Now Is Not The Time To Cut Gov’t Spending Says Wall St.

by Ben Hoffman

The world’s rich countries are now conducting a dangerous experiment. They are repeating an economic policy out of the 1930s — starting to cut spending and raise taxes before a recovery is assured — and hoping today’s situation is different enough to assure a different outcome.

In effect, policy makers are betting that the private sector can make up for the withdrawal of stimulus over the next couple of years. If they’re right, they will have made a head start on closing their enormous budget deficits. If they’re wrong, they may set off a vicious new cycle, in which public spending cuts weaken the world economy and beget new private spending cuts.

On Tuesday, pessimism seemed the better bet. Stocks fell around the world, over worries about economic growth.

[…]

The policy mistakes of the 1930s stemmed mostly from ignorance. John Maynard Keynes was still a practicing economist in those days, and his central insight about depressions — that governments need to spend when the private sector isn’t — was not widely understood. In the 1932 presidential campaign, Franklin D. Roosevelt vowed to outdo Herbert Hoover by balancing the budget. Much of Europe was also tightening at the time.

[…]

And just as households and businesses are becoming skittish, governments are getting ready to let stimulus programs expire, the equivalent of cutting spending and raising taxes. The Senate has so far refused to pass a bill that would extend unemployment insurance or send aid to ailing state governments. Goldman Sachs economists this week described the Senate’s inaction as “an increasingly important risk to growth.”

Read more…

The stimulus wasn’t big enough to make a dent in unemployment and there’s not much left the government can do to get us out of the deep recession. Republicans fight any and all reform, so there’s not going to be major change in our trade policies that might bring some jobs back to the U.S. The two wars were propping up the economy during the Bush administration, but the war in Iraq is winding down and Afghanistan seems like a lost cause at this point.

We’re screwed.

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30 Comments to “Now Is Not The Time To Cut Gov’t Spending Says Wall St.”

  1. Mr. Hoffman,

    ” The stimulus wasn’t big enough to make a dent in unemployment and there’s not much left the government can do to get us out of the deep recession. Republicans fight any and all reform, so there’s not going to be major change in our trade policies that might bring some jobs back to the U.S. The two wars were propping up the economy during the Bush administration, but the war in Iraq is winding down and Afghanistan seems like a lost cause at this point.

    We’re screwed. ”

    No, no, no. Except for the ” We’re screwed “, your analysis is as wrong as Obama’s was when he said his policies would fix things.

    When Reagan came in in 1981, things were much worse than when Obama took office. Reagan had inflation on top of high unemployment. Obama had deflation. Reagan did tax cuts and deregulation, Obama did stimulus, reregulation, Obama-Care, and enacted long term tax increases that investors know will crush them next year.

    Obama’s stimulus propped up spendthrift State and local Governments. It also went to Obama’s crony capitalists.

    Reagan’s tax cuts went to the private economy. He did not pick the winners and losers. Guess what, under Reagan Confidence spread through the private economy and it grew.

    Guess what, under Obama confidence shrank. Successful wealth creators never know when Obama will target them. It is safer to put your money in gold than invest in America.

    Tick tock, tick tock, Obama will soon run out of clock.

    • [When Reagan came in in 1981, things were much worse than when Obama took office.]

      That’s a lie. Most economists say this is the worst economic turn down since the Great Depression.

      [Guess what, under Reagan Confidence spread through the private economy and it grew.]

      Two years into the Reagan administration, unemployment hit 10.4%. It didn’t get under 6% until the end of his sixth year. At the end of the 80s, we had another severe recession.

      During Reagan’s administration, we had the S&L Crisis due to his deregulation. We had the tripling of the national debt due to his tax cuts. We had the beginning of our jobs exodus.

      Reagan was a horrible president. The only thing that sustains his legacy is lies.

  2. Mr. Hoffman,

    ” [When Reagan came in in 1981, things were much worse than when Obama took office.]”

    ” That’s a lie. Most economists say this is the worst economic turn down since the Great Depression. ”

    Untrue, most economists that you listen to. I was around during those times. Unlike you, I was aware of what was going on, I don’t need someone to tell me how things were.

    ” Two years into the Reagan administration, unemployment hit 10.4%. It didn’t get under 6% until the end of his sixth year. At the end of the 80s, we had another severe recession. ”

    Those first two years Reagan also supported Paul Volkers high interest rates which killed the economy, but Reagan allowed it and eventually jobs came back. I was there. Your freaking hero Obama has the luxury of rock bottom interest rates because going into this down turn there was no inflation. Inflation is the difference!!!Or don’t Your worthless economists remember that??

