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Debt debate delusions: An economist shakes his head at budget mess

Original post made by stephen levy, University South, on Aug 15, 2011

I have lived in Palo Alto for nearly 50 years studying economics and working as an economist. I have lived here through the recession after the Vietnam War ended, the recession after oil prices surged in 1974, the recessions in the early 1980s after interest rates skyrocketed, the recession in 1990 after defense spending was cut, the recession in 2001 after the dot.com bust and the recession in 2008 after the housing market crash. After all of these recessions Republicans and Democrats disagreed about the mix of policies to spur economic recovery but these disagreements were at the edge of a core set of agreements about fighting recessions.

Four of these basic agreements have been almost completely uncontroversial. One, the federal government has the tools and responsibility to support economic recovery after a recession. Two, lowering interest rates in the short term provides some incentive for businesses and consumers to spend and invest. Three, there are "automatic stabilizers" that mitigate the negative impact on spending -- taxes go down as incomes fall, safety net programs like unemployment insurance and food stamps get greater usage. Note that the result and intent of automatic stabilizers is to increase the deficit and reduce the amount of money taken out of the economy by a recession.

The fourth relatively uncontroversial recession-fighting-policy tool is temporary tax rate cuts. And, in fact, tax rate cuts were approved in 2008, 2009, 2010 and 2011 and, in addition, the so-called Bush tax cuts were extended through 2012. The fifth and more controversial policy tool is an increase in selected federal spending such as extending unemployment insurance benefits, building infrastructure and making grants to state and local government to support schools, public safety and health care. Increased federal spending programs were adopted in 2008 and again in 2009 and 2010.

Tax cuts and increased spending both increase the short-term federal deficit -- that is the point so money is added to the economy.

And then came the debt ceiling debate! Decades of negotiating differences in priorities for long-term economic growth within a framework of basic agreement about short-term recession-fighting went poof -- as if it had never happened. Instead of focusing on the need to support the economy and the broad areas of agreement, members of Congress focused almost entirely on the areas in which the parties do not agree. In the process they polluted our national dialogue, harmed the economy and did virtually nothing to seriously address long-term federal deficit challenges.

Both the President and Republicans managed to confuse the public about the timing of the deficit reduction and fighting recession -- economic recovery as a first priority and aggressive deficit reduction thereafter. President Obama, in arguing for repealing the Bush tax cuts as part of long-term deficit reduction, made it seem as if he wanted tax increases now, which he does not. Republicans, in arguing for their version of long-term deficit reduction, forgot that they were also arguing that the economy needed help and they had just the tax cuts to do the trick.

And both parties, in arguing their version of long-term deficit reduction, forgot to remind the public that you don't cut spending or raise taxes in the middle of an economic downturn. Running deficits, whether with just "automatic stabilizers" or active policies like tax cuts and spending, is what happens while we fight recessions. Whatever the long-term merits of tax and spending policies (a debate we postponed but still need to have), both spending cuts and tax increases to reduce the deficit are short-term "job killers" in fighting recessions.

And if you listened to last Sunday's news shows or read last week's Town Square posts, the S&P downgrade and worldwide stock market decline did nothing but escalate the rhetoric and finger pointing. In doing this we have moved further, not closer, from addressing the nation's economic and budget challenges and in getting the right sequence of public policy.

This week we learned that there are approximately 3 million job openings today in an economy with 14 million Americans out of work. Surely this is not the time to give up on economic recovery policy. And the public agrees overwhelmingly with most polls putting job growth first and deficit reduction a very distant second for today's agenda.

It is easy to point blame. I do not think both parties are equally to blame. But at this point, blame is not helpful. The Economist magazine, a free-market-oriented British weekly, echoes what I feel: "Worse, the poisonous politics of the past few weeks have created new sorts of uncertainty...At best the politicians will have slowed a sputtering expansion; at worst they will have killed off the recovery and inflicted lasting harm on the world's most impressive prosperity machine."

There are plenty of good ideas out there -- read Tom Friedman's columns this week from the New York Times or an op-ed by Jed Bush and Kevin Ward, a former Federal Reserve governor in Wednesday's Wall Street Journal. Surely amidst the agreement for tax reform (closing loopholes and lowering rates), infrastructure and education investment, immigration reform and support for public and private research and development, we can find a pro-growth agenda with majority agreement.

