Stimulus and the Future
Paul Krugman makes the important point that those who claim fiscal restraint amidst a depression is a favor to young people don’t know what they’re talking about:
Deficit hawks like to complain that today’s young people will end up having to pay higher taxes to service the debt we’re running up right now. But anyone who really cared about the prospects of young Americans would be pushing for much more job creation, since the burden of high unemployment falls disproportionately on young workers — and those who enter the work force in years of high unemployment suffer permanent career damage, never catching up with those who graduated in better times.
Even the claim that we’ll have to pay for stimulus spending now with higher taxes later is mostly wrong. Spending more on recovery will lead to a stronger economy, both now and in the future — and a stronger economy means more government revenue. Stimulus spending probably doesn’t pay for itself, but its true cost, even in a narrow fiscal sense, is only a fraction of the headline number.
The objective correlation of interests actually goes the other way around. A deflationary situation is good for retired people. They’re not impacted by the labor market situation, and flat-or-falling consumer prices make their revenue from Social Security or bonds go further. Young people, by contrast, would be much better off getting a job and paying taxes later than being unemployed out of school and suffering for it indefinitely.
35 Responses to “Stimulus and the Future”
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November 2nd, 2009 at 3:23 pm
Speaking of, why is it that it has become an untouchable dogma that you should never, ever, under any circumstance, place any burden on future generations? A lot of the debate on deficits and debt seems to go that way. But this is insane. For all we know, future generations will be (or are LIKELY to be) more prosperous, or at least as prosperous, as the current one. Sure, there is a case to be made not to saddle them with something unsustainable (say, a CO2 saturated atmosphere) but on some issues I can’t see why not. Especially when, as in the case of public debt, some of the current debt will be incurred to build stuff that those future generations will also use like schools, highways and the current research parks that will become the quaint vintage buildings to house the cafes for the inspiration of future novel writers. Don’t get me wrong, I’m not arguing that the sky is the limit when it comes to debts and deficits. Fiscal prudence is a good thing. But within reason. It’s time to question the rhetorical maneuver of all the intoning about future generations as a way to stop the current ones from addressing real-life concerns.
November 2nd, 2009 at 3:27 pm
Deficit hawks like to complain that today’s young people will end up having to pay higher taxes to service the debt we’re running up right now.
Hmm. What are some other ways to raise revenue other than through higher tax rates. Hmm.
They’re not impacted by the labor market situation, and flat-or-falling consumer prices make their revenue from Social Security or bonds go further.
I thought we had established that this was not, in fact, the case.
November 2nd, 2009 at 3:28 pm
These are the same people who had no problem undermining their children’s future when it was their spending and that of several republican presidents that were doing it. They got their SUVs and their McMansions and their expensive vacations and left their kids with the bill. Obama is attempting to clean up the mess they left behind, and attempting to do so with an utterly dysfunctional political system. And, amazingly (well maybe not that amazingly) they are doing all they can to undermine any and all attempts to clean up the mess they already left for their children.
November 2nd, 2009 at 3:33 pm
How many deficit hawks have ever refused to take out personal mortgages, on account of that they will have to pay the money back later?
November 2nd, 2009 at 3:52 pm
It’s actually even grosser than this.
Many young people tend to graduate from college with bushel baskets of debt. Deflation plus a weak labor market means they owe even more real money for a degree that is much less useful in helping them get a job. It’s absolutely horrific for young people.
Not to mention, they are foregoing all kinds of gains that people of my generation got from riding the bubble. It was AWESOME to put money in 401(k)s and watch it grow tax-free through the magic of compound interest and a series of bubbles. Oh, did I mention all that money was growing tax-free? Government subsidy on capital gains for the wealthy, baby!
Of all the things we should be willing to go into debt for, this is a no-brainer. It’s certainly more fair to young people than any of the things George Bush went into debt for: the Iraq and bungled Afghanistan wars, the Medicare drug benefit, the estate tax cuts, the cuts in taxes for obscenely high-earners–none of those things helped young people, and they’ll be paying for them thousands of times over. Short-term deficit spending in a collapsed capital and labor market, though, is just about the only kind of “smart” debt that governments can engage in.