    ” During Reagan’s administration, we had the S&L Crisis due to his deregulation. We had the tripling of the national debt due to his tax cuts. We had the beginning of our jobs exodus. ”

    And the S&L crisis was Reagan’s fault because? The national debt was because a Democratic Congress could not stop it’s crack whore spending. Unlike your freaking hero, so far, Reagan had a “net” job gain.

  3. Not only are we screwed – but the GOP put in the fix by fighting any reform tooth and nail – and now they will blame the left for the failures they created.

    If they succeed in convincing the American people of such – then we REALLY are screwed.

  4. hippieprof,

    ” Not only are we screwed – but the GOP put in the fix by fighting any reform tooth and nail – and now they will blame the left for the failures they created.

    If they succeed in convincing the American people of such – then we REALLY are screwed. ”

    I believe you are mixing up long term and short term goals. If you are referring to the banking reforms I’m against, but in the short term they do not matter. Short term, we need jobs. The banking reforms are for later on so that another meltdown does not happen. Which if you guys wrote them, I’m sure they won’t do what you say they will.

    To keep blaming Republicans for blocking Obama’s agenda is strictly false. The problem is we could not block them, we did not have the power. American workers are paying the price for our failure to stop your war on Capitalism.

    You forget, America is and always has been a commercial Republic. Your side hates that and has decided to change it. The trouble is your alternative creation has not worked. You screwed the rich, we could not stop you. You blamed Wall Street for the Collapse, America believed you.

    Now what? You got what you wanted, found it does not work, now you blame us powerless Republicans.

    • Hey Alan…..

      It is late, and I don’t have time for a complete response right now. But, I did want to comment on something quickly:

      You screwed the rich, we could not stop you.

      See…. unless you yourself are rich I would say that the rich have screwed you. They have screwed you because they have somehow convinced you to believe that is what is in their best interests is also in your best interests. That isn’t the case – they are in it for themselves and frankly don’t care much about you – with the exception that they can fool you into voting for their candidates and making them richer.

    • [You got what you wanted, found it does not work, now you blame us powerless Republicans.]

      What are you saying does not work? The financial reform bill that has not become law yet? WTF are you talking about?

      Do you favor a plutocratic political/economic system? Because that’s where Republican policies have led us.

      • Do you favo[u]r a plutocratic political/economic system? Because that’s where Republican policies have led us.

        I think Alan might be on to something. Maybe it is time to bid a fond farewell to this pluralistic idea we have been chasing. Why should people have a say in the economy especially when they just do not understand that they are not supposed to succeed. Should they not just be happy with the crumbs and tailing that get swept off the table?

        The way politics are going (SCOTUS decision on corporate influence etc.) it is becoming more difficult to distinguish the US body politic from a plutocracy or aristocracy.

        I think it is telling that with the massive amount of public support Obama had when he was elected he has done so little to actually benefit the people of the US. The system has too many entrenched interests it seems, evidenced by the glacial progress of the current Administration’s agenda. Most programs seem to get stuck permanently in a murky political quagmire if they possess even the slightest taint of progressive ideals. This ‘murky quality’ so to speak, illuminates the power of the status quo and the individuals who work to maintain it.

      • [Should they not just be happy with the crumbs and tailing that get swept off the table?]

        Right-wingers are happy with just crumbs from corporations but reject anything from the government because it violates their feeling of “individualism.” That illustrates a core difference between conservatives and progressives.

        Conservatives don’t have the sense that we’re all in this together. It’s everybody for themselves. If you get cancer and can’t afford insurance, you’ll just have to die.

        Back during the Great Depression, Woody Guthrie wrote 100s of songs about the struggles of the ordinary guy, but they weren’t popular with farmers and the conservatives who were down on their luck. It was more the middle class who got into Guthrie’s music.

        Progressives don’t have a problem helping somebody out. That’s a big part of the insurance reform. Nobody should die because they can’t afford medical treatment. We’re all for making higher education affordable because it helps society as a whole. We don’t have a problem with the government building high-speed rail or investing in renewable energy because it makes our country better.

  5. BH:Progressives don’t have a problem helping somebody out. That’s a big part of the insurance reform. Nobody should die because they can’t afford medical treatment.

    I regard universal healthcare as one of the cornerstones of civilized society.

    Some days I need to edit for sarcasm as my post could be construed as supporting plutocratic rule and disparaging the merits of a more egalitarian society. Rest assured, I am not ready to take the crazy-boat to Libertarian Island however much fun it purportedly is.