But can we find a public dialogue that allows this agreement to be developed? That is what I worry about. And can we find that level of public dialogue and civility within disagreements within Palo Alto as we face the challenges of maintaining a city that is a great place to live and work and a welcoming community?

Comments (40)

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Posted by Alfred E Newman
a resident of Atherton
on Aug 15, 2011 at 11:33 am

Invest now. Despite the S&P slam on republican tactics, every country still wants to loan America money at almost zero cost.

Use that money to create jobs that create value - infrastructure. Using almost "no-cost" money to create something of value while spurring job creation is a no-brainer.

Jobs are the only way to build out of this economic mess.

Jobs for huge federal projects, for state, municipal and local projects. From huge energy projects down to park level projects. Most are subbed out to private companies.

All those projects are required anyway. Get them done now while money is at it's cheapest to prepare our economy to compete again.

If you don't want to read the economists listed by Mr Levy, youtube Faird Z's gps CNN show from yesterday. Two economists from polar opposites agree on about only one thing - invest in infrastructure to BUILD our way out of this mess - create jobs that create revenue.

Austerity only prolongs the agony, especially for the poor and the shrinking middle class.

Growth, then cuts down the road when America and Americans can afford it.

It's time to rebuild America, not Afghanistan.


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Posted by Robert
a resident of Menlo Park
on Aug 15, 2011 at 11:41 am

The collapse of the U.S. post war (WWII) prosperity has many causes, including globalization, environmental extremism, education model failures, over-reliance on debt, failed economic models, demographics, social moral factors and more. It is a structural collapse, not simply an economic one.

It will not be reversed by some simple tax-and-spend formula. Steve Levy is a smart guy, but he seems to be missing the big picture.


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Posted by Ditto
a resident of Another Palo Alto neighborhood
on Aug 15, 2011 at 2:10 pm

> The collapse of the U.S. post war (WWII) prosperity has many causes,
> including globalization, environmental extremism, education model
> failures, over-reliance on debt, failed economic models, demographics,
> social moral factors and more. It is a structural collapse, not simply
> an economic one.

Ditto ..


 +   Like this comment
Posted by collapse?
a resident of Palo Verde
on Aug 15, 2011 at 2:20 pm

Do not say those unlucky words to our America,it will get strong again,no collapse.


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Posted by Ditto
a resident of Another Palo Alto neighborhood
on Aug 15, 2011 at 3:06 pm

> it will get strong again,

Maybe .. but not anytime soon ..

Have you ever traveled through the Rust Belt? Here's a link to a page with a number of pictures from those East Coast/Mid-Coast states where "collapse" is most definitely the correct word to describe the situation--

Web Link

The US began to be de-industrialized the day after WWII was won. The process has been slow, and often helped by Congress, particularly in the 1980s. Given the populations of India and China (about 2.5B people--30+% of the world's population).. it's not likely that all of these jobs will be "coming home" anytime soon.


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Posted by stephen levy
a resident of University South
on Aug 15, 2011 at 7:24 pm

stephen levy is a registered user.

It is certainly true that the present economic troubles have several causes though they may not be the ones cited above.

And folks are free to debate whether the U.S. is on the verge of collapse.

But shortly the Congress will return and debate whether to take more steps to support job growth and then how to make the choices to reduce the deficit.

As AEN said and as we are learning from Europe the "austerity now" policies are indeed slowing the economy.

I do not understand why a combination of infrastructure spending to support productivity and competitiveness combined with tax reforms aren't a no-brainer for now.

And then the parties can have the fight over long-term budget choices that I expect will be a focus in the 2012 election.


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Posted by Keynes
a resident of Stanford
on Aug 15, 2011 at 7:28 pm

Economics is the new black!






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Posted by Robert
a resident of Menlo Park
on Aug 15, 2011 at 8:39 pm

Steve,

"I do not understand why a combination of infrastructure spending to support productivity and competitiveness combined with tax reforms aren't a no-brainer for now."

My answer to that is that we are beyond the time when tax-and-spend fixes can fix it. We need profound and fundamental approaches.


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Posted by Alfred E Newman
a resident of Atherton
on Aug 15, 2011 at 11:12 pm

"My answer to that is that we are beyond the time when tax-and-spend fixes can fix it."

Is "it" the current bad economy, or are you referring to something else (debt, deficit, other?)

