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May 20, 2013
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 Spend Now, Save LaterPosted on Jun 13, 2010Will politics slow our economic recovery? Will world leaders who pulled us back from the brink of a new Great Depression throw in the towel before the global economy gets the unemployed back to work? These are the moment’s central questions, and I posed them last week to Larry Summers, President Barack Obama’s top economic adviser. Summers is often cast as an economic conservative because he was a serious budget balancer in the Clinton years. In fact, he is a pragmatist who thinks economics involves the art of tailoring policies to actual conditions. And right now, the pragmatist thinks that the job of getting us out of the economic doldrums is not yet done. “Different economic circumstances require different approaches to economic policy,” Summers said, using a bit of economist-speak. “Today, when interest rates are at nearly zero and the central challenge is a shortfall of demand, the policies of immediate fiscal consolidation that were appropriate to address the crowding-out problems of the 1990s would be harmful, not helpful, to economic growth. That’s true at home and around the world.” It would be nice if Congress and policymakers elsewhere who seem to be racing prematurely to fiscal austerity would give Summers a listen. The last thing we need is to undo much of the good done last year by governments that chose not to repeat the big mistake of the early 1930s. Instead of imposing austerity when the global economy needed a big boost, they opted for stimulus. And the world avoided catastrophe. Advertisement But he was plain about this: We will never deal effectively with our deficit problem until we get the economy moving. As Summers put it at Hopkins: “It is not possible to imagine sound budgets in the absence of economic growth and solid economic performance.” If you don’t think growth needs to come first, consider these numbers from Summers: We could cut the debt as a share of GDP by half a percent with $75 billion in either spending cuts or tax increases. But we would achieve exactly the same result with an extra three-quarters of a percent of GDP growth. “Spurring growth, if we can achieve it,” Summers said at Hopkins, “is by far the best way to improve our fiscal position.” That’s why it’s mystifying that a Democratic Congress is having so much trouble passing the most elementary forms of economic stimulus. Assisting the states with extra Medicaid money and helping them avoid massive teacher layoffs could save or add at least 300,000 jobs. Do Democrats honestly think that nickel-and-diming on stimulus now will either have a substantial impact on the long-term deficit or be of greater help to them in this fall’s elections than more robust growth? Make no mistake: Summers has not gone squishy on the deficit. In his careful and unapologetic rendition of the two-handed economist act, he is at pains to make clear that he thinks that long-term fiscal profligacy would endanger growth, both now and later. “Jobs are the top economic priority,” he said in a follow-up e-mail to the interview, “which is why the president is pushing Congress on measures to strengthen small-business hiring, promote clean energy investments, prevent teacher and police layoffs, and support unemployed workers. It’s also why we’re working to double exports.” Then he added: “But for a policy centered around economic growth to be credible in the short term we must show a commitment on returning to a fiscal sustainable path over the medium and long term. That’s why the president has taken important steps to bring responsibility back to the federal budget through health care reform and in creating a bipartisan fiscal commission.” OK, those are not exactly ringing sound bites in a political environment that limits economic discussion to cries of “Big Spending!” and “Big Deficits!” And, yes, in the parlance of political consultants, it “muddles the message” to argue that we need to tilt toward growth now and fiscal discipline in the long run. But it happens to be the right policy. Does that matter anymore?  TAGS:
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By bogi666, June 17, 2010 at 3:29 am Link to this comment
(Unregistered commenter)
Trickle Down, what does it REALLY mean. Diarhea[?] trickles down so it means shit on you American taxpayers. All we’ve got since Trickle Down is crap.
Report thisBy Gary Page, June 16, 2010 at 8:39 pm Link to this comment
(Unregistered commenter)
After reading these comments, I wonder if some of these people have ever had any economics or read any economic history. The problem is deflation, unemployment, lack of demand. The only solution is for the government to inflate, create demand and employment. The best way to do this is infrastructure projects, next best is government employment. Both have a better multiplier effect than cutting taxes. Monetary policy doesn’t do enough.
If you think reducing the deficit is the answer to a severe recession, I have 2 words for you—Herbert Hoover. He turned a recession into the greatest depression in US history by balancing budgets and reducing government spending.
