Germans not getting onboard with ‘the Debt President’

Obamamerkel Der Spiegel had an article on the five fallacies of the Obama economic debacle plan.  You can read the English version of Chancellor Merkel Visits the Debt President for the details, but here are the five fallacies:

  1. It's not as bad as it seems. The US amassed much more debt during World
    War II, it is often said. That, though, is not true. According to
    conservative forecasts, Obama's policies could end up being three times
    as expensive as US expenditures during World War II.
  2. The money is part of an effort to resuscitate the crisis-plagued
    economy and is thus serving a good purpose.
    The truth of the matter is
    that the bulk of the borrowed money will be used to finance the normal
    US budget.
  3. When the crisis ends, borrowing will automatically fall. The truth is
    that it could climb afterwards. The graying of American society creates
    a new fiscal policy challenge for the country that so far hasn't been
    reflected in any budget plan. According to calculations by the
    International Monetary Fund, Washington would need to spend several
    times more than it is now just to service current pension entitlements.
  4. The world believes that the US is borrowing money from capital markets.
    I
    t is often said that the Chinese and the Japanese will buy government
    bonds. But the truth of the matter is that trust in the gravitas and
    reliability of the United States has suffered to such a great degree
    that fewer and fewer foreigners are purchasing its government bonds.
  5. The additional money is harmless because the economy is starting to
    pull together again and there is no threat of inflation.
    The truth is
    that the quiet on the inflation front is deceptive. The hot money is
    accumulating in people's savings accounts and in the balance sheets of
    banks that aren't keen to lend money at the moment. The supply of money
    has increased by 45 percent in the last three years and there has not
    been a corresponding rise in hard assets or production. That imbalance
    will eventually make itself felt in the form of inflation.

In my opinion, if Obama succeeds in all of his spending (which it looks like he has), we will spend the next 40 years trying to get out from under it.  As my mom, who is a lifelong Kennedy Democrat said to me this week "I don't think I'll live to see the economy recover from what Obama is doing, but I can damn well vote Republican in the coming elections."  Now that is saying something.

This article has 9 comments

  1. well, if your mom says it, it must be true. Now I'm scared. I think I'll turn Republican (straight too – you never can tell!).

  2. Perhaps you should engage the argument rather than the pithy ending which I was using as an anecdote, not evidence.

  3. Well, let's see, shall we have another Great Depression or more debt? Hoover or Keynes? The right-wing doesn't give a damn if massive bread lines and social suffering follow because their discredited theories are all that matter. Inflation isn't the problem, deflation is. Fortunately, we have neither.
    My opinion is that, even if McCain had won, we'd be following much the same path, except that the rightwing nutjobs would be cheering instead of carping (which is all they have, losers).

  4. Since McCain argued we should cut spending in response to the crisis, to be doing what Obama is doing would be a HUGE flip flop. But I'll defer to Paul Krugman on the matter since his explanations of the economics is so bloodly clear: we need to be spending much more than Obama's plan, not less. Regarding the points in the article:
    1.In WW II our national debt was 120% of GDP. For Obama's plan to be 3 times as expensive we'd have to have a debt that nearly 4 times our GDP. No CREDIBLE economist thinks that.
    2. If most of the borrowed money will be used to finance the regular budget, that means that without the money we could not come close to financing the regular budget. That would indicate just HOW much stimulating the economy needs, and just how bad it would be to refuse to stimulate.
    3. Social Security would be the (small)problem it is even if we had not needed to stimulate the economy. Medicare would be the same (big) problem it is even if we had not needed to stimulate the economy. But WITHOUT stimulating the economy our economy would be wasting lots of productive capacity (that's what happens during Great Depressions) so we'd be less able to provide for our elderly than with the stimulus.
    4. Investment the world OVER is down because we are in a global recession. That's why we need a world wide stimulus. Germany is not helping because Merkel's failed right wing economics doesn't work.
    5. The way the free market economy works is that companies only hire people to make stuff if the stuff will sell. Since private spending has dropped so drastically, companies quit making so much, and consequently laid off workers, which dropped spending even more causing a vicious cycle. Government is the only entity in a position to get the economy going again by spending which is why we need deficits right now. If we were already producing as much as we could, all that extra spending would cause prices to rise, but that's not the situation we are in. And I would argue that high unemployment the shredded safety net policy we'd have to impose if we opted against the stimulus would be much worse than inflation anyway–unless you rich.
    your friend
    Keith
    your
    5.

  5. Keith, if nothing else, I am glad that those like Krugman take the liberal economic insanity to its logical conclusion rather than playing coy.
    'We don't need to just get 4x as in debt as the Bush admin, we need to get many more times in debt! Economies are simple – they work by over leveraged companies with negative net worths – hey, Ponzi schemes work great!' (Madof reference).
    I'm not really saying that socialist liberal economics are ponzi schemes per se, but they not only sound non-intuitive, I think that they are largely ludicrous, except where they share common principles with the same basic economics as conservative economics.
    To say that conservative economics have failed is just a ploy, not based on real data. Most of the European economies are failing for other reasons, chief of which I suspect is their Socialist welfare systems which run out of other peoples' money in two generations.
    While macro economics is both simple AND complex, and not just individual economics scaled up, it boggles my mind that anyone could, with a straight face, say 'we need to spend WAY more!' It seems totally bass ackwards! And I am far from convinced that it is sound rather than bewitchingly stupid.