Oh, and I love this idea that the victimization of our grandchildren is an inescapable natural consequence of spending money. Because, you know, we can’t possibly pay off this debt in a timely manner. I mean, imagine if we jacked up the estate tax and took, say, 90% of Warren Buffet’s holdings when he died. That’s, what, $50 billion dollars right there! From ONE GUY.
But wait, it would be horribly UNFAIR to get the money from dead rich people. It is somehow an inescapable fact of nature that the only way we can get this money is to tax our grandchildren’s earnings.
Whatever.
November 2nd, 2009 at 3:59 pm
We should not forget the possibility of stagflation.
November 2nd, 2009 at 4:00 pm
I mean, imagine if we jacked up the estate tax and took, say, 90% of Warren Buffet’s holdings when he died. That’s, what, $50 billion dollars right there! From ONE GUY.
He’s giving nearly all his money to charity when he dies so there will be hardly anything to tax.
November 2nd, 2009 at 4:11 pm
As a young person I would be much, much, much more interested in job creation and forgiving student loan debt than in my long term share of the deficit.
But let’s be real here. The “sad, vulnerable face” of inflation is never the bankers who are really worried. In the 70’s it was retirees on fixed incomes. Now its The Poor Young People (the same ones that the WSJ were calling lazy, entitled, etc… to explain unemployment this time last year).
November 2nd, 2009 at 4:14 pm
[...] Yglesias notices too. [...]
November 2nd, 2009 at 4:24 pm
I mean, imagine if we jacked up the estate tax and took, say, 90% of Warren Buffet’s holdings when he died. That’s, what, $50 billion dollars right there! From ONE GUY.
He’s giving nearly all his money to charity when he dies so there will be hardly anything to tax.
Which suggests to me that we probably should have taxed it as he earned it. Alternatively, we could, you know, NOT LET PEOPLE GIVE AWAY BILLIONS TAX-FREE.
I don’t know about you, but I’m really tired of tax subsidies so rich people can get their kids into Harvard, or to investigate the diseases which afflict them and their family, to get their family special VIP treatment at the local hospital, to get their wife’s picture in the paper and for people to gushingly thank her for her largesse, or to subsidize their hobbies and pet political causes. Or, my personal favorite, when foundations are full of company stock, which means lost tax revenues that will be paid by me have been used to prop up a company’s stock price. Or, as Mayor Bloomberg has done, when it’s used as a political tool to stifle dissent.
So, no, it’s not an immutable fact of nature that Warren Buffet will have played by a totally different and much more optional set of tax rules than the rest of us simply because he’s rich. It’s a choice we made to spend our money and our grandchildren’s money to HELP him do that.
November 2nd, 2009 at 4:30 pm
So, no, it’s not an immutable fact of nature that Warren Buffet will have played by a totally different and much more optional set of tax rules than the rest of us simply because he’s rich.
Everyone knows only idiots make money W-2. I’d have to assume you had many opportunities to pursue a career that would have allowed you to be paid 1099, Schedule C etc. But, you chose not to pursue those options. Don’t know why you resent those who did.
November 2nd, 2009 at 4:35 pm
I can only speak to my situation, where I can literally quantify how much the employment situation will cost me:
(i) Had a job lined up with a prominent law firm after law school graduation;
(ii) The Crash hit and the law firm deferred me for a year and was kind enough to place me with a respectable but much less compensated public interest job;
(iii) Unfortunately, I cannot afford to pay off my student loans under the public interest salary, and so, this (hopefully) 1 year deferment, will cost me about $15K in interest on my student loans;
(iv) Don’t get sick: because I cannot afford anything but catostrophic Health Insurance in the non-functioning single payer market (despite being exceptionally healthy);
(v) Appreciate that you do not need to be rich to be happy.
November 2nd, 2009 at 4:43 pm
If you want to see some rational people discuss the proper response to the current economy check out this EPI panel discussion [that includes Krugman]:
http://richmedia.epi.org/presentations/robust_recovery.html
November 2nd, 2009 at 5:00 pm
What is kind of disappointing about Krugman is his hand waiving at the irreducible fact that it is going into debt that will be dealt with in the future to benefit people now. His big point is that the net tax impact is not as bad, because there will be some offsetting growth.