Increased spending is the only surefire cure to building revenues in this recession. Austerity measures only prolong the agony, especially on working and poor Americans. Austerity measures also hit seniors disproportionally, as well.

Jobs. Rebuild infrastructure required (anyway) for when we rebound. Build green infrastructure that lessens our trade imbalance in the energy sector (Germany has over a million homes with solar panels - yes, "sunny" Germany has made it pay.)

Cut spending as we come out of the recession, as more Americans are employed and revenues increase, and we can afford the cuts without damaging the economy.

Jobs. A profound and fundamental approach.


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Posted by ditto
a resident of Another Palo Alto neighborhood
on Aug 16, 2011 at 8:13 am

> but building infrastructure ought to be a no-brainer ..

During the 1992 campaign, the immoral, and ultimately impeached President, candidate William Jefferson Clinton, claimed that there were "75,000 bridges that needed to be rebuild". Candidate Clinton never claimed that these bridges were the property of the Federal Government and should be rebuilt by the Federal Government, or that he, if elected, would see to it that those bridges would be rebuilt. He just "talked infrastructure", and as history shows—once elected, he did very little to address infrastructure problems associated with Federal property, or that of the States.

Everyone talks "infrastructure". Wasn't it just a couple years ago that the community-organizer-elected-President, Barack ("Loves to Talk") Obama spent about $1B on "shovel-ready" projects? And what was the outcome of that?

So .. let's look at California. What infrastructure is needed, that the currently unemployed are "employment-ready" to be put to work tomorrow? This question calls out for a list of projects that will actually increase the economic productivity of the State. That means infrastructure projects that will actually increase the wealth producing activities of the existing businesses, and/or will attract new businesses. So, Mr. Levy—time for a list? (and plezzzz .. skip the HSR as the "obvious answer").

California could use some additional highway capacity, and maybe some additional electrical transmission capacity, and maybe some additional electrical generation capacity. But much of what California needs lies more in the realm of the private sector, not the public sector. (Yes, the same private sector that is being regulated to death, or at least to exiting the state).

What California really needs, however, is to refurbish a lot of its existing infrastructure, which is near the end of its natural life cycle. Sadly, no one in the state seems to have a good list of the infrastructure backlog, but let's postulate, for the sake of argument, that this list of projects comes to about $200B.

The next part of the question involves "who will actually do the work"? Mr. Levy's seems to think that all of the unemployed can be put to work in these construction jobs, and given the levity of his remarks—probably tomorrow. But can they? How many of these jobs requires some training, and perhaps even some prior experience? All of these jobs require managers, and these can not be "minted", a la the Barak Obama "shovel-ready" model. In short, the complexity of building structures that won't fall down (like we see in China, from time-to-time), is beyond the scope of a "git'em-back-to-work-now" political campaign promise—be it from a complete novice, like the president, or Mr. Levy, who probably has never run a construction company.

The WPA and the CCC did some interesting work. But I suspect that these sorts of "jobs" are not what Mr. Levy has in mind. Moreover, it's doubtful that the kinds of people calling for more government debt to provide "jobs .. good jobs with a pension" are not thinking along these lines either.

With all due respect, "building infrastructure" is far more complicated, and time-consuming than the casual comments of an "economist" might lead you to believe.


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Posted by Alfred E Newman
a resident of Atherton
on Aug 16, 2011 at 11:55 am

"..is far more complicated, and time-consuming than the casual comments of an "economist"..."

Except that all the serious economists also know it's the correct answer.

Of course it's complicated. It was complicated in the 50's when we built the interstates. It was complicated in the 30's when we built the TVA, the Hoover Dam, and a could bridges across our Bay. Apollo was complicated. You don't think we're capable?

When a project employs, for example, construction workers, there is a ripple effect in other industries: design, transportation, manufacturing, etc..

Those industries see higher employment also. The resulting increase in payroll stimulates other sectors as workers pay their bills and spend money.

Love how the Clinton hate comes in from the right. The only President to raise revenue, cut spending, balance a budget and leave a surplus and now the right moans about is he didn't repair bridges.

Ditto conveniently skips Bush and bashes our current President.

Ditto: which country did Dubya spend more money on building infrastructure?

Afghanistan? Iraq?


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Posted by Robert
a resident of Menlo Park
on Aug 16, 2011 at 12:46 pm

"Is "it" the current bad economy, or are you referring to something else (debt, deficit, other?)"