    I thought this “I think Alan might be on to something.” would be all that was necessary to indicate my tongue was firmly planted in cheek.

    Whoops 🙂

    Mr. Scott has cultivated a world view that sometimes gets in the way of reasonable debate. I foresee a good deal of time before we agree on anything substantive in the political realm.

  6. Mr. Hoffman,

    ” What are you saying does not work? The financial reform bill that has not become law yet? WTF are you talking about? ”

    I was referring to all of the other ” Reforms ” your Fearless Leader has jammed down my personal throat and every other American’s. You love to point out Obama’s so called tax cuts for the “little people”.

    THE Problemo is, people are not as Stupid as you and Obama believe. They know that ” going forward ” Obama has royally shafted them on taxes and health care. Obama has raised the cost of hiring employees long term. Then You and Obama are sooprised that businesses are afraid to hire anybody.

    Oh, and you and your moronic leader say well we shafted the big guys to help you peons.

    Thanx but no thanx. Go ahead just keep screwing the big guys, go ahead. I struggle to make an argument that you can understand, to give you an example that you “will” understand. Well I just thought of one. It comes under the unintended consequences law of physics. Now “that” I made up.

    You remember BP, right? Now President Obama wants them to pay and pay and pay. Not for hurting the fish in the Gulf, not even for hurting the folks in the Gulf, but for making him look like an incompetent.

    Well, guess what? It turns out that BP is not just some evil rich guy. It seems that some “little people” are also BP. BP is also the pension funds of ” little guys ” in New York State, Florida, Illinois, and Ohio, to name a few. So Obama is really shafting Pensioners.

    This is just an extreme example. So what’s an investor to do? Investing in America is Stupid because Obama and the Democrats have declared war on Corporate America. More and more people are listening to that supposed “idiot” Glen Beck. Gold is the only place where Obama has not figured out how to destroy their money.

  7. The Arbourist,

    ” I think it is telling that with the massive amount of public support Obama had when he was elected he has done so little to actually benefit the people of the US. ”

    You cannot admit that Obama’s policies are failing. You are making excuses for his failures. Sad to say, that both you and Obama have always lived in a theoretical world. Your ideas have never been tested in the real world. Now that Obama’s theories do not work, it must be the ” entrenched interests ” that are causing Socialism to fail.

    It must be that “Most programs seem to get stuck permanently in a murky political quagmire “. No they are failing because they do not work.

    But don’t mind me. You keep rationalizing the failures of Obama the Great. It’s Bush’s fault. It’s Congressional Republicans’ fault.

    ” Mr. Scott has cultivated a world view that sometimes gets in the way of reasonable debate.”

    My world view is that ideas either work in the real world or they do not. I don’t ask for perfection. Even good ideas will fail sometimes. Bad ideas tend to fail a lot.

    Right now, your ideas are failing and you are not taking responsibility. If they had worked you’d be telling us all how brilliant you are and how stupid I am.

    • [You cannot admit that Obama’s policies are failing.]

      What policies are you talking about?

    • Mr.Scott you never fail in keeping me guessing as to which way you will pose an assertion.

      AS:You cannot admit that Obama’s policies are failing.

      I though I said something along those lines. Being heralded as a great progressive hope and then not accomplishing very many progressive things does not sound to me like a ringing endorsement.

      Your ideas have never been tested in the real world.

      Well, exploiting the poor admittedly is nothing new under then sun. But you seem to be alluding to the idea that socialism has never been tested and that it is a theoretical entity of some sort.

      Mr. Scott, social democracies exist in the world right now. Unless you believe right now that I live and exist as merely a figment of a theorists imagination I think you may have to reconfigure your thoughts about socialism and social democratic countries.

      Now that Obama’s theories do not work, it must be the ” entrenched interests ” that are causing Socialism to fail.

      I do not want to seem abrupt Mr.Scott, but as stated in many previous threads, your president most definitely not a socialist. He is centre-right at best. (Taking the political compass test might be enlightening as well, if you have time. My score is Economic Left/Right: -8.75
      Social Libertarian/Authoritarian: -6.87 )

      It must be that “Most programs seem to get stuck permanently in a murky political quagmire “. No they are failing because they do not work.

      There are parts of the process which really seem to have been hindering the current administrations policy goals. Just saying ‘they do not work’ is not particularly helpful. Moving toward the how and why of the situation would be more interesting. To use a car analogy, one would not simply write a car off because it stopped running, one would attempt to diagnose what was wrong with it before saying ‘it does not work’?

