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View Diary: Krugman On The Proposed Deal (341 comments)

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  •  Once again, Krugman isn't making any sense to me. (31+ / 0-)

    Look, we're here talking about the long term deficit, right? That's the problem, right? Okay. So...what is driving the long term deficit? Well, the Bush tax cuts. Defense Spending. Medicare. Medicaid. Economic Growth (or lack thereof).

    So, the best possible deal is to go over the cliff. We're all agreed on that.

    But the next best possible deal is...cutting Social Security? Which has nothing to do with the federal deficit? He's iffy about that?

    I hate the way economists look at the world. All of them.

    •  and now that he's won his final campaign (16+ / 0-)

      i guess obama doesn't care about what happens to democrats in 2014. because if he's really willing to make this deal it's not just low income seniors he's throwing under the bus, it's the entire damn party.

      The cold passion for truth hunts in no pack. -Robinson Jeffers

      by Laurence Lewis on Tue Dec 18, 2012 at 09:52:07 AM PST

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    •  Long-term deficit isn't the issue. Never has. (16+ / 0-)

      This is about implementing an austerity program which didn't work out very well in Europe.  The deficit is just the cover for the action.

      -9.88, -7.44 Social Security as is will be solvent until 2037, and the measures required to extend solvency beyond that are minor. -- Joe Conanson

      by wordene on Tue Dec 18, 2012 at 10:04:11 AM PST

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    •  what he's saying is that it is all trade offs (5+ / 0-)

      and while we know going over the cliff will get us the middle class tax cuts, we don't know it will get us unemployment, stimulus, etc.

      he is saying that it's possible that changing the SS inflation calculation will get us those other things and that might be worth it.

      Might.  he makes it clear that the devil is in the details.

      If you took the greed out of Wall Street all you’d have left is pavement ~Robert Reich

      by k8dd8d on Tue Dec 18, 2012 at 10:06:16 AM PST

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    •  Not really talking long term at all (3+ / 0-)
      Recommended by:
      foucaultspendulum, JesseCW, Mr Robert

      This is all theater.  The divisions over how the long term issue gets solved, i.e. growth vs austerity aren't even really being discussed.  All this nonsense about SS and Medicare is eyewash for negotiating purposes.

      The hell of it is, there are real issues of importance for those who are living on the edge.  The middle class put Obama in office against Romney's no tax/many cuts plan.  The White House would do well to remember that, and to look for real solutions that preserve the net while bringing in more from those who can afford it, including the middle class with AGI of $150K +.

      Finding Fred A Memoir of Discovery @

      by Timothy L Smith on Tue Dec 18, 2012 at 10:11:33 AM PST

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    •  NO (3+ / 0-)
      Recommended by:
      artmartin, Aquarius40, sewaneepat

      and the reason is that going over the cliff the cuts the short term deficit - which means a recession.

      A Keynesian would say we need short term stimulus and long term deficit reduction to the extent that the deficit is grows faster than the rate of growth.  

      That is why Krugman is on the fence: going over the cliff would be to any Keynesian a really bad idea.  

      The bitter truth of deep inequality has been disguised by an era of cheap imported goods and the anyone-can-make-it celebrity myth - Polly Toynbee

      by fladem on Tue Dec 18, 2012 at 10:19:27 AM PST

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      •  Spending would be cut by $100 billion next year. (6+ / 0-)

        Guess how much we cut this year? $255 billion. Yeah...we already have been cutting spending every year this president has been in office by more than the $100 billion required under the sequester.

        So the idea that this $100 billion is going to spiral us into recession is bullshit.

        The problem is on the consumer confidence or demand side as result of seeing the witholding tables changed for wage earners. This too can be corrected for and simply have people get smaller tax refunds next year.

        There is no cliff. It is more of a bump.

        •  And taxes (3+ / 0-)

          would go up by about 500 Billion, including taxes on the middle class.

          A short lesson in Keynesian economics:

          Fiscal Stimulus = government spending - tax receipts

          This is AKA the deficit.  In 2011 the deficit to gdp ratio was about 10%.  In other words, through spending the government added 10% to GDP above what would have occurred if there was no deficit.  Now there is no question that the makeup of the fiscal stimulus matters (spending is better than tax cuts, and middle class tax cuts are better than tax cuts for the rich based on their marginal propensity to consume) but the size of the fiscal stimulus is really critical to any understanding of Keynes.  

          Going over the cliff costs IIRC about 600 Billion a year, which will reduce the deficit to GDP ratio to about 6%.

          Which is another way of saying it would take 4% out of the economy.

          Increasing taxes during a recession without offsetting increases in spending reduces the size of the fiscal stimulus.  This is an identity.  This in turn will reduce GDP - and in this circumstance create a recession unless some offsetting result would occur.

          Which is why Krugman is one the fence.  Because no Keynsian worth their salt wants to go voer it.