Report thisBy Shift, June 15, 2010 at 11:35 am Link to this comment
Allow the Bush tax cuts for the wealthy to expire and be applied to working people. Working people would then have more money to create demand and the 50 billion stimulus would not be needed. Tax the wealthy with a more progressive taxation rate and reduce the tax rates of working people. This is not rocket science, it is common sense. To save elite own arces it needs to be done now. Raise the minimum wage to 20.00 per hour. Knowing it’s impossible for Washington politicians to take bold action, we must instead take the hard road of decline, collapse, and devastation for all, including the rich. What hubris!
Report thisBy Samson, June 15, 2010 at 6:21 am Link to this comment
Do whatever you have to do to survive bad times. Save for future rainy days when its good.
In the US, we are doing just the opposite. When times are good, we cut taxes on the rich and spend fortunes on our military. When times are bad, our governments are slashing spending and cutting jobs.
At the state and local level, both jobs and the services that people need more in bad times are being cut. Which is exactly the wrong answer.
Times like these, we should be increasing government jobs. More people need the assistence, and the extra jobs would help the economy. If there was ever a time to be hiring more social workers, more teachers, more nurses, more of everything that helps people .... that time is now.
The bankers don’t agree of course. And our government is run by the bankers. So, we are cutting when we should be spending. And we didn’t save when we should have been saving during the good times. We should learn to save in future good times. But for now, we need to spend to survive.
Report thisBy Fat Freddy, June 15, 2010 at 4:29 am Link to this comment
In 1971, Richard Nixon broke the Bretton Woods agreement, and took us off the quasi-gold standard, and declared that “we are all Keynesians, now”.
So, here we are. What’s the plan? The plan is, to keep inflating the money supply. Sounds like a good plan, to the uninformed. The problem is, that this was the plan that created the mess we are in. Too many dollars, chasing too few goods and services. The result is mal-investment. So, it follows that, more money in the system will only seek more mal-investments. It’s not “real” money being put into the system, it is, at best, artificial money, at worst, counterfeit money, or what we Austrians call “fiat” money, or “money by government fiat”.
The current fiscal crisis, is indeed, just a symptom of the monetary crisis we are facing. Perhaps, the President should fire his economic advisers and declare, “we are all Austrians, now”, before the real monetary meltdown happens.
http://www.ritholtz.com/blog/2010/02/we-are-all-austrians-now/
Report thisBy Not One More!, June 14, 2010 at 7:16 pm Link to this comment
Again a democratic (or corporate) apologist who is saying that our economy is on the right path, and just needs a few touch-ups.
As some of the others already mentioned, feeding the economic monster is not an answer. They want us to consume, because that is what generates the artificial profit that is making the corporate elite even richer. Even Bush’s main message after 9/11 was ‘just keep spending.’
Why aren’t they saying what is needed is a more sustainable economy? Because that doesn’t make money for the elite.
How to know if you are the elite: Did you get part of the trillion dollar bailout package? Or are you trying to get some of the $50 million dollars that they are threatening to cut in order to be fiscally responsible, along with the school budget cuts and health care.
Our leaders (both the democrats and republicans) remind my of a joke with their talk of recovery. A guy jumps out of an 8 story building. As he’s falling he says at each floor, ‘Well, so far so good.’
We are fast approaching the ground.
If you stop supporting the 2 corporate parties and start voting third party you won’t have to listen to drivel like this.
And this drivel is the worst kind, masquerading as something that is informational and useful, where as it is misleading and further promoting the shift of power and money from the general public to the corporate elite.
so it goes
Report thisBy Spooky-43, June 14, 2010 at 5:19 pm Link to this comment
Dionne says, “Instead of imposing austerity when the global economy needed a big boost, they opted for stimulus. And the world avoided catastrophe.”
Dionne must be living in another dimension.
Here are some quotes by Naoyuki Shinohara, the IMF’s deputy managing director speaking on Wednesday June 9th in Singapore.
“The risks to a robust global recovery have “risen significantly” as many governments struggle with debt”
“After nearly two years of global economic and financial upheaval, shockwaves are still being felt, as we have seen with recent developments in Europe and the resulting financial market volatility,”
“The global outlook remains unusually uncertain and downside risks have risen significantly,”
I think I’ll side with Mr. Shinohara. Debt is strangling the world, and though most intelligent people admit it, they never stop borrowing and spending.
