least partially. I’m in a good mood.
    The Small Business Administration establishes small business size standards on an industry-by-industry basis, but generally specifies a small business as having fewer than 500 employees for manufacturing businesses and less than $7 million in annual receipts for most nonmanufacturing businesses.
    According to a recent study health insurance*, liability insurance and workers’ compensation are the top three problems facing America’s small business owners. Competition and other factors are down the list.
    *new requirements enacted recently on businesses
    Currently there is a credit crunch which affects small business, thanks to government inaction to help Main Street rather than Wall Street. Sam’s Club is Working With SBA to Offer Loans Up to $25000.

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  42. questions says:

    Nice, WigWag. I’ll toss in a plug for Animal Spirits which deals with questions like why we don’t have full employment, why we treat dollar amounts nominally rather than relatively and other counterintuitive moments in economic thinking.
    There probably are some kinds of government regulations that make it harder for small businesses to do their thing (the definition of “small” should be stated, by the way. The SBA uses 500 or fewer employees as a cut off. 500 employees isn’t the local drug store or bakery or sandwich shop or franchise or copy shop or doctor’s office or a whole lot of other things. It might be nice, then, to give some numbers….)
    The questions have to be asked, then, what regulations — I guess there’s Rand Paul’s worry about ADA and all those 2 story building that have to put in 10,000 dollar elevators — except they don’t. Funny, that. There’s no such regulation.
    Maybe it’s the temperature of the lettuce at Subway that needs to be monitored. THAT could drive any franchisee crazy. Imagine having to monitor the temperatures of food! Very burdensome!
    Or maybe it’s the minimum wage. That one can be awful. Paying people some minimal amount can ruin a guy’s day. And clearly there would be many more jobs if we could just let people be paid 50 cents a week!!! (Check out the Animal Spirits book for this one.)
    So, Don Bacon, here’s the challenge. Find some burdensome regulations that have made many a small business go away or not come or whatever. Show that the service that business would have provided is not provided by some other segment of the economy — that is, prove that there is job loss directly resulting from the regulation.
    And while you’re at it, define “small”.

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  43. Don Bacon says:

    The US GDP is $14 trillion.
    The $800 billion stimulus, applied at 1/3 per year for three years, is 0.00189 percent of the GDP.
    The basic problems are structural not financial, and while puny governmental programs to hire road crews may have a feel-good effect but they are not solutions to the basic problems.
    Thirty-five percent of eligible Americans are not in the labor force (BLS) because of the factors I listed above, and others. Many of them don’t need to work, but many others have been shut out of the labor market. The government has no way to differentiate these two cohorts.
    Eighty million people, plus 15 million in the labor force but unemployed, a total of 95 million Americans compared to 154 million who are in the labor force. Somebody should be looking at and analyzing these numbers because they are much more important than the bogus BLS unemployment report which only considers those who do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work.
    The US government’s position (as with Afghanistan!) is that everything’s coming up roses. The recent BLS report stated: ” A wave of federal Census layoffs cut U.S. payrolls in June for the first time in six months. Employers cut 125,000 jobs last month, the most since October, the Labor Department said Friday.”
    Obama’s reaction to the depressing BLS report: “Make no mistake, we are headed in the right direction.”

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  44. WigWag says:

    “Wig — quick answer to your question is that we would have been much worse off had the government not enacted the stimulus — but it still wasn’t enough to get us beyond moving deck chairs.” (Steve Clemons)
    That’s twice this year that we’ve agreed Steve. To celebrate I’m going to have a beer with lunch (don’t tell my doctor).
    Do they serve adult beverages with lunch in Aspen? If they do, I’m betting its chardonnay or Pinot Noir not Coors (the hometown beer) or Heineken.

    Reply

  45. Steve Clemons says:

    Wig — quick answer to your question is that we would have been
    much worse off had the government not enacted the stimulus —
    but it still wasn’t enough to get us beyond moving deck chairs.
    This is one of the key points made by Niall Ferguson with which I
    very much agree, particularly in comparison to China’s stimulus and
    the consequent effects.
    All best from Aspen, steve

    Reply

  46. Maw of America says:

    It’s becoming increasingly clear that the federal payments to the states have just delayed the pain, and the appetite for further assistance is muted, to put it mildly. There are thousands of teachers and other municipal jobs that will disappear in a few months if Congress is unable to help them. The question is, how will they cope once that occurs? Local tax increases (sales, property, business, etc.), more fees, reduced services – where will it end?