Your question misses the point. The current bad economy is only a symptom of something much deeper. It is a structural problem, as I mentioned in my original post. Simply "fixing" the current economic problem, through stimulus spending, will only put a band-aid on a mortal wound, and it will add to the debt, which will get paid off through inflation (a regressive tax). The essential question is how to produce growth.



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Posted by Alfred E Newman
a resident of Atherton
on Aug 16, 2011 at 1:58 pm

A disagree that the America economy is mortally wounded ("put a band-aid on a mortal wound").

For a mortally wounded economy, there sure are a lot of folks that want to lend the dead a LOT of money really CHEAP.

Only ten years ago, we had a surplus. We can do it again, but the time to cut spending is NOT now. It only prolongs the agony of this painful (to many) recession. Rebuilding our infrastructure is not a "bandaid". Employing Americans in this calamitous time is the right thing.

We have to beat this recession to get the growth.


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Posted by Robert
a resident of Menlo Park
on Aug 16, 2011 at 3:21 pm

AEN,

Ten years ago, at the top of the dot.com boom, most of the engineers designing that system were home-grown American engineers. It was Y2K that started the avalance of such jobs to India. Many of these jobs are now permanently lost, along with the prosperity that they provided.

Social security and medicare are not sustainable, as currently structured.

Pension funds, especially the public sector, are not sustainable.

Medical costs continue to outpace inflation. The aging population multiplies this effect.

The balance of trade deficit is not going away. It will only get worse.

We are not becoming less dependent on foreign countries for our energy supplies, we are getting more dependent, even though we have huge supplies of our own energy supplies that we regulate out of bounds.

Our educational system does not produce students equal to other countries in the sciences.

China wants out of our securities, but there is no place to go, so far. Therefore, China goes to short term notes, instead of long term. It is playing a waiting game.

I could go on and on....

It is clear that we have a major structural problem. Taken together, they are a mortal wound. Building some new bridges will not overcome these problems...they would only be band-aids.

As Joe Louis said, "You can run, but you can't hide". The ring has been cut down, and we are in the corner. There is no lucky left hook that will get us out of there.




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Posted by stephen levy
a resident of University South
on Aug 16, 2011 at 7:34 pm

stephen levy is a registered user.

Increased infrastructure investment will serve multiple economic and quality of life goals.

It is part of a national agenda to improve economic competitiveness. China has prospered in part from the large continuing investments in their transportation, energy and other infrastructure. The U.S. needs to keep up to remain competitive and before the debt delusion debacle, that was a bipartisan national agenda.

The last partial list I saw for California totaled $750 billion over the next ten years including road construction and repair, ports, energy, water, public transit and facilities. That list did not include local funding for schools and local public facilities.

Part will be financed privately, primarily for utility infrastructure but most will be financed publicly.

But nearly all the jobs are private sector jobs doing the construction and providing the supplies. So the idea that infrastructure investment is about government jobs is just wrong.

There are 400,000 fewer construction workers in California than were employed five years ago--all trained and ready to go. And thousands more who provided, transported and sold the building supplies. Infrastructure is one area where there is no shortage today of workers with skills ready to go.

While Robert is debating with himself about the mortal wound he claims to have found (and perhaps coming up with solutions he can share) we can do something productive for our future.

P.S. Infrastructure investment is also a good weapon for spurring economic recovery and confidence that we are doing something proactive even if it takes a year to get some projects ready to go.

So is tax reform.

Palo Alto residents know the benefits of infrastructure investment for productivity and quality of life as we vote to bring our schools and libraries up to date in new technology.


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Posted by ditto
a resident of Another Palo Alto neighborhood
on Aug 17, 2011 at 7:35 am

> Palo Alto residents know the benefits of infrastructure investment
> for productivity and quality of life as we vote to bring our schools
> and libraries up to date in new technology.

Well .. about 14,000 people voted to tax other people to pay for a new library, that was not needed. This new library certainly does not have a prayer of providing any new "technology" to our community that most people don't have in their smart phones these days. The whole idea of having paper books siting in buildings that are closed 2/3rds of the year (by actual 7/24/365 standards) is not progress .. it is massive "infrastructure waste".

E-books have, in the past five years alone, moved to the point that Amazon is selling more e-books, than paper books. Most publishers admit that by not much later than 2018, more than half of all published works will be distributed via electronic means. This means to our smart phones, our iPads, our tablet PCs, our Netbooks, and whatever new devices are on the market as the years unfold. Spending $150M on a new library was the height of silliness, and will be regretted, in the coming years.

