In Case You Needed More Proof That It's Stupid To Cut Government Spending In A Weak Economy...

Business Insider ^ | March 9, 2013 | Henry Blodget

[1rudeboy]

There are two basic approaches to fixing our crappy economy.

The first approach is called "austerity."

This logic for this approach rests on the theory that our economy is crappy because our government is spending more than it takes in and that the resulting deficit is creating "uncertainty." Once this deficit spending is reduced, this theory goes, uncertainty will ease, and confidence will return. And then our economy can recover in earnest.

The second approach is called "stimulus."

The logic for this approach rests on the theory that our economy is crappy because consumers are unemployed and broke and have little money to spend. Because consumers have little money to spend, this theory continues, the government should take up the slack and deficit-spend until unemployment drops and consumers have more money to spend. This government spending, in other words, will keep the blood flowing until the patient is healthy again.

Five years ago, economists were locked in a fierce debate about which approach was better--"stimulus" or "austerity."

Thankfully, that question has now been answered.

The "stimulus" approach is better.

Importantly, this question has not just been answered theoretically.

It has been answered empirically.

[Macoozie]

If the gubmint was spending down cash-on-hand that would be one thing. Like drawing on your cash reserves in an emergency. But borrowing at these levels, in fiat money, makes EVERYONE poorer. (econ 101 - helicopters dropping $100 bills makes a sandwich cost $100 = inflation i.e. rising prices NOT rising values, so YOUR savings are worth-less)

My Plan:
1- reduce the overhang of government by strictly limiting to the legitimate role of a Constitutional government.
2- reduce taxes to the extent needed to fund the legitimate role of that Constitutional governemnt
3- repeal the 17th amendment, Roe and other pernicious enablers.
4- establish term-limits
5- ban local/state/federal government unions
6- impeach John Roberts

. . . and there was happiness throughoutt the land, and He saw it was good.

[andy58-in-nh]

The “best” part is, when the collapse comes (and it will), Keynesian economists will blame it on business.

[rbg81]

I have a bridge to sell Mr. Blodget if he really believes that.

---

Mr. Blodget was infamous over a decade ago for shamelessly hyping Internet stocks. Even well after the bubble burst. Nuff said.

[Robert DeLong]

Henry Blodget is CEO and Editor-in-Chief of Business Insider.

Contact: e-mail: hblodget@businessinsider.com

Economist Paul Krugman put up a chart this morning that reminds us how well it has worked

Henry, you are a good example of the stupidity that is currently in charge of this country. Krugman on the other hand is just quite simply a plain a$$hat parading as an econmist. Following your logic I could vastly improve my economic outlook if I just ran out and borrowed as much money as I am capable of and spend baby spend. Government stimulus may be good when the government is running surpluses, however, running deficits means they have to borrow that money. Borrowing money is something the government has been doing for far too long, and hitting this banker (and other tax paying citizens) by raising taxes, counteracts a stimulus. So that leaves the government with borrowing from China.

No Henry, the real chart will come after we are thrown into a giant tailspin and Europe's austerity continues to slower, but steadily, reap rewards. That is if they don't keep bailing out too many of the bad economies in Europe that have been stimulating their economies for decades upon decades

[eyeamok]

Wow, So enslaving our children in perpetual debt and requiring them to pay up to 50% of their daily output to pay interest to the Money Changers for allowing us to have Dollars to Trade with is a good thing?? The title of this article should be:

Why Slavery is better than Freedom.

[wolfpat]

The only “uncertainty” I see is about new environmental regulations, the costs of Obamacare, the rise in the minimum wage, and I’m sure, a trillion other things.

[mountn man]

The economy recovered despite, not because, of policy.

The U-6 unemployment rate hovered around 8.3% throughout '06 & '07.
By December of '08 it was 13.6%
By December of '09 it was 17.1%

Today its at 14.3%

So you want to tell me how this economy has recovered?

[goldstategop]

Austerity is a political loser.

It works up to a point. But if you use as a bludgeon to flatline an economy rather than spur economic growth - which is what the Germans have imposed by diktat on southern Europe, you risk social collapse.