    Reply

  47. WigWag says:

    “Small businesses, which create 75 percent of new jobs and the majority of jobs, are burdened with too many laws and taxes thus making their business tenuous. Currently they are not hiring because of the paperwork and other burdens, so they hire temps, computerize or go without. The job outsourcing industry is a major factor — they can get your jobs done overseas, in every service and manufacturing field except those requiring direct customer contact.” (Don Bacon)
    I say this respectfully, Don Bacon, but what a crock!
    When I hear small business-people complain that they can’t hire or invest because of all the red tape government imposes on them, it makes me wonder; were the red tape and regulations really that much less burdensome during the late 1990s when the official unemployment rate frequently dipped below 5 percent?
    To ask the question is to answer it.
    When these same ignorant small business-people complain that if they have to live within their means the government should to, it makes me wonder which would be a bigger disincentive for them to invest in their businesses;

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  48. Don Bacon says:

    This is not the thirties and this is not your father’s depression.
    This is not purely a financial problem, it’s a social problem and a failure of government. Small businesses, which create 75 percent of new jobs and the majority of jobs, are burdened with too many laws and taxes thus making their business tenuous. Currently they are not hiring because of the paperwork and other burdens, so they hire temps, computerize or go without. The job outsourcing industry is a major factor — they can get your jobs done overseas, in every service and manufacturing field except those requiring direct customer contact.
    Free trade laws have permitted companies to manufacture abroad and import w/o tariff. Foreign military sales have offsetting agreements that promote overseas manufacturing of all sorts of goods, with the full support of the US State and Commerce Departments. Law that affects large corporations are written by those corporations — laws that promote profits and reduce US employment.
    This is not the thirties and this is not your father’s depression, and it won’t be solved with Keynesian remedies.

    Reply

  49. Don Bacon says:

    Michael Jones,
    Crucifiction went out of style a couple thousand years ago. A US president gets elected to do the right thing, not make decisions that further his political career. Obama has been criticized by the right just for being president, regardless of the decisions he made.
    Obama should have made different decisions on Afghanistan. There were other options to expanding the military effort including diplomacy, accommodation and getting the corrupt, ineffective Karzai out. But Obama wanted a bigger war. Well, he’s got it. We’ve got it.

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  50. WigWag says:

    “Wig — thanks for your comment. I don’t have the citation on hand, but recently hosted a program with Laura Tyson who cited a new study showing that the net stimulus effect of the US stimulus combined with the de-stimulative effect of state budget cuts amounted to zero…” (Steve Clemons)
    Perhaps, but if that’s the case, where would we be had the Obama stimulus never been enacted?

    Reply

  51. Steve Clemons says:

    Wig — thanks for your comment. I don’t have the citation on hand, but recently hosted a program with Laura Tyson who cited a new study showing that the net stimulus effect of the US stimulus combined with the de-stimulative effect of state budget cuts amounted to zero. So, while you may see a lot of construction, we have a lot of other jobs destruction. I’ll try to get the cite for you when I have time. All best, steve

    Reply

  52. Michael Miles says:

    This new talking point has got me a bit worried, partly because I
    can’t figure out the end-game. On the one hand, I’m upset that
    Republicans are going to try and manipulate the irrationality of the
    polity by making this a national defense issue (yes, I know that is
    not the exact point of this post, but it is strongly related.) We are in
    our present mess because the argument that tax cuts and
    increased spending could responsibly coexist was hammered into
    our heads several decades ago. The flip side of the coin, however, is
    that Republicans will actually succeed in convincing us that fiscal
    responsibility is necessary, but they won’t be able to take away the
    entitlement programs. The result will be tax increases at the top
    and defense cuts. We could wind up in 1964 again, which would
    restore a modicum of sanity to the debate.