This is pretty similar to the vague promises that tax cuts will be paid for, pretty much, by a growing economy.
Not all spending is the growth stimulating kind and just increasing spending can lead to bad results. Ideally in a crisis like this you would be shifting some of the less productive spending, such as medicare spending on 80 year olds who could afford medical care on their own, or social security payments to retirees with ample other investment income or flying things around Afghanistan into more productive spending such as jobs or education.
Leaving that unproductive spending in place while borrowing to increase other productive spending gives you the same result as borrowing to maintain unproductive spending.
So the percentage of discretionary spending going to retire debt grows and grows, even according to Krugman.
Just because some people are advancing the concern about excessive borrowing in bad faith does not mean excessive borrowing is not an actual problem.
November 2nd, 2009 at 5:01 pm
This is why the proper youth policy in recessions would be to combine a CCC/NYA approach (providing an alternative to the overcrowded labor market) with a G.I Bill approach (providing free higher education and job training (more people used the vocational training than higher ed in the original GI Bill) and supplemental UI benefits to keep body and soul together while training).
I’ll have more on this later.
FYI: the same separation of interests also holds for the general issue of inflation vs. deflation – generally speaking, inflation is good for young people. It helps them pay off debts easier, make major purchases like first homes, and the like.
November 2nd, 2009 at 5:28 pm
If govt spending created useful jobs, that might be an argumnet. It doesn’t work like that though. You want to help? Get Sarbanes/Oxley repealed, which would get IPOs movingt again. You want to keep IPOs dead? Keep doing what Bush started and Obama is continuing.
November 2nd, 2009 at 6:01 pm
Anon, et al,
Maybe the government should take all of YOUR money and earnings, in fact take everyone’s, that will solve the deficit and the economy. Right? Do that to me and I quit.
November 2nd, 2009 at 6:21 pm
Re: Get Sarbanes/Oxley repealed
While I agree that SarbOx should go, claiming that would help the job market is a howling absurdity. OK, maybe a few more of the Best and Brightest would be gobbled up by Wall Street. Otherwise we’d do better lighting candles before an icon of St Jude The Help of the Hopeless.
November 2nd, 2009 at 6:21 pm
Conservatives like to talk about relieving future generations from various burdens. They also like to talk about how acting to plan for climate change is speculative and unnecessary. Funny how that works.
November 2nd, 2009 at 6:28 pm
Jon, he’s also the patron saint of the CPD.
I wish that Obama would look to the other Chicago Way, articulated by one Jim Malone, as he deals with the malefactors.
It might not create too many more jobs, but it would be a hell of a nice feeling.
November 2nd, 2009 at 7:10 pm
The only reason why many in my university are employed today is because of stimulus funds. It also decreased the amount that tuition had go to up, thus decreasing the indebtedness of current and future students.
Krugman’s claim in his current piece–if you want to see the effects of stimulus, look to your local school which still has teachers–is right-on.
November 2nd, 2009 at 7:29 pm
Everyone knows only idiots make money W-2. I’d have to assume you had many opportunities to pursue a career that would have allowed you to be paid 1099, Schedule C etc. But, you chose not to pursue those options. Don’t know why you resent those who did.
Please, go and spread this gospel everywhere. Tell everyone who isn’t a rich entitled ass like yourself what fools we are! We’ll have socialism — real socialism, not health care reform — before you can say Jack Robinson.
November 2nd, 2009 at 7:34 pm
The GOP could care less about this generation. The short term strategy of the GOP is to cater to the whims of their base: middle aged and retired white Christians. The long term strategy is to bring their California strategy to the United States. They’ll use the Senate to filibuster necessary tax increases in the hopes that a budget crisis well come about in which they can force Democrats to abolish the social safety net, just like they did this year in California.
November 2nd, 2009 at 9:08 pm
Tell everyone who isn’t a rich entitled ass like yourself what fools we are!