As to the $750M that was authorized for "schools", most of that will benefit real estate agents, who championed these expenditures. There is no, absolutely no, evidence that any of these monies will increase the API scores for PAUSD students, or increase the number of students going to ivy league universities.

These examples are terrible!


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Posted by ditto
a resident of Another Palo Alto neighborhood
on Aug 17, 2011 at 8:33 am

> It is part of a national agenda to improve economic competitiveness

Interesting. And who is setting this "national agenda"? The President, perhaps?

Wonder if he is reading his own "to do" lists—

Today, in the NY Post, an interesting little article about how the buses being used by Obama's Misery Tour were built in Canada:

Web Link

WASHINGTON -- President Obama is barnstorming the heartland to boost US jobs in a taxpayer-financed luxury bus the government had custom built -- in Canada,
--
How's that helping the "national agenda"? What message is Mr. Acorn sending the American workers?

And what about all of those "green energy" jobs that "Czar Van Jones" promised? How are they turning out?

Web Link

Solar Panel Maker Moves Work to China

Matthew Cavanaugh for The New York Times
Evergreen Solar plans to close its main American factory, in Devens, Mass., seen here in September, and lay off 800 workers.

And speaking of bridges, the steel in the Oakland Bridge project was manufactured in China:

Bridge Comes to San Francisco With a Made-in-China Label:
Web Link

There was a time that all domestic requirements for steel were met by American manufacturers. But thanks to "regulation", and "unions', and free trade policies, the American steel industry is all but moribund.

From the article above:

> American steelworker unions have disparaged the Bay Bridge
> contract by accusing the state of California of sending good jobs
> overseas and settling for what they deride as poor-quality Chinese steel

It's hard not to sympathize with these union workers until you learn that they are not likely to work competitively with their Chinese "opposite numbers". The ability to essentially "fabricate" a bridge in one country, and transship it around the world more profitably than pay local workers and local suppliers, is the world we live in now. How many American union members even remotely understand this.

Oh, and let's not forget the US Airforce Tanker contract—that might be awarded to a European Airplane manufacturer. That certainly will do a lot to help Boeing, and the American airplane manufacturing sector!

Infrastructure is needed. Nothing written in these posts is intended to suggest otherwise. However, what is needed more, for America, and California, are wealth producing enterprises—in other words: manufacturing.

Since manufacturing has traditionally been the dominion of the private sector, and the last thirty years of (mostly) Democratic rule in Washington has seen a severe reduction in the US manufacturing sector—we should not be looking to build more parks, but we should be looking at incubating new wealth generating activities. One suggestion, which would be very inexpensive, would be to shut down the EPA, and suspend/rescind most of the job-killing regulation that has been hovering over American manufacturing like a dark cloud.

What we desperately need in this country is: "manufacturing, manufacturing, manufacturing".


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Posted by Robert
a resident of Menlo Park
on Aug 17, 2011 at 11:26 am

I find it dismaying that Steve Levy, a very smart person, is hiding his head in the sand. America has severe structural problems, yet Steve continues to parrot the tired old tax-and-spend/infrastructure propaganda.

Yes, "China has prospered in part from the large continuing investments in their transportation, energy and other infrastructure". And they are paying for this investment with $$ from exports. And they are opening new coal-powered and nuclear power plants at a prodigious clip. And they are re-thinking their investment in high speed rail, due to safety concerns.

The America that Steve Levy supports is a debt-driven quagmire. He refuses to consider the fundamental issues. It is as if he is stuck in a post war growth dream, where America was the manufacturing base of the world, and we could set the terms. I suspect that he may also have a political agenda entrained in his thinking: Stimulus spending may help his political leader of choice by next November.

A new paradigm is required, and Steve Levy is not the one to provide it, unfortunately. We need people of Steve's intellectual capacity and experience to become part of the future, instead of being stuck in the past.


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Posted by Anon.
a resident of Crescent Park
on Aug 17, 2011 at 1:17 pm

>> The ability to essentially "fabricate" a bridge in one country, and transship it around the world more profitably than pay local workers and local suppliers, is the world we live in now.