    Reply

  53. WigWag says:

    The idea that stimulus spending didn’t do anything to spur infrastructure or job creation is just absurd. Tens of billions were spent on infrastructure development and the construction projects can be found everywhere in America to prove it. Haven’t you been tied up in traffic as a result of road construction financed by the stimulus package? I have. So has everyone else that I know.
    As for jobs, the stimulus package didn’t solve the unemployment problem because it was too small; but where would we be without it? Instead of an unemployment rate hovering around ten percent (real unemployment and underemployment is actually much higher) the unemployment rate would probably be at least 50 percent greater than it is now.
    If unemployment were at 15 percent, what would that mean to the value of homes as more and more people defaulted on their mortgages? What would it mean for police and fire protection as local communities saw their tax base erode? What would it mean for business investment as unemployed consumers simply stopped consuming?
    Fiscal austerity in the face of an economic downturn will do nothing but lead to more and more economic pain; needlessly. The fiscal crisis has be addressed; but only after the current calamity passes.
    Debt as a percentage of GDP is still dramatically lower than it was during World War II and the American economy handled the debt during the post war years just fine. Yes, growth prospects were better in the post war years; but the United States is dramatically wealthier now than it was then.
    Free market advocates couldn’t be bigger hypocrites. In case they haven’t noticed, the yield on Treasuries has been bid down to almost the lowest rate in history. It’s the market place that determines interest rates for long term debt and the market is speaking loudly and clearly when it prices treasuries at such low yields. What its saying is that the threat of default is near zero; so let’s stop with all this nonsense that the United States might turn into Greece, Spain, Portugal or Ireland. Remember, it wasn’t long ago that there were idiots out there forecasting that the dollar was about to lose its place as the world’s reserve currency; how did that work out?
    While Steve is right to criticize Ferguson and Zuckerman (how did the preternaturally dumb Ferguson ever achieve the status of guru?) this remark on Steve’s part is just silly,
    “I agree with Ferguson that America’s spending on two power-sapping wars is one of the major drivers of America’s political and economic weakness today…”
    If Ferguson said that U.S. spending on war or anything else is sapping its strength than he’s wrong and Steve is being obtuse if he agrees with him.
    Are we really supposed to believe that the United States is weaker today than it

    Reply

  54. questions says:

    http://www.dailykos.com/story/2010/7/5/881817/-Collateral-Damage:-Racism,-the-Economy-and-the-High-Cost-of-White-Ambivalence
    This is a wonderful essay on our reluctance to have generous social spending and “white racial ambivalence.”
    Really worth the read.
    Especially if we’re talking about austerity.

    Reply

  55. Josh M. says:

    “If the government doesn’t create that demand when
    private households are deleveraging, firms are
    holding back investment, and Europe is posturing
    itself as a global deflationary ball and chain
    around global growth, then America is heading back
    into recession.”
    So very well-stated.
    Though I do wonder if what is being termed as a
    potential recession is more of a semi-permanent
    “L,” which isn’t a recession (at some point
    consecutive growth in a poor economy stops being
    negative [quantitatively] and just starts being
    poor). That is, maybe the new equilibrium point
    for maximum unemployment in the U.S. is just
    higher. Maybe U.S. innovation is down for reasons
    that the U.S. government can’t necessarily
    control (see the Economist’s recent Special Report
    on innovation in emerging markets).
    At some point, the stimulus does need to draw
    down, and ideally that happens only when the U.S.
    “recovers” on its own — but what if that recovery
    in an “Asian Century” isn’t going to happen the
    way we hope? The stimulus package is a hedge
    against the medium-term possibility that the
    future isn’t so bright. But if the long-term isn’t
    so bright, then we’re really only consuming now
    while forestalling a much darker future. That’s a
    textbook definition of the opposite of investing.
    At some point, austerity measures are needed.

    Reply

  56. Michael Jones says:

    Aw c’mon Steve. You know as well as I that if Obama had made the opposite call on Afghanistan, he would have been utterly crucified by the McCain-Graham-Lieberman contingent, seconded by the entire force of the Repub-Limbaugh-Beck machine. And we would have heard nothing else from that bunch until November about what traitors the Dems always are to the troops.

    Reply

  57. Steve Clemons says:

    Jonst — yes, Niall Ferguson in response to a question said that the US got itself in this position in a number of ways — including poorly designed and perhaps inappropriate tax cuts during the Bush administration. He also talked about the drag of spending on two wars which have very little beneficial impact on jobs and economic activity. There was discussion of the high multiplier benefits of infrastructure investment.
    best,
    steve clemons

    Reply

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