I think it is important though to recognize that. If we keep on adding to the [deficit] — Even in the midst of this recovery that at some point. People could lose confidence in the US economy in a way that could actually lead to a double dip recession.
Marshall seems to think Mark Halperin was onto something with his over-the-top comments about the President. When I heard about the comments, I thought Halperin was provocative, even unprofessional. But, then I remembered something I wrote inn 2009 which was identical in tone. Of course, I used a different word, but, it was still the same message in the same provocative, borderline unprofessional tone. So, legitimately, it sounds like Obama was taking my advice two years too late. Good for him.
Yet, while the tone may have changed, the rhetoric is still all wrong. Look at the quote from November 2009 above as an example. No one lost confidence in the US. They might do if we default on our debt obligations though.
This is what Marshall was getting at. So let’s have a little fun. Let’s play with Marshall and Mark’s word choice then.
In the spirit of Marshall and Mark, let’s get our Dick Tracy hats on and do a little sleuthing about President Obama, the deficits and real economics.
My first clue as a private dick is right here on Credit Writedowns from 2009. I will underline the important stuff for you:
We’ve got a long- term structural deficit that is primarily being driven by health care costs, and our long-term entitlement programs [and don’t forget military spending, Mr. President]. All right? So that’s the baseline.
Now, if we can’t grow our economy, then it is going to be that much harder for us to reduce the deficit. The single most important thing we could do right now for deficit reduction is to spark strong economic growth, which means that people who’ve got jobs are paying taxes and businesses that are making profits have taxes — are paying taxes. That’s the most important thing we can do.
We understand that in this administration. That’s not always the dialogue that’s going on out there in public and we’re going to have to do a better job of educating the public on that.
The last thing we would want to do in the midst of what is a weak recovery is us to essentially take more money out of the system either by raising taxes or by drastically slashing spending. And frankly, because state and local governments generally don’t have the capacity to engage in deficit spending, some of that obligation falls on the federal government.
–Barack Obama gets it, Dec 2009
Putting my Dick Tracy hat on, it sounds to me like the President passed his economics 101 course at Columbia. Here’s what he’s saying: if any large participant in an economy cuts back, it will cause economic pain. That pain could translate into a recession in a weak economic environment.
Let me go further and suggest that what you want government policy doing is supporting the natural countercyclical nature of fiscal policy. We can get this from Economics 101 on government budget deficits.
Imagine you and I are the only two people in an economy. For the sake of argument, say we use sea shells as a currency and we trade with no one else but each other. So when we do trade, we exchange goods and services with each other for the amount of sea shells these goods and services are worth. From an accounting perspective, it’s a wash; if you buy my goods, I get the sea shells and lose the goods of equivalent value and if I buy from you, you get the shells and I get the goods of equivalent value. So far, so good…
Now, let’s introduce some deficits and debt into the scenario. For the sake of argument, let’s say that year in, year out we produce the same amount, the same value of stuff. However, in one particular year, you produce a lot of stuff – and I want to buy it. The problem is that I produce less stuff that you want to buy. What do we do? I could issue you an I.O.U. and tell you I will pay you back sometime later. You accept the deal and now I have received the goods and services and you have received an equivalent value from the two sources, currency and the I.O.U. Again, it is a wash from an accounting perspective. I have a deficit in this particular year and you have a surplus…
Now, even if we add [the foreigner] Harry… into the mix, it’s pretty much the same. For example, if you bought some of Harry’s services but didn’t have enough sea shells to pay for it, you could issue an I.O.U. to him for the shortfall. You would have a deficit with Harry for the year and Harry would have a surplus with you for the year…
What holds in my little example for three people also holds for three groups of people too. You could have 100 million people in a group that you represent that does trade with my group and Harry’s group and the accounting would be identical. So, let’s give our groups names. I am the government, you are the non-government sector and Harry is the foreign sector. The sea shells are the domestic currency and the silver represents foreign currencies.
If I were a good dick, I would see this and think: Government Deficit = Non-Government Surplus. A real dick would go further and say that means government deficits go hand in hand with private sector savings. You’re probably thinking, “Gee Wally, it sounds like people spending more and the government deficit goes down.” That’s exactly right. It would vanish entirely if the U.S. operated at full employment and had a trade surplus. So it is natural that when times are good and private sector savings rates go down, the government moves in the opposite direction. It is natural that when times are bad and people save more that the government again moves in the opposite direction. The government’s balance is naturally countercyclical.
Isn’t that what you want. Imagine you live in a fictional country, let’s call it Grecia. In Grecia, times were good and that filled the government’s coffers with the people’s tribute (taxes). Totally natural. But then government said, “Gee, we have a lot of money now. We should make sure we get elected by the people again, so let’s “make the masses happy by redistributing much of the tribute received, in popular ways.”” Not natural. Then, hard times came and people spent less. Totally natural. The coffers in Grecia were empty though. Grecia wanted to alleviate some of the pain of its suffering people but they could not. Instead, they themselves cut back too, sucking even more money out of the economy. Completely unnatural.
Barack Obama gets that. That’s what he was saying in December 2009.
But wait a minute, why was he saying and why is he still saying this stuff about double dips and deficits then? Me, I have no clue. Maybe the President gets his word choice confused. Maybe he’s politicking and pandering. Maybe he’s being advised by someone he trusts on the economy to say these things. I don’t know; I am not good enough a dick to sleuth these things out. What I do know is it is total nonsense.
My analysis here says that the Clinton years’ achievement was due largely to a booming economy fuelled by a capital spending binge in the telecom sector and by business generally, mixed with an unsustainable decrease in household savings. Barring a repeat of this – something I would argue is a bad thing – the only way to get around the government deficit is to depreciate the dollar. Right now, getting back to full employment should be the first priority. That would go a long way to reducing the deficit.
Seems obvious to me. But that doesn’t seem like where Team Obama has been headed. So, if you would, put on your Dick Tracy hats. Be dicks and figure this out for me. I would love to know what you think is going on. Does Barack Obama get it or not?