Controversy over stimulus measures in the US has been ongoing since the beginning of the financial crisis. There are more than two sides to the argument, but these two books document two of the most popular ones. Krugman may be one of the most hated economists by conservatives, but that doesn’t mean he can’t make a valid argument. Mauldin and Tepper are equally convincing but seem to have almost the opposite point of view. Having said that, they all seem to agree on one thing: If more stimulus is the answer, the current measures (such as QE2 and Operation Twist) are not nearly enough to make a big difference.
However, it doesn’t seem like Mauldin is in favor of additional stimulus in the first place. He incorporates the vast studies done in "This Time is Different" to show that if the US keeps running up its deficits, we’ll eventually encounter a “Wile E. Coyote” moment. This is where investors suddenly realize we can’t pay off all of our debt, so yields rise, the dollar is abandoned, and all hell breaks loose.
Both Mauldin and Krugman agree this would eventually happen were the US to run up deficits indefinitely, but what they disagree about is when. Krugman argues that since (among other reasons) yields are so low right now, this type of catastrophe doesn’t seem to be anticipated by investors. He points to the one example in US history where massive government spending helped to pull the country out of a depression: WWII, and uses it to argue that any stimulus measures taken now should be multiples larger than the current ones. He argues that government spending should be increased on things that will increase productivity such as infrastructure.
Since this would result in a large increase in government debt, Mauldin would likely argue against it. Whereas Krugman doesn’t think we’ve accumulated enough debt for investors to worry, Mauldin isn’t so sure. He never blatantly says we’re close to the edge, but since no one is exactly sure, he seems to think it’s not worth the risk. Rather, his argument is for austerity. Although it’s not helping Europe in the short run, he’s convinced debt reduction could save us from larger problems in the future. This may seem like the traditional conservative argument, but I don’t recall him condoning tax cuts- only austerity.
In order to mitigate some of the debt, Krugman recommends producing a mild amount of inflation. Whereas this may reduce the real amount of debt, it could also cause investors to lose confidence, and lead to higher interest rates. Mauldin is worried that excessive debt taken on by the government can eventually crowd out more productive private investment either by an increase in interest rates, or an increase in taxes necessary for the government to pay down interest.
At any rate, it’s clear to me that the authors all make very convincing arguments- it’s a shame they don’t agree more. I doubt there are many Krugman fans here, but which argument do you find more convincing?
the answer is very simple, but very hard politically. Spend WAY more money on bridges, roads, airports and schools... I'd say increase spending by 2 to 4 trillion over 10 years, as a random rough figure to give you a sense of the magnitude I am thinking about.... and then spend WAY less money keeping people over 70 who can't afford their own healthcare alive for an extra 12-18 months... easily you could cancel these two things out with the amount we spend for services at the end of lives, except that one is an investment that helps the economy with huge amounts of jobs immediately and has excellent returns in the future and the other one does nothing for the economy/country it just helps individuals extend their lives beyond the point of being useful, etc... It's not pretty and I'm not saying it's "right" or that we should give nothing to older people who can't afford insurance, but my point is the balance needs to shift in a huge, huge way. If someone mustered the political capital to do this, we'd be in good shape. Unfortunately -this is just fantasy as it would never happen.
Fantastic post. My grandpa spent the last year of his life in and out of the hospital racking up absurd bills and he was extremely unhappy living in such a way. After the third time, we realized that the effort to keep him alive a few months at a time was not good for anyone, especially him. He had done everything he wanted to do in and could barely function. That's not living, and it's extremely painful mentally and physically.
Here's a TED talk on the subject:
http://www.ted.com/talks/peter_saul_let_s_talk_about_dying.html
let me know when you run for president, I'll be sure to vote for you based on this simple, but yet powerful idea.
Interesting that you'd choose an increase of $2-4 billion over 10 years for infrastructure spending as that is in line with estimates of incremental cost of the Iraq war... Your infrastructure improvements could have been in place by now all for the cost of one of your government's imperial adventures ...
I don't want to get into a long discussion on your ideas on government funded healthcare supporting the longevity and quality of life of the elderly, but I have to note that I think that it is misguided to measure the cost of providing this kind of healthcare in terms of the elderly's utility to the production process (which can be a source of debate anyway)... There is more to society and human existence than production and consumption. Personally I think that it is uncivilised to not have a form of universal healthcare*. Anyway, many countries around the world are able to provide much better and universal healthcare outcomes for fractions of the cost of the American system. Perhaps it might be worth learning from them.
I think there is a stronger argument for reducing or capping defence (surely a misnomer) spending versus healthcare. I'm pretty sure that you can achieve better results in terms of your security by diplomacy and such rather than to have bases all over the globe, ever increasing military spending and constant global war. I doubt that this will ever happen until the later stages of the decline of the US empire though unless there is an anti Vietnam War type movement in the US again. Thoughts?
Another issue someone else had mentioned is the problem of lack of growth and investment. I think it might be worth entertaining the argument that private sector (households and perhaps the corporate sector) de-leveraging or stockpiling of cash (in the case of corporates) in expectation of the necessity of de-leveraging might be a factor.
On the whole, I think that US's problems are more straight forward to solve rather than the European currency crisis where issues of national sovereignty are at stake in some of the potential solutions.
* Disclaimer: I'm not an American.
I have to agree with you International, even after reading Relinquis' post above (though I'm not convinced that spending the savings on road's and bridge's is necessarily the best use of the money, but it could be, that's a debate for another day).
I have to wonder if maybe what would be politically possible is supporting assisted suicide for the elderly. These would be the most extreme cases in which we can really be sure that added healthcare doesn't do a shred of good for the patient, and obviously the cost savings would be significant, and our country would devote its productive resources towards other goals.