          It is worth noting that a 4% loss in GDP is worth about a 3% increase in U3 based on Okun's law (though that is very much a back of the envelope calculation)

          The bitter truth of deep inequality has been disguised by an era of cheap imported goods and the anyone-can-make-it celebrity myth - Polly Toynbee

          by fladem on Tue Dec 18, 2012 at 11:01:23 AM PST

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          •  No they wouldn't (1+ / 0-)
            Recommended by:
            Mr Robert

            No sensible person thinks that a deal on the middle class tax cutscan't be reached by the end of 2013.

            The vast majority of people wouldn't be significantly affected by the increase in taxes for months into next year. And if it were made clear that a deal were in the works, people could adjust their withholdings and not be affected until April of 2014.

            Any argument that involves how awful it would be for the economy in 2013 if the tax cuts weren't extended is not sensible.

        •  The cuts are already helping to prevent (1+ / 0-)
          Recommended by:


          They're a bad idea.

          Cuts to Social Security are even worse, though.  The few people who do have disposable income are going to be more inclined to shovel it into an IRA or 401k instead of going out to dinner now that they know SS is on the path to same graveyard as Welfare.

          "Furthermore, if you think this would be the very very last cut ever if we let it happen, you are a very confused little rabbit." cai

          by JesseCW on Tue Dec 18, 2012 at 11:49:27 AM PST

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      •  What's idiotic (4+ / 0-)
        Recommended by:
        JesseCW, blueoasis, Laconic Lib, zett

        is there isn't any discussion of the merits/demerits of austerity. Both sides are pushing austerity.

      •  fladem, there are times when I feel like I'm being (1+ / 0-)
        Recommended by:

        played by both parties.  Trust is not my strong suite, without facts, without logic.  I've learned that trust is a fool's option far to many times.

    •  The first priorities (6+ / 0-)

      are to raise taxes on the wealthiest Americans, as that will not negatively impact growth;  take the debt limit off the table so Republicans can't hold the country hostage; and preserve unemployment benefits, food stamps, and other current safety net programs (because its both the right thing to do and stimulative).

      The second priority should be more stimulus, or at least not to induce an anti-stimulus.  Growth goes a long way to solving our long term problems.  Going off the cliff is an anti-stimulus program, and thus is not necessarily the best possible deal."

      Adjusting benefits downward by using the chained CPI is a train wreck, but it's a slow-moving train-wreck.  The effects are mitigable by changes in tax and health care policy over the next decade or decades.  For that matter, more growth now could enable the benefits to be restored sooner.

      "Well, I'm sure I'd feel much worse if I weren't under such heavy sedation..."--David St. Hubbins

      by Old Left Good Left on Tue Dec 18, 2012 at 10:20:42 AM PST

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    •  They never state their goals. (4+ / 0-)

      They rarely pick a target outcome.

      If Krugman is looking at this as a near-term problem, he can interpret the Social Security benefit cuts (which have NOTHING to do with the debt/deficit) as "not bad" because the impact of those cuts will come well into the future.

      The point being is that if all you care about doing is propping up February retail sales numbers, devastating cuts that hit in June are "fine".

      The bottom line is that the way that almost everyone in our government and punditry are analyzing policy these days is as if constantly being near-term crisis mode is okay.

      Few to none are taking the long view anymore.  Next to no one seems to have the patience to look at the big picture and how all of the moving parts work together - or how they would fail to work together.

      How do we think we ended up at this piece of shit fiscal cliff anyway?  Nobody is thinking anything through.  They're just demanding and enacting fucked up conflicted policies and cuts that do nothing to help anyone.

    •  He knows nothing about household budgets. (3+ / 0-)
      Recommended by:
      foucaultspendulum, adigal, Mr Robert

      He's proven time and again that he has no damned idea at all what 100 bucks means to a person on food stamps.

      Yes, he's a genius.  

      But I wouldn't ask Einstein for advice on how to repair my brakes, no matter how deep his theoretical understanding of mass and energy.

      "Furthermore, if you think this would be the very very last cut ever if we let it happen, you are a very confused little rabbit." cai

      by JesseCW on Tue Dec 18, 2012 at 11:46:19 AM PST

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    •  Look, I see his point (1+ / 0-)
      Recommended by:

      On one side, you have Obama, who really wants to drive a deal.

      On the other side, you have a party that really really wants to hurt poor people as badly as they can, and blame it on the Democrats. The former is primary, the latter is just a nice-to-have. The way they see it, literally anything they can do to take income away from poor people is less income they have to 'steal' from the pockets of the 'producers'. This is all they want. If they can't get what they want, then they will take a consolation prize, which is anything that damages the US government.

      So Obama is basically negotiating with a pack of lunatics whose every demand is precisely gauged to damage poor people. It's all they want. And all he really knows how to do, when the chips are down, is negotiate. So he's sitting there going, "God, okay, which of these options that I have will cause the least misery?"

      It may even be that he's right: the chained CPI might cause less misery over the next, say, ten years, than the loss of unemployment insurance for several million people will in the next year.

      Obama's in a tough spot, and whenever he is in a tough spot he negotiates. If we'd hired an attack dog for the presidency, I personally think we'd be in a much better position now. We might even hold the House, because 2010 might not have been such a bloodbath. But we didn't. We hired the guy who said that he was going to persuade the Republicans to work with him. And I'm sure there were even people who believed it.

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