So, you’re poor why?
November 2nd, 2009 at 9:35 pm
At some point you no longer can coerce me. Like the Russian’s said of communism, “We pretend to work, they pretend to pay us.”
November 2nd, 2009 at 10:10 pm
I don’t know why I’m even bothering replying to trolls. Maybe watching the Phillies slowly get destroyed by the Yankees is making be surely.
That being said:
jmo – Do you realize how stupid of a question that is. You don’t know anything about the poster. For all you know he is rich. Further, maybe he is only in his late teens or early 20’s. Were Bill Gates or Steve Jobs rich then?
Metanis – Then quit whatever you are doing. I guarantee that it isn’t really that important. You’re not really that important.
November 3rd, 2009 at 12:46 am
Time change. It’s a new age. I am completely sympathetic to the stimulus urge and even the bailout one. Sadly history has moved on and they are not going to work. Sure, Krugman is 10 times smarter than I am but he is an economist, which is 10 strikes against him so we are even.
November 3rd, 2009 at 3:04 am
The official unemployment rate for youth ages 16-24 in July stood at 18.5%, the highest on record since this category was introduced in 1948. The unemployment rate for youth ages 16-19 stood at 40.5% in September, also the highest number ever recorded.
Youth in this country are getting screwed, but then again, so is everybody else. The American public are not being told the truth, plain and simple, and, as so often happens , the people who practice deluding the public have a distinct tendency to delude themselves. I believe this is what we are seeing.
Right now, the official unemployment number stands at a totally fabricated 9.8%. The reason the unemployment number is so absurdly low is because of the Obama administration has made a concerted, year long attempt, to keep the number below 10.0% For instance, in May, June, and July, the US lost, in total, more than 1 million jobs, but the official unemployment rate miraculously held steady at 9.4% over that span.
No administration, this one included, wants to admit to double digit unemployment. Watch, the unemployment rate will not go above 10.0% in Novermber no matter how many jobs it turns out we lost in October. The number will move from 9.8% to 9.9%. The fix is already in.
This tomfoolery is not helping either the country or the Obama administration, in my opinion. By purposefully choosing to use false data, the Obama team ties its own hands, making it mathematically impossible to respond proportionally to the true level of the crisis.
And by also relaying this false data to the public, the administration sets themselves up for an even greater fall. At some point very soon the Obama administration will be held, rightly or wrongly, completely accountable for the state of the economy. And that means President Obama will have to take the full blame for the economic disaster that is rapidly unfolding.
And the sad thing is, much of this oncoming political pain could have avoided, by relaying the true nature of how awful things were to the public -right from the get go. But the Obama administration chose not to do that.
Still, even now I believe, it would help immensely if Obama and his team simply told the American people the truth. I believe it would not only help Obama politically, but more importantly, I believe it would help the decision making process in the White House.
November 3rd, 2009 at 4:04 am
What do you think of GDP, Matt? I’ve always considered it a horseshit stat.
If you have a horse stable where you traditionally measure the total shit produced by your horses, and you introduce a couple of strong stallions, feed them well, feed them fiber, and then watch them shit like mad, shit like there is no tomorrow, out-shit the rest of the stable combined, then the lesser horses, the unfed weak and sick horses, the diarrhea producers, can be allowed to die off. Right? In fact, with total shit production going up, shit heading toward the moon, you probably should shoot the weak and the sick outright, and never have worry about them again.
If the US build’s 20 prisons and incarcerates 200,000 Americans for abusing marijuana, GDP goes up. Right? If you chop down a mountain and poison rivers and streams in the process and feed that mountain into a brand new dirty coal plant that smokes up the atmosphere, GDP goes up. Right?
GDP is horseshit. When they changed GNP to GDP (1991) that was another point in this 30 year highway to hell where I threw my hands and said “WE ARE FUCKED.” And I always believed at some point in this evolutionary process GDP will go up and unemployment won’t be affected in the slightest. If you listen the madhatters on CNBC they certainly believe it. A company on the ticker lays off 5,000 workers, they immediately rejoice and suggest we all BUY THAT STOCK. Hey, the net worth has just gone up! Whoohooo! BUY MORE!
