Stop the Pain, We Can't Have Pain!
Is this guy living in the real world? The very concept of unemployment compensation has been a bridge over a rough time; a brief interlude of assistance while you seek a new job. It is a crutch to cover those grasshoppers who fiddled their working summer away without saving for such a winter as a job loss. It is government rescuing the profligate. It traditionally was less than six month. Underlying the payments is a deadline after which you had better get a job or be prepared for hunger.
In the current downturn we've had the government step in repeatedly and extend the benefits. The last extension took it out to 99 weeks. For the mathematically disadvantaged and other political science majors in the crowd, I've been told that is roughly two years. It isn't a bridge any more, it is a way of life!
When the financial crisis first struck, most of the world's policymakers responded appropriately, cutting interest rates and allowing deficits to rise. And by doing the right thing, by applying the lessons learned from the 1930s, they managed to limit the damage: It was terrible, but it wasn't a second Great Depression.
If we ignore the increasing awareness that the Great Depression wasn't cured by those actions of FDR, but actually by the industrialization and mobilization of WW II and that it didn't end until 1946, then we can focus on the problems of those policies Mr. Krugman embraces.
First, let's note that most interest rates that businesses are dependent upon for investment (aka job creation) and that most consumers are concerned with for their home and personal spending aren't governed by federal policy. There is a remote linkage, but it isn't immediate. Market forces should set interest rate and that depends upon a finite quantity of money supply to establish a value.
Second, let's face up to the fact that deficits can't be permanent policy and they mean debt. Debt must be serviced first and eventually paid. That is going to mean PAIN is a necessary part of the process. Profligacy has consequences that are painful except in the warped world view of a progressive like young Paul.
Here we have a bellwether movement:
The extent to which inflicting economic pain has become the accepted thing was driven home to me by the latest report on the economic outlook from the Organization for Economic Cooperation and Development, an influential Paris-based think tank supported by the governments of the world's advanced economies.
Got that? A Paris-based world think-tank is eschewing feel-good policies and going with the tough love of pain for progress rather than bread and circuses. Ohh, the humanity!
Thus, the OECD declares that interest rates in the United States and other nations should rise sharply over the next year and a half, so as to head off inflation. Yet inflation is low and declining, and the OECD's own forecasts show no hint of an inflationary threat. So why raise rates?
OECD gets it and Nobel-guy doesn't! When you've raised your national debt four-fold in eighteen months and the future apparently shows the pace to be quickening rather than slowing, the clear conclusion is that your currency is going to be devalued at an increasing rate. That, my dear Paul, is what inflation is about. Your money becomes worth less until it becomes worthless. Please refer to Weimar Republic at this point in the lecture.
Both textbook economics and experience say that slashing spending when you're still suffering from high unemployment is a really bad idea. Not only does it deepen the slump, but it does little to improve the budget outlook, because much of what governments save by spending less they lose as a weaker economy depresses tax receipts. And the OECD predicts that high unemployment will persist for years.
Does that make sense? Consider it on a personal scale. You've had a drastic reduction in income (the equivalent of a decline in your tax revenue base caused by unemployment.) What do you do?
Mr. Krugman believes that you continue to spend as though you had revenue. Spend more in fact, then you did when you were working full time. That should do it! Whatever happens you shouldn't be uncomfortable.
Last week, conservative members of the House, invoking the new deficit fears, scaled back a bill extending aid to the long-term unemployed – and the Senate left town without acting on even the inadequate measures that remained. As a result, many American families are about to lose unemployment benefits, health insurance or both – and as these families are forced to slash spending, they will endanger the jobs of many more.
That sounds to me as though government is, for once, trying to act responsibly. Living within one's means is a good thing, not a bad one. Belt tightening can be healthy.
Wow, Paul. Families might lose unemployment benefits, health insurance or both and then without government largesse might be forced to slash spending...and your point is?
Money for nothing...and the chicks for free.
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