      You keep rationalizing the failures of Obama the Great. It’s Bush’s fault. It’s Congressional Republicans’ fault.

      Does your political history reset after each 8 year term? Does the previous administration reset the counter to zero and a blank slate is provided for the next?

      Either what has happened in the past matters, or it does not. Please do not choose the crazy answer.

      Are the Republicans’ working with Obama or against him? It would seem the answer is the later rather than the former. Is it the only reason why Obama’s administration has achieved less than expected? Of course not, but denying history and republican obstructionism does not provide a clearer picture of what is happening.

      Right now, your ideas are failing and you are not taking responsibility.

      Did I not mention the whole Canada thing? Remember Canada the social-democratic nation to the north of you? The country with reasonable regulation and taxation and universal healthcare that is currently doing reasonably well all things considered? Social Democracy functions Mr.Scott and continues to function in a good part of the industrialized world.

      My world view is that ideas either work in the real world or they do not.

      Hmmm. Well out here in the real word, social democratic states seem to be doing okay. So, either your statement above is false, or your definition of “the real world” does not extend past your sometimes partisan, somewhat ill informed, view of the world.

  8. Mr. Hoffman,

    ” [You cannot admit that Obama’s policies are failing.]

    “What policies are you talking about?”

    How about the Stimulus slush Fund. Hundreds of Billions borrowed and printed. A big chunk not even spent. Most of what was spent went to Obama’s supporters. It propped up State and local Governments that had SEIU members.

    It did not go much into the private sector. Why is a guy with a private sector job less important to President Barak than a Government worker?

    This slush fund went to the politically connected rather than where it would create the most economic growth. The Chicago way. If it would have gone to tax cuts, that same money would have more efficiently been used by the private sector to grow jobs.

    Then there is the big one. Obama care. Every one who is honest knows that Obama lied his skinny behind off to make the numbers work. Business and investors know they are royally shafted on this one.

    Now what proof do I have. Well first lets see what they say on Obama.com.

    ” Coupled with Obama’s commitment to invest in key areas like health, clean energy, innovation and education, his tax plan will help restore bottom-up economic growth that helps create good jobs in America and empowers all families achieve the American dream “.

    Well the energy jobs are hilarious since he has killed oil drilling jobs in the Gulf. Since he has declared war on anyone that has a job in the coal industry. Then there is his war on Las Vegas. He yelled at businesses who have conventions there. You really have to wonder if working people in Vegas hate Obama more than those from the Gulf States.

    Lastly look at numbers. High unemployment. At least Bush got something for the deficits he had. Thousands of dead terrorists and millions more working Americans. Obama has the deficits and that’s pretty much it.

  9. The Arbourist,

    Thank you for the response. I chose to devote my limited efforts into answering Mr. Hoffman’s direct question about what Obama policies were failing. Since he asks so few direct questions I felt I owed him a detailed answer.

    I also owe you a good answer but, I can’t do justice to all of your points now. I will answer this and hopefully later if you bear with me, I will get back to you.

    ” . Being heralded as a great progressive hope and then not accomplishing very many progressive things does not sound to me like a ringing endorsement. ”

    Maybe I am mis perceiving you. It sounds to me as if you are bashing Obama’s failures because he is not trying very hard to enact his ruling philosophy. I assure you that he has done his best to accomplish that. It is that his ideas, once enacted, ” just do not work “.

    ” Mr. Scott, social democracies exist in the world right now. Unless you believe right now that I live and exist as merely a figment of a theorists imagination I think you may have to reconfigure your thoughts about socialism and social democratic countries. ”

    I like things clear, cut and dry. Arguing over the socialist Democracies of say, Western Europe is anything but, and will fill this board with volumes of text.

    You very well could be a figment. I pretty much know what you are against. If I’m for it, you’re against it.( Apologies to Groucho Marx ) I’m just not sure exactly what you are for.

    • I like things clear, cut and dry.

      The view mentioned above can be somewhat problematic as many issues in both politics and life rarely provide a clear concise answer.

      Arguing over the socialist Democracies of say, Western Europe is anything but, and will fill this board with volumes of text.

      I suspect that is partially the reason, moreover that they are also fairly appropriate examples of how Social Democracies work, may also have something to do with not wanting to bring them into the discussion.

      I’m just not sure exactly what you are for.

      Perhaps I am your anti-self Mr.Scott and we should ensure that we never meet, as mutual annihilation would result. 🙂

    • [I like things clear, cut and dry.]