Joe Stiglitz and Nicolas Sarkozy (there’s a pair) have formed some kind of committee to eliminate GDP as measurement tool. What is goal, do you know? I thought you might have some insight, being a EU man and all.
Stiglitz in Europe. Our best talent working abroad. It would be like Bill James saying, “to hell with baseball, no one listens to me here, I’m a profit without honor, I’m going to England to analyze the Premier League.”
Krugman to the Fed. Stiglitz to the Green Bank. Come on, Obama, enough is enough.
November 3rd, 2009 at 7:39 am
Re: No administration, this one included, wants to admit to double digit unemployment.
The U6 rate (a publicly announced figure along with U3) is in double digits (16% I think). That’s unemployed + underemployed plus discouraged job seekers. The administration has not surpressed this statistic, so accusing them of dishonesty on the matter of unemployment is more partisan BS.
November 3rd, 2009 at 11:34 am
Krugman’s point is invalid. He assumes that the government spending money (however it is raised) creates sustained growth in the economy thereby providing jobs for the young now vs whenever or never. In fact, no such connection exists. The government spending may provide a temporary stopgap, but actually retards recovery in the medium to long term by interfering in the market resetting of prices (including wages) which does set the stage for sustained growth and recovery. We never experienced sustained depressions like in the 30’s and now until the government began to interfere.
Government spending does not – it can not – induce sustained growth.
You can see this failure in China which has tried to use massive government spending to stimulate growth to replace the lost export revenues. It has succeeded in deceiving many foreign observers – particularly Keynesian true believers – but the truth is the economy is failing. The numbers look good (e.g. GDP) because such government spending is counted as growth, but other observers tracking indirect indicators such as energy output have noted massive declines in real activity.
November 3rd, 2009 at 1:33 pm
JonF: “The administration has not surpressed this statistic, so accusing them of dishonesty on the matter of unemployment is more partisan BS.”
I didn’t accuse the administration of suppressing the U6 number. They don’t have to. No body uses that number anymore. We used to use something very similar, but we dropped it in the 80’s so the Reagan administration could more easily fudge unemployment numbers. Every administration since has been happy for it, including the Clinton administration, who defined away completely the category of discouraged workers.
The official unemployment number that EVERYBODY uses is being fudged. There is no doubt. For instance, the national unemployment total doesn’t even come close to matching the tally of individual state unemployment totals. The birth/death rate of businesses used by the BLS to quantify jobs to added to the economy bears no semblance to reality. They are still adding theoretical jobs to the economy based on a pre-recession model.
I don’t think Obama is a bad man for pulling a fast one by trying to keep the official unemployment number below 10.0% I could give a rat’s ass about the ethics involved. I just think it is a strategic error, and a big one.
As for partisan. Partisan what? I don’t even know what the fuck that could possibly mean. I am New Deal Democrat. I exist WAY to the left of Obama.
November 3rd, 2009 at 1:49 pm
DB: “but the truth is the economy (of China) is failing.”
Dude, I hate to spring this on you, but in the time it took you to write your comment China built a subway system the size of Boston’s.
China is simultaneously working on the six largest public works in the history of mankind. The United States is not allowed by people like you to build even an outhouse. A shithole maybe, but not a function outhouse.
It is an interesting theory you guys have over there. Fuck being Number 1, that’s hard. Let’s be Number 72! Then we can compete with Ghanna, and whip their ass!
November 3rd, 2009 at 3:54 pm
I’d have to assume you had many opportunities to pursue a career that would have allowed you to be paid 1099, Schedule C etc.
Yes, you would have to assume that. Because if you didn’t assume it, you might accidentally stumble across the reality of class in this country.
November 3rd, 2009 at 3:56 pm
Also, following up to my comment 34: people who chose their career paths before Reagan can’t sensibly be held responsible for failing to anticipate his changes to the tax code. Never mind the reasonableness of expecting 15-year-olds making career path decisions to understand even the present tax code, they *definitely* can’t understand future tax codes that don’t exist yet.