Is Greece going to set off the long feared next wave of the Great Recession?

@High Seas,

High Seas wrote:

Do you have a link?

No, not really. A quick search comes up with this FAZ-article.

@High Seas,

I agree with you concerning the evident volatility of markets and the potential for inadvertant fast-developing unstable consequences in the dynamic at work in today's markets.

My point with Cicerone (and Thomas and Cyclo) regards their (remarkable to me) and (in my view) naively uncritical assumptions that the domain of beneficial application of some not-very-original ideas attributed to Keynes, relating to deficit based government stimulus during cyclic economic contractions, has no boundaries at all. In fact government deficit spending has inescapable negative consequences, including future interest and principal payments and effects on the future credit worthiness of the borrowing government. If the cumulative debt relative to GDP (and potential tax farming source) is low, these consequences are minor and not determinative. However if such debt levels are very high the negative effects can dominate, and even create a different dynamic entirely. (This latter issue relates to your expressed concerns regarding instabilkity and power law effects in todays world financial markets).

Clearly Greece, with a public debt of 140% of GDP, soaring bond yields, and a currency it can't depreciate, has no Keynesian option for the restoration of its economic growth. (I believe there are other negative factors at work in Greece as well, mostly involving a long-standing corruption of public attitudes concerning work and economic rewards.)

It can be argued that the inability of Greece to depreciate the Euro or default on its Europeran lenders alone prevents the Keynesian option. I don't agree in that default isn't an option for the United States either.

The question for us is with a Federal debt around 65% of GDP (and rising very fast) and a cumulative State & local government debt adding another 30%, does the United States have any Keynesian option either? Very clearly the weasel Krugman, and his acolites, Cicerone, Cyclo and Thomas believe do indeed have such an option. However I note that none of them has ever suggested something like that for Greece. Why?

At what point does the dynamic change?

If, for example, we had no debate or struggle over raising the debt ceiling, and, instead, merely sailed along doing a Krugmanesque 3 trillion "stimulus" with borrowed money (presumably taking advantage of a stupid, passive world of lenders in a period of low interest rates) and "protecting" our sacred entitlements ... would the world simply accomodate us? Or would it react, leaving us instead to face lower bond bids (higher interest rates) and exploding commodity prices that could set of an exponential (power law) catastrophe in our balance of payments, thereby debasing our currency and wiping out the capital of our corporations and all savers - and, with that, our ability to ever recover from it ?

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@georgeob1,

I'm not sure "acolites" is the right word where weasels are concerned George. "Kits" is the word for juniors.

Have you a working definition of "long-standing corruption of public attitudes concerning work and economic rewards" which is an advance on Veblen's "waste=status, utility=odium" economic law.

When I grasped that law after reading The Theory of the Leisure Class I assumed catastrophe to be inevitable once utility became the privileged preserve of a minority of voters.

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@georgeob1,

You are only looking at debt without any regards to a) our country's ability to spend money to improve our economy, b) creates demands for other goods and services by our government's spending on infrastructure and other necessities for our economy to remain competitive in the world marketplace, and c) increased jobs at both the government level and private levels increases tax revenues.

Our economy is dynamic to a certain degree, and more versatile than many countries. Our country funded WWII with debt; the earnings from producing the war machinery, and the GI Bill that provided our returning soldiers with a college degree was the impetus that created our economy.

If our country cut back spending during WWII, the results could have been catastrophic. Even while our country was in debt after the war, they made the right decision to create more debt by funding the GI Bill. The rest is history.

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@cicerone imposter,

That sounds like an argument for WWIII.

Which are these "many" countries with economies less versatile than the US. We were told that the debt-ceiling debate represented paralysis.

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@cicerone imposter,

cicerone imposter wrote:

You are only looking at debt without any regards to a) our country's ability to spend money to improve our economy, b) creates demands for other goods and services by our government's spending on infrastructure and other necessities for our economy to remain competitive in the world marketplace, and c) increased jobs at both the government level and private levels increases tax revenues.

