Vicious Cycle

Here's a recent post by Robert Reich. I think he's absolutely spot on.

Let's Cut Spending and Follow Britain

Pentagon Staff Officers used to turn to each other after receiving particularly muddleheaded direction from on high and say:"that's dumb - let's do it."

In case we need current evidence that government austerity when a country is in a liquidity trap contracts the economy, just look to Britain.

Since invoking austerity, British GDP has shown no growth for the past nine months. The Tories have a number of excuses: it was the royal wedding of Prince William and Kate Middleton; no - it was the Japanese earthquake and tsunami; no - it was record high temperatures in April; no - it was advance ticket sales for the 2012 Olympics in London.

Really?

Might it be the result of reducing government spending, thus reducing demand when the economy is already weak?

Goldman Sachs seems to think that will happen here, according to a report quoted by economist Jared Bernstein. Goldman Sachs analysis:

“A review of the spending and tax data at the federal, state, and local level suggests that a significant part of the weakness in economic activity in 2011 so far is due to fiscal retrenchment. In the first quarter, the Commerce Department estimates that spending cuts at the federal, state, and local level subtracted 1.2 percentage points from the annualized pace of real GDP growth; moreover, the expiration of the “Making Work Pay” federal tax cut and hikes in state taxes probably offset most, if not all, of the boost to disposable income from the temporary payroll tax cut.

In the second quarter, the fiscal policy impact was probably smaller, but still negative. Indeed, monthly data on defense spending, state and local employment, and state and local construction all show a clear downward trend for 2011 so far.”

So don't be surprised if our next employment report looks bad.

In the meantime, I like this photo:

Voting

The North Carolina legislature today attempted unsuccessfully to override Governor Perdue's veto of House Bill 351, the Voter ID bill. According to the News and Observer, there may be future attempts to override.

I have commented previously on this and similar bills here and here.

Meanwhile, Back at Town Hall

The Town of Oriental has now resolved the police hiring impasse by recognizing that town administration, including hiring and supervision of police officers, is the legal responsibility of the town manager, not the Board of Commissioners.

The morning this revelation was announced, one of the commissioners revealed that she (the commissioner) had tasked one of the town employees with uncovering all of the amendments to the town charter and putting them on the web site.

Not a bad idea, but a better approach would have been to suggest the course of action to the manager and let him decide how to go about it. He is the one who must assign tasks to the staff. This is neither the duty nor the responsibility of a commissioner.

Now that the principal of how responsibilities are divided by North Carolina law between the board of commissioners and the town manager has been accepted, I think commissioners will find their own job very much easier. And they will probably do it better.

Debt Ceiling Kabuki

Here's what Brad DeLong thinks we should do about the debt ceiling: http://delong.typepad.com/sdj/2011/07/what-to-do-about-the-debt-ceiling.html

I like it. It's an example of the TACAMO principal (Take Charge and March Out).

There's another principal the Republican intransigents should consider if they get their way: you broke it, it's yours. In other words, if they succeed, everything that goes wrong with the economy in the next year and a half belongs to them! Be careful what you wish for, lest you get it (the Midas Principal).

Heads You Win, Tails I Lose

Here are some thoughts on the probable effects of the debt talks: Lose-Lose-Lose.

Not in a Depression - Yet

One of the reasons we are only in a recession and not in a depression is the existence of safety net programs put in place eighty years ago under FDR, supplemented by programs put in place nearly fifty years ago under LBJ. As a consequence, even though the percentage of the population with jobs is lower than at any time since the great depression, we don't have masses of people living in Hooverville's, rummaging through garbage dumps for sustenance.

Because of those programs, which Republicans opposed from the very beginning, not only have individuals and families been able to survive, businesses that would otherwise have had to close their doors have been able to stay open.

The scale of our programs is significant. Twenty percent of all personal income in 2010 came from government transfer programs. Just imagine the impact if those programs didn't exist.

Before the year is over, you may not have to imagine it. Some programs, such as extended unemployment insurance, are due to expire later this year. Some stimulus programs are also due to expire. Among measures proposed to reduce government spending are proposals to raise retirement age, raise the age of eligibility for Medicare and increase the costs paid by individuals.

As of now, it appears that neither party is pushing for measures to stimulate the economy, create jobs, thus increasing GDP and revenue, reducing the deficit by growing our way out of it.

So whatever results from the current budget negotiations, it looks like government spending will be reduced.

This will kill jobs.

In the long run, though, there are issues beyond aggregate demand that need attention. How do we address the jobs deficit in face of outsourcing offshore, computerization, or a combination of both. Where will our future jobs come from?

University of Texas economist James K. Galbraith has some thoughts on the subject in a recent essay published here by the New America Foundation.

Senator Tom Coburn (R) Oklahoma Is After TriCare

Senator Tom Coburn, physician, of Oklahoma, wants to drastically reduce the health care benefits of retired military personnel and their families.

Senator Coburn, who never himself served in the military, according to his bio, has decided to aim his budget cutting axe at military benefits for active duty and retired military personnel and retirees. Under his axe are Tricare Prime and Tricare for Life, the military's medical care system that covers some active duty personnel as well as retirees and their families. His proposals would increase enrollment costs by as much as eight times and add thousands of dollars to fees charged to Medicare-eligible retirees. "It's a matter of fairness," he says.

Coburn would also raise the cost of pharmaceuticals by three to five times, and he would target prices in commissaries as well.

Walter Pincus of the Washington Post describes Senator Coburn's plan here.