One rule of economics ... at least, used to be, you get more of what your subsidize, or put money into ... so when we put money into our enemies - overseas, and into destroying the environment, into countries that do not respect human rights, into countries that do not fit into the civilization of the world, other than to kick money back and forth between well-connected elites it blows back to our economy, and the more we do it and longer the worse it is going to be.

I think this is not just the same types of recessions we have had previously, although certainly there are elements of that, for one thing the cost of energy is a real drag on the world economy now too.


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Posted by daniel
a resident of Embarcadero Oaks/Leland
on Aug 18, 2011 at 4:21 pm

The main reason for our economic malaise is the incessant erosion of the purchasing power of the middle class. The more corporations outsourced and eliminated jobs, the more salaries became stagnant, the less revenues the federal government and states collected and the less consumers were able to spend in an economy based on consumption and not on manufacturing and exports. The corporate "success" model has become reducing their work force a much as they can in order to increase profits margin which would excite Wall Street and make the stock more attractive to investors. It has created an increasingly jobless economy. Small and medium size companies aren't hiring, since there is no demand for goods and services, as less and less people can afford them. The ideology of Milton Friedman, dubbed brilliantly by Naomi Klein as disaster capitalism has succeeded brilliantly-we have a disastrous economy.


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Posted by Neighbor
a resident of another community
on Aug 18, 2011 at 8:23 pm


>> The ability to essentially "fabricate" a bridge in one country, and transship it around the world more profitably than pay local workers and local suppliers, is the world we live in now.

Right.

Until it breaks. National security anyone?

Recall melamine in milk? Yes, no, maybe you say? Then maybe you may also recall the various sulfides leaking from toxic drywall used in US construction? Or perhaps you recall the lead found in candy, cookies,and jewelry? Where did these products come from? The same country that is soldering our bridge steel together, you know, the country with all the human slavery workers jumping off of buildings. The same country sending major pollution across the waters. Who needs regulations?

Well, here's hoping the "Inspectors" will check every piece of steel coming through the Port and recalculate all of the loading. You know, just in case some of those pieces are simply steel facade filled with ahem, melamine.

Recall: IBeam.


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Posted by pat
a resident of Midtown
on Aug 19, 2011 at 4:39 pm

Interesting commentary:
How Rich is Too Rich?
Web Link


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Posted by pat
a resident of Midtown
on Aug 19, 2011 at 5:49 pm

> Palo Alto residents know the benefits of infrastructure investment for productivity and quality of life as we vote to bring our schools and libraries up to date in new technology.

As ditto wrote, there's not much new technology in our libraries. There never was a technology plan when the library bond passed in 2008. What we got for our money is a bunch of meeting rooms and shelf space.

The first things built with the school bond money was an aquatic center at Gunn and a theater at Paly.

Maybe jobs will be created from the city's new bike plan, which reportedly would cost $86 million. Not sure where the money will come from, given that there's already a $500 million infrastructure backlog.

> A new paradigm is required…

True. But where will it come from? Our politicians are like a bunch of kids in a schoolyard: "Your mother wears combat boots!" "My dad can beat up your dad!" Not much hope there.

Speaking of new paradigms, some of the comments here remind me of the Weekly article about Clark Kepler (who is obviously a good guy) and other local merchants complaining about Amazon not collecting sales tax. Kepler et al are clinging to –- and trying to preserve -- an obsolete model. Forcing Amazon to collect sales tax is not going to stop the trend toward online buying.


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Posted by stephen levy
a resident of University South
on Aug 20, 2011 at 11:09 am

stephen levy is a registered user.

It is interesting to see how most any eocnomic discussion devolves into ideology.

My point is that austeity measures in a time of weak recovery, whether tax increases or spending cuts, both of which are being done in Europe now, are bad policy choices.

Now is the time for more efforts to increase spending in the economy either directly through federal initiatives and.or indirectly through tax incentives. The focus on deficit reduction is important but only in a recovering eonoomy.

As to local infrastructure spending on schools, I am pleased to support future generations to have great facilities as others before me helped our family.


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Posted by Robert
a resident of Menlo Park
on Aug 20, 2011 at 11:39 am

Unfortunately, Steve Levy's standard response is dripping with ideology. He refuses to take on the fundamental issues, but he willing supports increased taxes (on the rich, of course..."eliminate the loopholes"), and kick-the-can-down-the-road non-decisions on spending cuts. Is he the ghost writer for the Obama speeches? Or the Daily Kos? Or MoveOn.org?