      Yep, if it can’t fit on a bumper sticker, right-wingers can’t support it. 🙂

  10. The Obama Administration has found a novel way of bringing the unemployment rate down. You have to hand it to Democrats, Republicans would have never thought of this. Change, change, change. Lowered expectations. Jimmy Carterism on steroyds. In May 652,000 dropped out of job market and are no longer counted as unemployed!!

  11. The Arbourist,

    ” Did I not mention the whole Canada thing? ”

    Funny you would bring up Canada. You are from there, right? Well on another discussion with Mr. Hoffman we talked about the protesters up at the G8 or whatever number they are. One of the groups had their people dress up in body suits that simulated naked pregnant folks. I think it was Oxfam who did it. Each one represented a different World leader.

    Since one depicted Barak Obama, I cited this as proof that protesters were mocking his hero. He suggested that maybe this was just the way Canadians dress. If you care to, clear this up.

    ” Remember Canada the social-democratic nation to the north of you? The country with reasonable regulation and taxation and universal healthcare that is currently doing reasonably well all things considered? ”

    Canada, the country that doesn’t have to spend much on defense because their neighbor to the South does. Canada, where you can’t get into a hospital for routine surgery, so you go South if you have the money. Canada, the Country which sends us all of their oil because in the US we are too stupid to drill with out asphalting our beeches.

    Canada, I hear it’s beautiful Country to visit to hunt and fish. I hope to afford to travel there when our economy turns around under President Sarah Palin.

    ” Well out here in the real word, social democratic states seem to be doing okay. So, either your statement above is false, or your definition of “the real world” does not extend past your sometimes partisan, somewhat ill informed, view of the world. ”

    I question whether you are part of the real world. In other words, what do you do to earn a living? I mean you write as if you are not subject to the daily struggles of the real world. Are you safe in a University? Are you a Government bureaucrat? Living off of an inheritance? I’m not critical. Just jealous.

    🙂

  12. Alan said: Canada, I hear it’s beautiful Country to visit to hunt and fish. I hope to afford to travel there when our economy turns around under President Sarah Palin.

    Well, Alan – perhaps you will be able to visit me in Canada if the unthinkable happens and Palin wins – because that is probably where I will end up moving.

    Canada is indeed a beautiful country – especially Alberta where The Arbourist lives. I had my honeymoon in Jasper National Park in the dead of winter, in fact…..

  13. hippieprof,

    I have made fun of Canada just to annoy our friend, but I have nothing against it. I’ve always wanted to visit the Great White North but poverty and my kids college bills do not allow it.

    I’m curious as to why you honeymooned in Winter at Jasper National Park. Are you a cross country skier or snow shoer? Or does your wife just like to shoot Polar bears ? 🙂

    I went to Aruba for mine. When you work in the cold it’s nice to vacation where it’s warm.

  14. I’m curious as to why you honeymooned in Winter at Jasper National Park. Are you a cross country skier or snow shoer? Or does your wife just like to shoot Polar bears ? 🙂

    Skiing? Polar Bears? What did you do on your. honeymoon?

    😉

    But – seriously – one of the first things we did after we started dating was take a long camping trip in the Canadian Rockies. So, the place held some special significance.

  15. hippieprof,

    We are poor campers. I just love a beech. Anyway, I have to bash Canada again. I forgot that their right of free speech is not as strong as here. I was watching a little of Stossel last night and there was a guy on that offended a Mullah who filed charges. The poor guy spent $100,000 in lawyers. I read about similar things before in Canada.

    They have hate speech Commissions up there. You can bash Christians and Jews all you want, but make fun of a Gay or Muslim and you will be hauled in from of a hate speech bureaucrat. You are guilty until you pay up.

    Obama has not done that here,,,,YET.

  16. If my continuing efforts to prove what I say, I offer the following “proof” that earmarks and stimulus are corrupt.

    http://www.nytimes.com/2010/07/05/us/politics/05earmarks.html?_r=1&hp

    You will notice a paragraph telling about how GE, the owner of MSNBC, and thus Obama’s favorite crony capitalist is trying to get money for their locomotives.

    Notice this is the NY times. Not Foxnews, so you Progressives can trust it.

    • [If my continuing efforts to prove what I say, I offer the following “proof” that earmarks and stimulus are corrupt.]

      You have a unique concept of what the word “proof” means. Same with “facts.” They all translate down into spin.

  17. The Arbourist,

    ” Perhaps I am your anti-self Mr.Scott and we should ensure that we never meet, as mutual annihilation would result. 🙂 ”

    Since that would make me your intellectual equal, I thank you for the compliment. My self esteem needs all the help it can get here. Hoffman is not nearly so gentle with my feelings.

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