  6. HI Daniel:
    It's IMO very simple IMO. If people save more (and consequently save less) this sends a signal to each business that is no longer selling as much of its product as before: reduce your output because demand for your product is decreasing. People lose work, spend less, and this spiral continues. That's how a certain class of recessions happen (this is different from the Carter/Reagan recession deliberately induced by the Fed to squeeze inflation from the economy). The depth of the recession depends on circumstances, but in every case the cure is increased spending. In the present conditions only the government is in the position TO spend more. Government spending is what ultimately got us out of the Great Depression (we called that stimulus package WW II).
    I would not agree that big government is the problem. If it For example, Norway, whose welfare state is per capita much larger than ours, actually has a higher per capita GDP that we do. But that's actually a separate issue from fiscal stimulus. We can debate at some other point the optimum size and proper role of government in general. But right now we are in a fiscal emergency and the question of how much economic stimulus the economy needs is a technical matter and ought not be an ideological question. Paul Krugman has not been an ideologue on economic matters, which is why he has under other circumstances opposed the left position on free trade (actually he still supports free trade) on fiscal stimulus ( agrees with conservatives that monetary policy is the better stabilization tool, but that tool isn't available in the crisis we have now). Krugman is definitely a liberal, but he approaches his economics like a scientist.
    your friend
    Keith

  7. >> KEITH: but in every case the cure is increased spending.
    The question is, by whom? The government who borrows money from the taxpayer and other nations, or individual investors who can stand to fail?
    >> KEITH: I would not agree that big government is the problem.
    That 'blindness' is part of the problem. The reason we created the Bill of Rights, and the reason that our founders, esp. Jefferson, would disagree with you is that they recognized that
    (a) big government by its nature usurps individual freedom
    (b) can lead from soft tyranny to hard
    (c) subverts the REAL engines of social progress, which are individual character, responsibility, and individual industry, as well as the success of the family unit.
    When part (c) above goes bad, liberals want the government to usurp the responsibilities of the individual (they say it's 'short term' but it NEVER is), while conservatives want to help restore the individual and family to health, which is not govt dependence, but personal strength and independence.
    Same w/ the economy.
    >> KEITH: If it For example, Norway, whose welfare state is per capita much larger than ours, actually has a higher per capita GDP that we do.
    Actually, as per the NYT article below, Norway is succeeding because it did the OPPOSITE of what Obama is doing – saving instead of spending. Instead of spending its oil riches, Norway saved, and it is now growing in the midst of the global recession.
    We agree, people will spend more when they have more money – but FROM EMPLOYERS WHO HAVE MONEY TO INVEST, not from the GOVERNMENT which is taking money from the PEOPLE. We don't build an economy by taking from the people we want to spend money.
    We build it by LOWERING their expenses so that they invest, it's that simple.
    As far as needing to jump-start the economy, it seems much smarter to me to LOWER the cost of investment rather than UP IT and try to offset that problem by BORROWING MONEY from other countries and the taxpayer in order to GIVE or LOAN the needed money back to the investor community.
    That's more like one giant ponzi scheme rather than sound principle. I think it's crazy. It's like legalizing drugs to raise money to fight the drug problem. I'm sure liberals think that would work too. There is a huge difference between something that sounds counterintuitive, but works, and things that are just plain illogical – illogical is beyond 'counter-intuitive.'
    I think that the problem with liberal thinking in general, esp. clear in the drunken spending of the Obama admin, is that they correctly identify problems, but not root causes, and not proper solutions. In the end, they make the problems worse, or they shift the problem somewhere else rather than seeing that the solution to MOST problems is restoring individual responsibility and freedom, the former of which involves accountability and consequences, rather then shielding people or the economy from such.

  8. <div style="border:dashed thick">Correction: Due to a mix-up in the editing room, we accidentally ran the wrong file photo of Chancellor Merkel meeting the Debt President. Here's the photo we should have run:
    <img src="http://www.huffingtonpost.com/theblog/04-mfb-5127742-bush-merkel-hoch%2CtemplateId%3DrenderScaled%2Cproperty%3DBild%2Cwidth%3D284-thumb.jpg"&gt;
    We apologize for the confusion.</div>