When will you get serious about fundmental issues, Steve?


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Posted by Ideology
a resident of University South
on Aug 20, 2011 at 11:27 pm

For me, it is interesting to see how most any economic discussion here BEGINS with ideology.

"Now is the time for more efforts to increase spending in the economy either directly through federal initiatives and.or indirectly through tax incentives."

The author of this would have more credibility if he did not claim that we should increase spending without regard to the state of the economy.

The argument should have been, in good times, that we should reduce government spending. But it wasn't. Therefore, this argument is not economic in nature. It is ideological.


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Posted by daniel
a resident of Embarcadero Oaks/Leland
on Aug 21, 2011 at 9:24 am

What we have is the fruit of 30 years of the Chicago School of Economic ideology, Milton Friedman and his neo-linberal/disaster capitalism ideology and how it differs from classical economics. Mainly, it fails to differentiate between productive capital vs. non-productive capital, thus opening the door to what we have now, which is casino capitalism, and the beginning of the end of capitalism.


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Posted by stephen levy
a resident of University South
on Aug 21, 2011 at 1:59 pm

stephen levy is a registered user.

Poster "ideology: makes a good point. People like me who support increasing the deficit with short term spending increase or tax cuts should stand up for deficit reduction when the economy recovers.

This quote is from my previous post.

"The best advice is still support the economy and safety net now (which used to be an area of bipartisan agreement) while commiting to substantial reductions in federal deficit spending starting when the economy recovers."

But "ideology" also slips in a little bit of ideology by referring to spending cuts when the economy recovers. The objective is deficit reduction and reduced spending (in some cases reduced spending growth) on Medicare, Medicaid, defense, tax breaks and other areas are the major focus of deficit reduction.

But as the Gang of Six, the President's deficit reduction commission and some Republicans acknowledge one part of deficit reduction can come through eliminating tax breaks and other ways to increase revenues.


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Posted by regarding NA economy
a resident of Adobe-Meadows
on Aug 22, 2011 at 10:21 am

"would have more credibility if he did not claim that we should increase spending without regard to the state of the economy."

Most economists say we should increase spending PRECISELY because of the state of the economy.

As Homer would say "Doh!!"

As discussed above, the world is flocking to lend the US money at unprecedented low interest rates for a ten year period. Take that money and invest in programs that jobs to Americans to start to end this terrible economy. A better economy increases revenues. Eliminate loopholes, the Bush tax cuts, cut some spending and then the biggest economic problem left is curbing the growth of medical costs.

Well, balance of trade and energy costs too, i suppose.


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Posted by Ideology
a resident of University South
on Aug 22, 2011 at 12:35 pm

"Most economists say we should increase spending PRECISELY because of the state of the economy."

That's the point. You can't claim that we should increase spending precisely because of the current state of the economy - if you do it all the time.

Suppose these economists also during good times or normal times say we should increase spending, because we have the money to do it.

Now, what have they said? In effect, they have said, "we should always increase government spending."

This would not be an economically sound analysis, rather, it is an ideology couched in economical spin.

But we don't have to suppose anything. These economists do in fact say during normal or good times that we should increase government spending.

They are trying to drive an ideology via cover of economic analysis, and by doing so further lowering the credibility of professional economists.

It's like medical experts testifying in court; pay them to say what will support your side.


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Posted by regarding NA economy
a resident of Adobe-Meadows
on Aug 22, 2011 at 1:37 pm

No. You are wrong.

"Suppose these economists also during good times or normal times say we should increase spending..."

Look at the last set of "good times". As others pointed out above, we had a surplus 10 years ago.

During those good times, Bill Clinton massively cut spending and raised revenues (2 point rise in taxes for the top level) to balance the budget and leave a surplus.

Clinton cut the pentagon, cut welfare, the epa, etc..

Who's the last republican president to massively cut spending? They only campaign on fiscal responsibility, then don't have the desire, guts or skills to walk the walk.

Reagan promised to eliminate the dept of education. Instead, he doubled it's size.


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Posted by stephen levy
a resident of University South
on Aug 23, 2011 at 10:30 am

stephen levy is a registered user.

Yesterday the New York Times ran a column quoting two leading bond Wall Street managers. From opposite parties they both favor aggressive stimulus now and aggressive deficit reduction as the recovery strengthens--a message still lost on Congress.

A small excerpt from the article.