You are incorrect. I assumed all these things to be true, and didn't quibble at all with the Keynesian formula's elements - my comments addressed only the conditions under which it might have the intended effect. However I would also note the following;
=> Not all government spending yields valuable new infrastructure or creates new jobs - as our recent "stimulus" package amply demonstrated.
=> While new government employment does indeed raise income and other tax collections, it doesn't increase these collections enough to pay for the cost of the added employment. Instead it merely raises the continuing deficit. It would be nice if your proposition were true - we could have the government employ everyone at a high salary and finance itself through the taxes collected thereby !! That would "solve" all our problems !
=> Not all government employment has a beneficial effect on the private sector economy. Much of it is wasted and some positively harmful.!

cicerone imposter wrote:

Our economy is dynamic to a certain degree, and more versatile than many countries. Our country funded WWII with debt; the earnings from producing the war machinery, and the GI Bill that provided our returning soldiers with a college degree was the impetus that created our economy.

Do you believe these are lasting and intrinsic features of our economy? If so;
=> Why didn't the billions spent on a decade of war in Vietnam create an economic boom in its aftermath? What we had, instead, was the forced abandonment of the Breton Woods gold standard for the dollar, a decade of inflation, low economic growth, high government debt and ultimately Jimmy Carter (to help us through our "malaise").
=> Why hasn't the decade of war in Afghanistan and Iraq created a second economic boom? We are fairly clearly repeating the experiences of the 1970s.

The truth is that WWII was unique in that we started out with low public debt and lots of excess productive capacity in a modern industrial plant and highly productive agriculture -- in a global conflagration that was destroying the industrial and agricultural capacity of the rest of the world. We emerged with the majority of the world's undestroyed productive potential remaining. We had no competitors for our goods and products, and could easily sell anything we could produce. As a result we very quickly sucked up all the liquid assets of the world, capitalizing our economy for decades to come.

Today's situation is profoundly different. We have lost most of the industrial capacity that once sustained the world, and we now face serious competition, both in skills and in terms of cost for what we do produce. To grow we must now deliver better design and quality and do so for a lower price than our competitors. We can't do that with high taxes, featherbedding labor unions and public schools dedicated to political correctitude instead of achievement.

cicerone imposter wrote:

If our country cut back spending during WWII, the results could have been catastrophic. Even while our country was in debt after the war, they made the right decision to create more debt by funding the GI Bill. The rest is history.

Here you are simply wrong on the facts. We did cut back spending at a very remarkable rate immediately after WWII. Costly as the GI Bill was it was miniscule compared to the quickly shut down costs associated with the war and continued mobilization.

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@georgeob1,

YOu wrote,

Quote:

=> Not all government spending yields valuable new infrastructure or creates new jobs - as our recent "stimulus" package amply demonstrated.

Your conclusions are factually wrong. The majority of economists have agreed that the stim bill did help our economy.

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@georgeob1,

The cutback in spending immediately after WWII was based on the simple fact that we no longer had to build war machines. As for the GI Bill, I'll let the following article speak for itself.

Quote:

Oxford Companion to Military History:
GI Bill

Top
GI Bill (GI: Government (or General) Issue, a term used of US soldiers). The GI Bill was US federal legislation which created a comprehensive package of benefits, particularly financial assistance for entering higher education, for veterans of US military service. This has proved highly successful.

The first GI Bill was proposed during WW II in an attempt to avoid the recession that followed WW I when millions of veterans returned home to face unemployment. Pres Franklin D. Roosevelt signed the Bill, officially known as the Serviceman's Readjustment Act, on 22 June 1944. It offered to veterans a proportion of college tuition fees and other educational costs. Other benefits included mortgage subsidies, helping veterans to buy homes with relative ease.

The programme was used by 2.2 million to enter higher education. The Bill made a college education attainable by veterans of any class, race, or religion—something that had previously been the preserve of America's upper classes. Following the end of the Vietnam war and the cessation of the military draft in 1973, the number of volunteers for the military declined. In 1984 Sonny Montgomery proposed a GI Bill to encourage military service even in times of peace. The Montgomery GI Bill allows servicemen and -women to contribute to a programme which allows them educational benefits after they are discharged.