  9. Hi Daniel:
    Continuing the discussion:
    >> KEITH: but in every case the cure is increased spending.
    DANIEL: The question is, by whom? The government who borrows money from the taxpayer and other nations, or individual investors who can stand to fail?
    KEITH: The private sector wouldn’t SPEND extra in this economy because it’s not a good time for individuals TO invest. Government spending right now is the only option.
    >> KEITH: I would not agree that big government is the problem.
    DANIEL: That ‘blindness’ is part of the problem. The reason we created the Bill of Rights, and the reason that our founders, esp. Jefferson, would disagree with you is that they recognized that
    (a) big government by its nature usurps individual freedom
    (b) can lead from soft tyranny to hard
    (c) subverts the REAL engines of social progress, which are individual character, responsibility, and individual industry, as well as the success of the family unit.
    KEITH: Assuming that Jefferson WOULD disagree with me had he been born in our times rather then in the very different world of the 18th century, well I don’t think Jefferson would be right. There is nothing about big government that is inately more oppressive that private employment. At will employees can be fired for just about any reason at all and thus have zero freedom. Walmart once fired two of its employees for living together outside of marriage. That’s far more oppressive than anything the federal government does. There is nothing about government that subverts character, responsibility and industriousness, no more than private exterprise does the same. Madoff, Enron, and countless other examples of private corruption show that people can be corrupt in any possible institution.
    DANIEL; When part (c) above goes bad, liberals want the government to usurp the responsibilities of the individual (they say it’s ‘short term’ but it NEVER is), while conservatives want to help restore the individual and family to health, which is not govt dependence, but personal strength and independence.
    KEITH: I think that’s a caricature of both liberals and conservatives. Liberals do not propose usurping the responsibilities of individuals. All we support is some degree of working together via government to make up for the harsher edges of capitalism. Conservatives want to continue to let the economically powerful enjoy the unfair advantages laissez faire bestows on them.
    >> KEITH: If it For example, Norway, whose welfare state is per capita much larger than ours, actually has a higher per capita GDP that we do.
    DAIEL: Actually, as per the NYT article below, Norway is succeeding because it did the OPPOSITE of what Obama is doing – saving instead of spending. Instead of spending its oil riches, Norway saved, and it is now growing in the midst of the global recession.
    KEITH: I think you are drawing a wrong conclusion from the article. It is an undeniable fact that Norway spends a lot more on its welfare state than we do and they have higher tax rates than we do. What the article says is that when times were good Norway chose to invest it’s surplus rather than spend it on MORE public consumption. They are not HAVING the kind of recession we are so they don’t NEED to stimulate the economy the way we do. But for us in our economy we DO need to stimulate which is why we NEED to spend the way the President proposed (actually, Krugman and Stiglitz, both Noebl prize winners in econ, say Obama’s stimulus was too timid).
    DANIEL: We agree, people will spend more when they have more money – but FROM EMPLOYERS WHO HAVE MONEY TO INVEST, not from the GOVERNMENT which is taking money from the PEOPLE. We don’t build an economy by taking from the people we want to spend money.
    KEITH: Deficit spending is NOT taking money away from anyone; it is spending money that would not otherwise BE spent in the liquidity trap we are in right now.
    DANIEL: As far as needing to jump-start the economy, it seems much smarter to me to LOWER the cost of investment rather than UP IT and try to offset that problem by BORROWING MONEY from other countries and the taxpayer in order to GIVE or LOAN the needed money back to the investor community.
    KEITH; But investment right now wouldn’t cost very much. High costs of investment isn’t the problem right now. The problem is that since people are not spending money new investment is a dumb idea unless some other entity spends money instead. It;s the same problem we had in the Great Depression, and the cure was massive government spending. We didn’t spend enough until WW II and that is what brought us out. Germany got out of THEIR economic depression when Hitler started building up his military–that’s one of the reasons the people in Germany fell for his evil lies.
    DANIEL: That’s more like one giant ponzi scheme rather than sound principle. I think it’s crazy. It’s like legalizing drugs to raise money to fight the drug problem. I’m sure liberals think that would work too. There is a huge difference between something that sounds counterintuitive, but works, and things that are just plain illogical – illogical is beyond ‘counter-intuitive.’
    KEITH: The drug analogy fails IMO because it assumes that our present problem was caused by too much aggregate spending. That wasn’t the problem, the problem is the opposite. When people quit spending, businesses reduce output which means they reduce the amount of labor, which further reduces spending which further reduces sales and so on. This is basic economics, stuff economists learned since the 1930s. The proposals you are suggesting, the same ones Republicans have BEEN suggesting, repeat the mistakes of Hoover.
    DANIEL: I think that the problem with liberal thinking in general, esp. clear in the drunken spending of the Obama admin, is that they correctly identify problems, but not root causes, and not proper solutions.
    KEITH: On the contrary, I would suggest it is CONSERVATIVES who are mistaken about the root causes of the problems we are facing right now. But honestly, those kind of generalizations are useless. What we CAN discuss is the particular problems and what we think are the causes. Gereralizations about liberals and conservatives might make you feel better, but it’s really just a distraction from any PARTICULAR issue. Or so it seems to me.
    DANIEL: In the end, they make the problems worse, or they shift the problem somewhere else rather than seeing that the solution to MOST problems is restoring individual responsibility and freedom, the former of which involves accountability and consequences, rather then shielding people or the economy from such.
    KEITH: I would say the conservative approach to our current economic mess has a track record–Hoovervilles all over America and nearly a worldwide collapse of capitalism. Back in the 30s Communism was considerably more popular than it is now BECAUSE capitalism was falling apart. It took Keynes and FDR to save it.
    your friend
    Keith