Deficit Reality Check

A couple of good reads this morning:

1. Deficit Hawk says we need to SPEND:

Bill Gross is the manager director of PIMCO, which makes him one of the most important bond traders in the world, if not the most important. And so his exit from the Treasury market a few months ago, plus his intense and very public concern over the deficit, has attracted a lot of concern.

Gross goes on to spend some time mocking the “ivory tower theorem” that deficit reduction will convince consumers to spend more now because they’ll worry less about taxes and service cuts later. “I know of no family,” he writes, “who, after watching the Republican candidates’ debate in New Hampshire, went out the next day and bought themselves a flat screen under the assumption that their Medicare entitlements would be cut in future years and the U.S. budget balanced.” That theory belongs “in the trash bin of theses and research aimed more towards academics than a practical remedy to America’s job crisis.”

So what should we do? “Government must temporarily assume a bigger, not a smaller, role in this economy, if only because other countries are dominating job creation with kick-start policies that eventually dominate global markets.” But what about the deficit? “Deficits are important, but their immediate reduction can wait for a stronger economy and lower unemployment. Jobs are today’s and tomorrow’s immediate problem.”

2. H/T Think Progress: States that cut the most spending have lost the most jobs:

For instance, Gov. John Kasich (R-OH) declared, “We’re going to have to reduce spending…to create a platform for economic growth.” When Gov. Chris Christie (R-NJ) delivered his budget to the state Legislature he argued, “We must continue to cut government spending” to create jobs and prosperity for New Jersey families. Gov. Scott Walker (R-WI) vowed his budget “lays [the] foundation to create jobs.”

Now these Republicans want the American public to drink a giant glass of their Cut-Grow Kool-Aid. But the data actually show the opposite of their claims to be true: steep spending cuts are hampering economic recovery in some states, while other states that resisted cuts or increased spending are now seeing declining unemployment rates, faster private-sector job creation, and stronger economic growth.

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2 thoughts on “Deficit Reality Check

  1. Jeff,
    You are a fellow follower of Bill Gross, that’s good to see. I’ve personally made quite a bit of money following his advice over the years and in particular buying commodities in advance of these budgetary talks.

    Gross’ call for additional temporary spending is premised on the notion that the spending would be for shovel ready projects. He was previously critical of the stimulus package as he advised that it would only be result in a “marginal benefit.” I think he was right and we have only realized marginal benefits as much of the stimulus package was pure pork.

    On a related note, I don’t see how politicians are qualified to identify projects to stimulate the economy, wouldn’t economists be better in identifying opportunities that would provide the best bang for the buck?

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aa3hU2DVr014&r

  2. SI, not all pork is bad(which is why much of it would be passed through if they just did it in the open), the problem with the stimulus is that it was burdened down with tax cuts. A real stimulus package that actually rebuilt our crumbling infrastructure is what we desperately need.

    I agree we should have economists making these decisions, as long as we have good economists. No thank you to Bernanke, Summers, Geithner or Paulson. No thank you also to any ayn rand protege or milton friedman protege.

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