Without economic growth, the public is not inclined to suffer for the sake of the elites and they’re right. Any one who pointlessly harms them and their families will get punished. I’m all for reducing government spending but using it to kill the economy is foolish in the extreme.

[PGalt]

How about that...

“newly formed Consumer Financial Protection Bureau (CFPB).”

http://cnsnews.com/news/article/obama-administration-gave-petraeuss-wife-187605-year-job

BIG GOVERNMENT IS...

C R O N Y S O C I A L I S M

[9YearLurker]

He’s a sharp guy who’s a political idiot. NYC is full of his type.

There have been two kinds of ‘austerity’ tried in Europe.

Most countries have inflicted austerity on their populations by raising taxes, a few by cutting spending. Those who’ve gone the cutting spending route—Estonia and some Scandanavian countries, for example—are doing much, much better.

[Macoozie]

sorry for the extra post.

The current government is not really taking anything from the markets to fund it’s borrowing. That’s the real problem!
They’re printing their own money to borrow and pay for bonds purchased by the governemnt.
A circle of straw-men.
If they had to go on a truly open market for the borrowing, the rates would be outrageous.
Get ready because THAT is what’s coming.

[wolfpat]

They’re printing their own money to borrow and pay for bonds purchased by the government.

Isn't that the definition of "Inflation"?

[Doogle]

it’s only stupid if your normal, ODUNGO is doing it on purpose without restraints....

[9YearLurker]

Your big construction ‘stimulus’ only works if there’s a profound lack of basic government services, such as decent roads and bridges.

Otherwise, all you are doing is taking money away from the private sector, fancying up some government utilities, and lining the pockets of noncompetitive labor unions.

[PGalt]

The ability to enslave [future generations to debt service, to print and redistribute money to socialists and sheep and make graphs with crayons for right now snapshots] is evidence of evil.

[PGalt]

In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause - it is seen. The others unfold in succession - they are not seen: it is well for us, if they are foreseen. Between a good and a bad economist this constitutes the whole difference - the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, - at the risk of a small present evil.

Bastiat - That Which is Seen, and That Which is Not Seen

http://bastiat.org/en/twisatwins.html

[oldbrowser]

Both theories are true. The difference is one of scale.
A small recession can be fixed with a small amount of stimulus. The stimulus can be payed back once the economy gets back on track.

A large recession would require a large stimulus and the danger would be to pile up so much debt as to cripple any potential recovery.
Another factor would be the potential of the economy to recover. An economy with strong fundamentals as far as capable employees, good technology, available markets, etc. can be stimulated with infusion of capital.
An economy with a handicap, such as onerous and unpredictable government regulations cannot be stimulated.

[ecomcon]

No, in the austerity case the doctor tells the patient to lose weight.

I see it as the patient telling the doctor to lose weight because he keeps eating the patients' food. But the analogy falls apart anyway because governments create nothing, only consume what is created by others. Real medical doctors actually create new wealth.

[Smokin' Joe]

I would think some of that growth is from the oil industry, developing resources on private land where the government has been unable to stop it. The Bakken/Three Forks, Marcellus, Haynesville Shale, Eagle Ford, and Utica Shale development continues, and where the pipelines can't carry it all, rail cars do. It is far more than just pulling barrels of oil out of the ground, as that development affects trucking, manufacturing, trucking, housing, construction, trucking, service jobs, and retail in the areas affected. Even sectors not apparently connected are affected: Figure the OSHA NFPA 2112 flame resistant clothing requirements for the oil industry on drilling leases easily amounts to over $1000.00 in clothing per person on location per year, between 50,000 and 100,000.00 per location per year--small potatoes, but $19,000,000.00 per year in this area alone (North Dakota)--more if you count winter gear (that can double it).

The service and housing sectors, fuel, vehicles, and the hospitality industry all gain as well.

The reason I mention trucking so often is that everything moves by truck, from the rigs and crude oil to groceries and toilet paper. One in three vehicles on the highways in the western part of the state is a semi.

[1rudeboy]

"Hey doc, I have lower back pain, and my joints hurt when I walk."

Keynesian: "Take two of these for the pain."
anti-Keynesian: "Go on a diet and lose weight."