Austerity? Yes, say Bill Gross, a Republican, and Mohamed El-Erian, a Democrat, the chief investment officers of the giant bond fund Pimco. They support curbs on entitlement spending.

But that is for the long term. Right now, they argue, the government needs to arrest America's dangerous economic slide.

In fact, their prescriptions are more aggressive than any the White House has proposed or appears to be contemplating for President Obama's planned speech in September. Among them: direct federal hiring to reduce unemployment and increase lagging demand.


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Posted by Robert
a resident of Menlo Park
on Aug 23, 2011 at 3:53 pm

Perhaps I can induce Steve Levy to take a different approach:

Assume, for the sake of argument, that a new stimulus does not occur, and we are stuck with the here and now. What then? Will you, finally, go to a fundamental analyis, with specifics?


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Posted by regarding NA economy
a resident of Adobe-Meadows
on Aug 23, 2011 at 4:28 pm

"we are stuck with the here and now"

Why? Why do you want to further this economic devastation when the world wants to loan us money at record low interest rates to rebuild our economy, to provide jobs, to rebuild America?

When economists from all points of the compass say we need to increase revenues through job creation, why do you want to stick you head in the sand?

Read the article from Bill Gross, a Republican, and Mohamed El-Erian of Pimco.

Get America employed. Rebuild our infrastructure. Raise revenues through employment.

Then cut spending back to Clinton's budget surplus times, and put tax rates back to those booming times for America.

Time for you guys to start rooting for America's recovery, rather than against a political party or ideology.


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Posted by position
a resident of Green Acres
on Aug 23, 2011 at 4:38 pm

When we talk to someone or someone talks to us,like Bill Gross,you need to understand what he is working for,he is a bond guy,of course,he wants to borrow to spend,spend,spend.


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Posted by Robert
a resident of Menlo Park
on Aug 23, 2011 at 4:39 pm

"Time for you guys to start rooting for America's recovery..."

I root for a fundmental understanding of what is causing America to decline. Stimulus spending is not a cure. It is a band-aid that perpetuates the problem. I want a cure.


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Posted by position
a resident of Green Acres
on Aug 23, 2011 at 4:45 pm

The root is the uncontolled greed,we need half central control government half greed capitalism to keep their greed alive to advance society,but under government control,just like china did.


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Posted by stephen levy
a resident of University South
on Aug 27, 2011 at 2:25 pm

stephen levy is a registered user.

Federal Reserve Bank chairman Bernanke yesterday pointed out that the next round of policy to support economic recovery must be fiscal policies--the thesis of this post.

He also pointed out that the obstacles to better policy are the political gridlock that produced the debt debate debacle and that another round of this behavior would seriously threaten the whole economy.


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Posted by regarding NA economy
a resident of Adobe-Meadows
on Aug 29, 2011 at 12:42 pm

"Stimulus spending is not a cure."

Yes, it is. In any recession, when corporations decide to sit on their money rather than hire because the consumers have stopped spending, most economists will tell you that the government is the "spender of last resort".

To act otherwise is to prolong the recession when our country can otherwise be a leader.

AS posted above, the world wants America to rebuild, to employ, to grow; they are offering America historically cheap money to do so.


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Posted by regarding NA economy
a resident of Adobe-Meadows
on Aug 29, 2011 at 2:06 pm

Perry took a surplus and gave it away to the rich and used deficits to dig a huge hole, a $26 billion deficit, just like he learned from his old boss Bush.

What a miracle.

"As of this moment, this legislation is a staggering $23 billion short of the funds needed to pay for the promised property tax cuts over the next five years.... These are conservative estimates."
- Texas Comptroller Carole Strayhorn, warning Gov. Rick Perry about his 2006 tax reform proposal

Web Link

"IN HIS STATE OF THE STATE SPEECH in February, Rick Perry described the $27 billion budget shortfall confronting the Texas Legislature: Now, the mainstream media and big government interest groups are doing their best to convince us that we're facing a budget Armageddon," Perry said. "Texans don't believe it and they shouldn't because it's not true."

The $27 billion equaled 15 percent of the $182 billion biennial budget the Legislature had passed two years earlier. If not Armageddon, an apocalyptic loss of revenue in a low-tax state that provides bare-bones public services.

Perry's statement was even more remarkable because most of the budget shortfall was a consequence of a business-tax bill he pushed through the Legislature in a special session five years earlier."


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