I just read or heard where 43 cents of every dollar that the US government spends is borrowed.
All this debt is playing right into someone’s agenda. I guess it won’t be too long until we see exactly who that someone might be. Any guesses?
Report thisBy Hammond Eggs, June 14, 2010 at 11:00 am Link to this comment
The Democrats are scum, beginning with Obama. They no more care about what happens to the people of this nation than the Republicans do.
Report thisBy peter john, June 14, 2010 at 10:18 am Link to this comment
(Unregistered commenter)
If we tax at the same rate we did in the 50s,60s and 70s we would have more than enough revenue to pay off the national debt. The national debt was not cause by growth in government but by a reduction in revenues caused by cutting the tax rate to the rich.
Report thisBy SoTexGuy, June 14, 2010 at 9:33 am Link to this comment
The author quoted Mr. Summers as saying:
“Today, when interest rates are at nearly zero.. “
Well, that may be true of interest PAID to my accounts. IF I could get a loan from the bank where I’ve had my account for about 30 years and I have thousands in deposits and zero overdrafts or other problems.. the interest charged on that loan would be in real positive numbers that Mr. Summers doesn’t discuss..
Mr. Summers and many others who are ‘in charge’ apparently believe banking IS the economy.. that’s like saying a person with a 3 meter long tapeworm in his gut has a partner or an asset..
As far as this new money for stimulus.. do the math.. Do you have your share of those billions in the bank (or under the mattress) right now to spare? Does the average family in America? So where does that money come from? They print it.. and just like that all of our savings and other real assets are devalued.
Firemen! Teachers! Law Enforcement! The magic words..
The real magical thinking is the concept that growing Government is the same as nurturing our economy and society..
I voted for Obama and I still like him way more than his predecessor. But I’ll tell you.. if I didn’t believe in my heart that the Republicans are dangerous fascists (and I thought I’d make good pictures in a funny hat) I’d be out with the T-partiers sometime soon.
As for the author and some others.. articles such as this one lead me to believe they are not Progressives.. only mouthpieces for the Democrats.
Adios!
Report thisBy HonestJohn, June 14, 2010 at 6:52 am Link to this comment
“Instead of imposing austerity when the global economy needed a big boost, they opted for stimulus. And the world avoided catastrophe.”
Dead wrong, we’ve just postponed catastrophe. We are on a complete unsustainable path to collapse, period. If you don’t understand that, you’re a fool.
http://www.oftwominds.com/blogjun10/ad-hoc-war-recovery06-10.html
Report thisBy rico, suave, June 14, 2010 at 6:48 am Link to this comment
the worm:
“We need a Democratic administration that governs not with the Republican ‘trickle down’ philosophies of Reagan and Bush, but with the intent of providing
for the general welfare.”
That’s right!!
Where’s my check???
Report thisBy the worm, June 14, 2010 at 6:25 am Link to this comment
Here’s the situation:
$ 3,400,000,000 = Obama & Democrats’ Bailout of the Financial Industry
Bailout
$ 50,000,000 = Obama & Democrats’ Assistance to Families and Workers
American voters are asked to believe:
$ 3,400,000,000 in taxpayer funds is fine for the financial industry,
but
$ 50,000,000 in taxpayer funds is ‘driving up the deficit’ when it goes to
families and workers.
The magnitude of the distortion is overwhelming, yes.
But the consequences for families, workers and America’s middle class is even
more profound.
We need a Democratic administration that governs not with the Republican
Report this‘trickle down’ philosophies of Reagan and Bush, but with the intent of providing
for the general welfare.
By TheBrix57, June 14, 2010 at 5:16 am Link to this comment
Somewhat interesting that Summers realizes this from an appointed post and not one that is voted. Our elected politicians may have finally realized that the huge pot they can draw from is empty.
Report thisOur elected politicians had no problem helping those that paid BIG money into their reelection coffers while the electorate were screaming for help. The voters had to simply watch while healthcare was rammed down their throats, kept on the sidelines while bill after bill with high price tags were passed.
Now that the pot is empty, the voters are the ones left high and dry. Congress may have thought that there would be a trickle down effect, but, that has been proven wrong. Summers is only advocating what the voters knew all along and that was to put the country to work. With unemployment at low levels and our economy rolling along in all sectors, money flows both ways.
Too bad our elected politicians never saw that.