— Chris Mann

Read more: http://www.answers.com/topic/gi-bill#ixzz1WXucspfV

You're quibbling about "amount," when the real issue is that our government spent money after the war even while our country was in deep debt to make our country "educated" that resulted in the improvement of our economy.

1 Reply

@cicerone imposter,

Quote:

Your conclusions are factually wrong. The majority of economists have agreed that the stim bill did help our economy.

And paying the bill will certainly hurt the economy...if we ever get around to do it that is. What we needed was bang for the buck, to buy something that helps us out over the long haul. Putting hundred billion into the pockets of the corporate class (which they can easily transfer out of the country) is of little help besides making a few numbers on the computer screen bigger. Building water lines, modern railroads, and even fixing our dilapidated parks would have been investing in our future. We did not do that, we propped up a failing economic system with the credit card...not smart.

1 Reply

@hawkeye10,

Who's talking about "paying the bill" here? The GOP will not tax the wealthy to reduce our debt; that's another issue apart from the subject under discussion.

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@cicerone imposter,

cicerone imposter wrote:

The cutback in spending immediately after WWII was based on the simple fact that we no longer had to build war machines. As for the GI Bill, I'll let the following article speak for itself.

You're quibbling about "amount," when the real issue is that our government spent money after the war even while our country was in deep debt to make our country "educated" that resulted in the improvement of our economy.

I am not "quibbling" at all. You are trying hard to evade an obvious conclusion that contradicts an assertion you made earlier. You are now merely revising your argument in an attempt to defend the indefensable or distract the conversation from the point in question.

The fact is we demobilized very quickly after WWII - far more quickly than did any of the other Allies - and our wartime expenses (and borrowing) stopped fairly abruptly.

We did indeed spend a lot on the GI bill, and it was a very effective way to shift the young men being released from the military into productive roles in the fast growing post-war economy. However its costs were trivial compared to the wartime military expenses that were ended.

The essential point is that your general statement that the WWII experience is somehow an intrinsic feature of our economy, and that the high level of government spending, borrowing and debt that accompanied it was a repeatable cause for the remarkable economic expansion that followed it is simply nonsense that is directly contradicted by the ecnomic stagnation and inflation that followed the analogous situations after Vietnam and the more recent Iraq & Afghanistan wars.

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@cicerone imposter,

cicerone imposter wrote:

YOu wrote,
Quote:
=> Not all government spending yields valuable new infrastructure or creates new jobs - as our recent "stimulus" package amply demonstrated.

Your conclusions are factually wrong. The majority of economists have agreed that the stim bill did help our economy.

I wrote that the stimulus package didn't create significant new infrastructure that might enhance out competitiveness going forward, and that it didn't create the advertised private sector new jobs. Both statements are entirely correct. The opinions of sympathetic "economists" thsat the stimulus was of some help don't at all contradict my statement.

You are just throwing more dust in the air.

1 Reply

@georgeob1,

Quote:

What Was the Stimulus Package?
Obama's First Major Act to Stimulate the Economy
By Kimberly Amadeo, About.com Guide

Aug 24 2011
The $787 billion economic stimulus package was approved by Congress in February, 2009. The plan was to jumpstart economic growth, and save between 900,000-2.3 million jobs. The package allocated funds as follows:
$288 billion in tax cuts.
$224 billion in extended unemployment benefits, education and health care.
$275 billion for job creation using federal contracts, grants and loans.
For more detail, see ARRA Details.
Although the funds allocated were to be spent over ten years, the bulk was budgeted for the first three fiscal years: $185 billion in 2009, $400 billion in 2010 and $135 billion in 2011

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@cicerone imposter,

Also from About.com.

