Deficits & Politics

http://www.nytimes.com/2011/08/01/opinion/the-president-surrenders-on-debt-ceiling.html?emc=eta1

http://online.wsj.com/article/SB10001424053111903554904576458413656841844.html?mod=googlenews_wsj

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"The one with the plan is the one with the power." (John C. Maxwell)

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I always find myself amazed at the selfishness of politicians attacking a major economic problem with sound bites that they feel will give them an advantage.

This blog is not about politics and I try to stay away from that but still ...

Today I've attached Krugman on what's happened and where we're going: "banana republic" anyone? As a companion piece, I've attached a very thoughtful article from a UCLA professor sent to me by one of my all time great former students. Professor Rumelt (the UCLA prof) opines that Krugman has it wrong when he says that government spending on WW II is the only thing that stopped the Great Depression. So, to Professor Rumelt, Krugman is wrong now by consistently pointing out that government spending shortfalls, where the economy could have been helped, are only going to be compounded now by "deficit cuts."

This is an interesting arguement and I'd never seen the figures that Rumelt quotes about WW II. But, whatever the numbers, it does appear that "full employment" (i.e. "Full Employment" = the dreaded 5% unemployed number representing the group that's "unemployable") was achieved by virtue of the fact that 95% of those employment-eligible were "employed" (active army and civilian support occupations, albeit at lower wage levels, were the "adder" to other civilian occupations to make up full employment).

OK. Back to today. We now have a government that, according to another one of my all time great students, spends $23 billion per year on "air conditioning" for our troops in Afghanistan (this according to "NPR"). First of all, our troops need whatever support they need wherever they are, but the $23 billion just makes the point that the U.S. has spent more money than it has on specious war efforts overseas - we don't need to "nation-build" in Afghanistan in order to track down and eliminate terrorists. And, because of the politics of the deficit situation, the troops over there are worried about getting their paychecks. This is ridiculous.

According to Krugman, we will probably have a depressed economy until 2013 (best case). Here, all reducing government spending does is depress the economy even further. So, we're extending a bleak economic situation by making it bleaker.

When Krugman calls something a "catastrophe on multiple levels," I tend to listen. I'm not sure that any of the players in the deficit reduction drama have a Nobel Prize in economics, so I'll go with Krugman's opinion of what's happening and where it's going.

What's next?