Anybody who has read the book Freakonomics knows that legalizing abortion reduces crime. This is because many of the people who get abortions are people who cannot afford kids, and who's children are therefore more likely to become criminals. This fact isn't politically popular for either party, but it is the reason I support abortion.
I generally try to avoid having ideologically driven positions, as they're so unconstructive. Instead I look for things like these abortion or assisted suicide arguments. You will of course never be able to support these arguments if you equate them with murder, but if you don't, I think both policies would make our society healthier.
Your argument still boils down to killing your own grandparents because you would rather have the Quattro than the normal Audi. This is the ideology of your argument, that people in your society are only important in relation to their utility in the production / consumption process.
Agreed International. What the US needs is virtually impossible, politically speaking. We cannot afford our entitlements. When I constantly hear people say that they have "paid into" Medicare/SS, so they deserve it. Well, they paid in, but not as much as they will be taking out. That's the entire problem. The government was wrong when they estimated the costs of these programs.
And I agree on the end of life care issue...I will probably feel differently once I am in my 80s, but there is only so much benefit to prolonging the life of somebody that old. If any of you have lost an elderly family member, it's usually not quick. They are in and out of the hospital for months or years prior to actually passing. And I don't think the quality of life in those last few months merits millions of dollars.
As for creating jobs, I think the government needs to step back and let private enterprise take over (although our infrastructure is terrible - we do need to spend on that). Corporations have been stockpiling profits for the past several years because economic uncertainty deters investment. Combined with an increasingly anti-business environment, you can't blame companies for creating new jobs elsewhere.
This entire argument is total bullshit. "Increasingly anti-business environment," yet somehow corporate profits are at an all-time high and companies are paying taxes at all-time lows.
Companies create jobs to meet specific needs and demands from consumers. Without increased demand for specific products or services, there is no need to increase hiring. Companies aren't forgoing growth because of "anti-business sentiment," but rather they aren't hiring because the demand isn't there to drive growth.
To add - a lack of hiring is also due to two things: 1.) technology replacing jobs; 2.) Companies grew extraordinarily efficient during the downturn and aren't looking back.
Be serious.
Would tend to agree with you, king.
Good points. But tech rendering workers obsolete is hardly a phenomenon exclusive to the last 4 years. And I don't think you could argue that increasing corporate efficiency is a bad thing.
Anti-business sentiment was probably a poor choice of words. But the regulatory burden of conducting business in the US can be a burden to companies creating jobs here. If you were choosing to build a new factory, would you choose California or Texas? Think of the Steve Jobs-Obama exchange over outsourcing. (Granted, there are many other reasons - chiefly that Chinese labor is just plain cheaper).
Companies, thanks to those years of record profits, now have capital to reinvest. But nobody wants to undertake a major project when there is so much economic uncertainty. I do not just mean the US; Europe and a potential Chinese slowdown certainly factor into a investment decisions.
The government is historically an inferior allocator of capital; its principal advantage is that it can spend when nobody else wants to. Private sector employment is finally starting to rebound, while government employment is shrinking. The recovery is slow - but recoveries from financial crises generally are. I am not convinced that further Keynesian stimulus would prove worthwhile.
Great discussion. I'm willing to do everything reasonable to extend my life as long as I'm not soaking my children, grandchildren, etc.
This is tl:dr for the moment and deserves a closer read, so I'll just say I'm not sure what Krugman has seen from either party to give him the idea we'll ever stop going apeshit with the deficits until we eventually go off the cliff.
'I also believe its hard to find many Krugman supporters here, but count me as one, the guy has been right on spot, whatever your beliefs are. As not an american it really does not matter much for me the political point, but I believe many informed outsiders also tend to awe the fact that you are taking debt as a priority. The poor of my country can be anything, but not as stupid as to buy that they being poor is their own fault.
How I see the things right now is say you own 100k and youre gonna get a rates hike in 10 years, at the same time you have been admitted to hbs and you currently can take a loan for those 250k at 0% interest for 7 years, stay low for the following 3 and hike with the 100k you already own. So basically is whether you would rather pay 100k in 10 years without the hbs degree or 350k with it. Short term worries about the debt are absurd.
FYI -- we could learn a lot about end of life care by doing what Medical Doctors do themselves. The end of life care would be better for the patient and would be orders of magnitude less expensive. See attached article.
http://online.wsj.com/article/SB100014240529702039183045772433212428339…
The problem is the massive entitlement liabilities we have. Plain and simple that plus the interest on the massive debt is a massive hole that will be extremely difficult to climb out of. While I feel Obama has many qualities that I would look for in voting for a president, his vision of America is not one that will ever get us out of this problem. He added an entitlement in Obamacare and is way too far left impose a voucher system for medicare or even raise the ss age (even though Americans are living longer). Additionally, we need to stop kidding ourselves that the traditional types of manufacturing jobs are ever going to come back in force in America, its simply not cost efficient. What responsible manager would want to deal with all the regulations, unions, and huge costs to build something here when you can do it in some other country for 1/3rd of the price? I think the only way we see a big uptick in our "blue collar" jobs will be if we see a huge energy boom (likely with natural gas). Bottom line, neither political party has the political capital to get these difficult solutions done, but especially Obama. I think Romney's background (PE, gov. of liberal state) could actually do some of these things, but certainly not all.
the other thing is this, if you can PAY FOR your own medical care at end of life, than so be it. Everyone should deserve to spend their own hard earned money on keeping themselves alive if they please. But the reality is that it's likely many middle-class people or upper-middle class people would rather leave their wife and or children with something instead of live an extra 6 months. that's a decision they should be able to make though. What shouldn't happen is that they take from the system and no one they see / relate to loses anything when they eat up that extra money for the purpose of living a bit longer... its human nature for them to do so, and the system gets sapped.
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