Quote:

In two new documents -- Employment Numbers by State and Employment Numbers by Congressional District, -- the White House has attempted to predict exactly where the 3.5 million new jobs to be saved or created by the 2009 economic stimulus package will be located.
The Obama administration predicts that the jobs, to be created or saved over the next two years, will be in a range of industries from clean energy to health care, with over 90% of them in the private sector.

The primary job-creating provisions of the economic stimulus package include:

Repairing the nationâ€™s infrastructure;
Reducing health care costs;
Advancing science and technology; and
Education system improvements

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@cicerone imposter,

From USA Today.

Quote:

Economists agree: Stimulus created nearly 3 million jobs
Updated 8/30/2010 5:12 PM | Comments 3,019 | Recommend 49 E-mail | Save | Print |

Enlarge By Kevork Djansezian, Getty Images

By David J. Lynch, USA TODAY
Amid mounting signs that the economic recovery is faltering, one potential remedy seems out of the question: a booster shot of government spending.
The White House says the multiyear $814 billion stimulus program passed by Congress in 2009 boosted employment by 2.5 million to 3.6 million jobs and raised the nation's annual economic output by almost $400 billion. A recent study by two prominent economists generally agrees, crediting the pump-priming with averting "what could have been called Great Depression 2.0.

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@cicerone imposter,

Finally, from El Paso Times.

Quote:

Texas Tribune: Perry criticized, accepted stimulus

By Ross Ramsey \ The Texas Tribune
Posted: 08/17/2011 12:00:00 AM MDT

As Gov. Rick Perry has launched his presidential campaign, he's turned to a talking point familiar to anyone who has heard him rail against the federal government over the past two years: the perfidy of the roughly $800 billion stimulus plan orchestrated by the Obama administration in 2009.
"Washington's insatiable desire to spend our children's inheritance on failed 'stimulus' plans and other misguided economic theories have given us record debt and left us with far too many unemployed," Perry said Saturday in his announcement speech in South Carolina.
In his 2010 book, "Fed Up! Our Fight to Save America From Washington," Perry wrote this: "We are fed up with bailout after bailout and stimulus plan after stimulus plan, each one of

A view from the state capitol.
which tosses principle out the window along with taxpayer money."
But the reality of Perry's relationship with fed-stim is complicated. Through the second quarter of this year, Texas has used $17.4 billion in federal stimulus money -- including $8 billion of the one-time dollars to fund state expenses that recur over and over. In fact, Texas used federal stimulus funds to balance its past two budgets.

We must assume that the bailout money from the stim bill that Gov Perry received directly or indirectly saved jobs.

1 Reply

@cicerone imposter,

Quote:

We must assume that the bailout money from the stim bill that Gov Perry received directly or indirectly saved jobs

It certainly is likely, though it does not mean that we spent wisely, and we do not know if this injection of public debt to juice the economy queered the economy in a way that hurts us in the end. I certainly would much rather have seen a WPA style program that helps only those who need the wages the most, and does not waste much of it filling the pockets of the corporate class class.

How much did the stimulus cost per job per year, and what was produced that we can use? Nobody can fully answer these questions, but a bit of looking at them makes for a head shaking result.

1 Reply

@hawkeye10,

What are you talking about when you say "spending it wisely?"

Most federal, state and local governments are spending more than revenue. How can any of it be "spending wisely?"

1 Reply

@cicerone imposter,

Quote:

Most federal, state and local governments are spending more than revenue. How can any of it be "spending wisely?

WTF are you talking about, are you now against all debt? I want to open a restaurant, I will need to take on debt to do it, if I "spend it wisely" I will invest that debt into a business that pays off the debt plus makes me a profit, if I dont I will be left with the debt to figure out how to pay or perhaps only will have wasted my time trying to build something that turns out to be a non money maker.

Public debt is the same way....WW2 debt was spent wisely, Iraq invasion debt was not. Stimulus debt we dont know for sure about, but America has made up our minds that it was a poor expenditure.

1 Reply

@hawkeye10,

WTF are YOU talking about? Did I say that? NO!

It's your problem you can't remember from one post to the next.

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Is Greece going to set off the long feared next wave of the Great Recession?

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