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Tuesday, August 25, 2009

Sleep Well, Says Robert Reich: Deficit No Big Deal

Worried the deficit is too big? Robert Reich (no ignorant fellow) says don't worry, it's nothing:

Second, deficits and debts mean just about nothing anyway -- at least out of context. In 1945, the federal debt was 120 percent of the entire U.S. economy. Yeegads! Yet only a few years later, the debt as a proportion of GDP had been tamed -- and not primarily because of cuts in government spending. Yes, of course, wartime spending ended. But the big change was in the denominator of the equation. Economic growth kicked in big time, and reduced the debt as a proportion of the economy to manageable levels [Robert Reich, "Don't Succumb to Deficit Hysteria," Robert Reich's Blog, 2009.08.25].

As a matter of fact, Reich actually thinks the deficit needs to be bigger. I kid you not: with the economy still sluggish, Reich says we need to pour on more government spending to get people back to work. Uff da! Sing yourself to sleep with that one, and tell me what you think in the morning!

17 comments:

  1. Cori,

    Mr. Reich is entirely correct, the only problem is we ain't got the money to spend unless we want to continue to sell our souls to the Chinese, and wait for the international crises to happen where they (the Chinese) threaten to call our debt.

    Read Sun Tzu and Mao, the Chinese still do!

    Joseph G Thompson

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  2. Spend our way out of bankrupcy?

    Tim Higgins

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  3. Sounds like an alcoholic drinking his way to sobriety.

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  4. ...or doubling down at the craps table when you're already in over your head.

    I concur: Reich's argument runs completely counter to our personal experience. But maybe global finance doesn't work like personal pocketbooks (question, not firm argument)?

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  5. I read the story about an Asian immigrant couple who started some kind of business with a loan, basically with no money of their own, lived in a room back of their store, lived very, very
    frugally for several years, invested back in their business, and ended up very successful. They did it by living within their means and even less than within their means until they had money to live better. Seems like a good lesson for this gov't, both parties and all politicans. Don't spend what we don't have. Tighten our belts. Pay off our debts. Too bad that doesn't buy votes or bring home the bacon, which is what, sorry to say, we have been conditioned to believe is the way gov't works.

    Linda M

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  6. "Tighten our belts"—o.k. So you want Medicare and Social Security abolished, right?

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  7. No to your qeustion about Medicare and SS. But I would like serious attempts to get rid of the fraud and excess bureaucracy. Obama says that he is going to partly pay for his health care/insurance plan by getting rid of the Medicare fraud, so why doesn't he just do it regardless of his health care bill?

    There are many, many, many places to cut spending that have nothing to do with health, SS, or medicaid, but the first thing you libs do is accuse conservatives of cutting health, SS, etc.

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  8. I consider myself a fiscal conservative when it comes to personal finance (my grandma, on the other hand, considers me the cheapest person she's ever met), so I'm generally against spending money we don't have. However, Robert Reich is about a million times smarter than me, and I would probably trust just about anything he said, despite my own instincts.

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  9. I'm not accusing conservatives of cutting Medicare, SS, etc., Linda. I'm saying that if you are serious about getting rid of the national deficit, you need to look at where the money is spent. Here's the FY2009 budget. Look at the $1.6 trillion in "mandatory" spending on Medicare, Medicaid, SS, etc. Compare that to the $1.2 trillion in "discretionary" spending, $730 billion of which is security (Army, etc.). Is your alternative a federal government that does nothing but Medicare, SS, and the defense/CIA stuff?

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  10. The problem with some academics... they don't posess a whole lot of common sense. Especially when it comes to spending money WE DON'T HAVE!!!

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  11. So if the economy isn't picking back up by private sector efforts, do we just abandon fiscal policy and let the economy stay in the hole? Is that what you want?

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  12. His argument is very simple. If a business isn't doing well, it may need some bridge capital to make it through a tough time. However, if the business has an expectation of making significant money in the future, this bridge capital, while large, may pale in comparison to the future profits. Further, when compared to typical profits, this bridge capital is a very small percentage.

    So, the argument does make sense from a strictly business standpoint. This isn't a zero sum game like some of the posters here are suggesting.

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  13. Cori,

    It's lunch time so I'm going to keep this simple. Mr. Reich is correct.

    Every recession/depression of the 20th century has ended because of federal spending. The reason, the federal government is the only one with any money.

    The idea is that the federal government has the money availible to provide the stimulas, industry starts producing, consumer buys, wages go up, inflation kicks in, taxes go up and most importantly, the taxpayer pays off the debt with cheaper money.

    The problem is, today we don't have the money to provide the stimulas without borrowing it and borrowing requires us to pay the money back at current exchange rates plus interest. Really expensive.

    Your comment on spending, you are closer to being right on than you think. Very soon most of the federal budget will be eaten up by spending on interest for the national debt, and entitlement programs leaving very little for anything else.

    If you can't take Linda M.'s advice, and politicians won't, then the only way out is to double down at the craps table or learn to speak Chinese.

    Joseph G Thompson

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  14. "I read the story about an Asian immigrant couple who started some kind of business with a loan, basically with no money of their own, lived in a room back of their store, lived very, very frugally for several years, invested back in their business, and ended up very successful. They did it by living within their means and even less than within their means until they had money to live better. Seems like a good lesson for this gov't, both parties and all politicans. Don't spend what we don't have."

    Linda, the couple in your story didn't live within their means. They BORROWED money to start a business. By your own admission they had no money of their own. Seems to me like they shouldn't have bothered starting a business if they didn't have the money to do so from the beginning.

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  15. Erin, I said that couple borrowed money to start a business. That is what capitalism is all about. They borrowed money, started a business, lived frugally until they had the loan paid off, expanded their business, became successful, and pay taxes to support the govt. Isn't that what this country has been about from the beginning? What can you say is wrong with that?

    My point is that our gov't should be doing the same, and they aren't. They simply borrow more from foreign nations, print more money (wish I could legally do that when I want something!), hand out more freebies even though we are broke; and this is supposed to improve our economy and keep us safe???

    Just heard on the news that now the gov't is giving rebates for buying energy efficient appliances! Wow, I'll just run right out and buy a new frig; after all, the gov't must have found some secret stash of money, since in reality I thought we are broke. The cash for clunkers maybe did wonders for a short time for a few car dealers. It is killing the used car market and those who make a living from that. There are always unintended consequences. And it wasted all the "clunkers" who weren't really clunkers. Also, in a few months the new car market will be in a slump again because those who wanted new cars have for the most part bought them now rather than later.

    We are buying a Ford next time, and we have always bought Chevy products but not as long as the fed gov't owns it.

    Our gov't is behaving like a spoiled rich kid who has no idea how his family's money has been earned, just thinks it will always be there, a never-ending well, and he has no responsibility to protect that wealth. Wake up, America!

    Linda M

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  16. Government rebates for buying Energy Star appliances have existed for years. Nothing new.

    This reminds me of my republican friend who is *suddenly* freaking out about the national deficit. It's like people think the country has just turned on its head in the last 8 months (and government has suddenly developed the efficiency to enact policy changes at more than a glacial pace). Just because you weren't paying attention prior to that doesn't mean nothing was happening...

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