This Real News Network interview with Professor Dr. Heiner Flassbeck of Hamburg University (recently with UNCTAD) provides a cogent overview of why the impact of the sequester and any budget deal will be to weaken an already-struggling economy. I personally enjoy Flassbeck; he’s articulate and manages to get more information into his interviews than most of experts while keeping his remarks accessible to a broad audience.
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Amazing. Things can get demonstrably worse by the day; but there they are, these wonderful progressives, w/their plans for how we can save or reverse this or that. Of course, it always boils down to “Government has to intervene.” They make it sound so easy: “just get the right team in office and keep the pressure on them.” And when, 3.5 yrs from now, we’re even deeper in the crap than we are now, they’ll be telling us that Hillary is better than the other guy, so rally round! There will never–I repeat, never–come a day when Liberals confess the class nature of The State.
Really?
What “liberals” are you talking about?
Obama is no progressive. He has learned for Clinton and Conservatives alike to use to manipulate language. To speak the language of a progressive does not make him one. Only actions do. Obama’s actions bespeak an altermate belief system and goals that do not match his oratory.
Yes, but in the era of Industrial Capitalism, FDR and Keynes could serve the interest of the Capitalist and the workers at the same time. In the era of the dominance of Finance Capitalism, FDR and Keynes have no place. The game plan is loot as much as possible while possible.
This.
Oh, for heaven’s sake, OF COURSE “Obama and GOP Shared Austerity Vision Will Deepen Recession.” That is the INTENTION. The RICH are doing exceptionally well during this Depression. Only the 99 percent suffer.
That is the PLAN.
Bile and ignorance. “FDR saved capitalism” is a well-known trope. Surely that acknowledges the class nature of the state?
Tax Cuts for CentaMillionaire$ and Billionaire$ and the unfunded $5Trillion “Long War” and GLOBAL Financial Corruption is the truth denied by ALL GOVERNMENTS!
The GREED of the ELITE will not be stopped peacefully!
Things are never so bad they can’t get worse… cheer up you’ll soon be dead!
“Of course, it always boils down to “Government has to intervene.” They make it sound so easy…”
Not as easy as the invisible hand of the free market.
Obama and surrogates are engaging in fear mongering here. Just the other day Maxine Waters claimed we will lose 176 million jobs. Come on? The fact is entitlement spending as a percentage of our budget grows and grows, and as Druckenmiller said over Bloomberg last week we have a situation where Social Security is basically a pay as you go system that is causing our seniors to steal from future generations.
There’s a real agenda here. Democrats and the President are using the sequester to attempt to crush Republicans in the next election. There’s an honest debate we need to have about rational government spending, and talk about huge spikes in unemployment, aircraft carries idled in port and seniors not getting social security checks is not a rational discussion but fear mongering.
Ridiculous. You’re literally arguing that we have developed a time machine, travel into the future and steal all the cars, food, housing, capital goods, services and other real resources, then transport them back to our time and utilize them so that today’s Social Security recipients can “rob” future generations.
Where is that time machine? I’d like to get me some of that future stuff too, maybe a nice 2025 model laptop so I can utilize 2500 gigabytes of RAM in Windows 12 Professional.
Sorry. Ben is right here. Social Security is not an “entitlement”. It is a contract between those of us who paid in and the government that took our taxes. As Dean Baker has shown, there has been and ahsll be more than enough productivity growth in the economy of the nation to pay out per the contract. It is the conscienceless conservatives like Obama who feel entitled to violate that contract.
To further Thorstein, there’s this false idea out there we must save financial wealth today to enable purchases in the future, but this gets the relationship exactly backward. If we don’t spend today we don’t create the productive capacity which allows us to buy things tomorrow.
But conservatives/libertarians refuse to focus on anything other than digits in bank accounts rather than the real goods and services which give us our standard of living. If we followed their ideas those living standards would continually decline due to chronic underinvestment.
About as sensible and productive as collecting kleenex boxes or piles of old newspapers.
France disproves this.
Oh? How?
I like how you say, “This is disproved by x”, without adding any information, giving any explanation, or even giving a link.
You cant just say “The earth is flat”, or even “The earth is round”, without giving any explanation at all.
One can say anything they like with or without proof or links or whatever, that is called an “opinion”.
“One can say anything they like with or without proof or links or whatever, that is called an “opinion”.”
Sometimes it is even called a “religion.”
Ben: “But conservatives/libertarians refuse to focus on anything other than digits in bank accounts rather than the real goods and services which give us our standard of living.”
In fact the goods and services too will rust, rot and get obsolete. The root of it is to put the culture in a situation where the people are educated, creative, healthy, happy and determined to pass on that torch to the next generation. It shouldn’t be of great concern whether the means of our ongoing fructification is material, spiritual or otherwise imaginable. That it be sustainable is useful for passing on the torch though.
Hmmmm, for instance, one of the things they refuse to focus on is the widening gap between ‘producing’ and ‘ownership’. Just because I own shares in Company X does not mean that I lifted a finger to produce diddly squat. I had money, and I used it to make more money; that’s closer to a crap-shoot than it is to actual, productive economic activity.
Both parties, but particularly egregious among conservatives, have taken the production+ownership equation and focused about 80% of their attention on the ‘ownership’ portion. That leads them to obsess about tax rates, and tax advantages.
They’ve created so much political noise that market signals have been drowned out long ago.
There’s been too much grasping after the ‘ownership’ piece and too little attention to the production and employment element — which, given the fact that there are at least 30,000,000,000 microprocessors on the planet, plus a lot of robots, is a formula for economic dystopia.
We’re in economic LaLa Land.
Right on about the ‘crap shoot’ analogy. Now we have to enforce the part that says: “Player A has crapped out and loses everything.” When the financial elites begin bearing the true cost of their speculations, as in, get rid of the TBTF federal guarantee, then some semblance of the old fashioned idea of self regulating financial systems will show its true worth. (The nature of that worth is grist for another mill. Maybe that one down in Philistia where Samson, “eyeless in Gaza, at the mill with slaves,” did his thing.)
Social security is a wealth transfer. There’s no real link between what someone puts in and what someone takes out. It’s PAUG funding. There were 40 million people in the U.S. 65 and over, according to the 2010 U.S Census and that demographic is going to get worse. The system won’t hold up; People entering the work force now won’t get a penny.
“There were 40 million people in the U.S. 65 and over, according to the 2010 U.S Census and that demographic is going to get worse. The system won’t hold up; People entering the work force now won’t get a penny.”
Excuse me! I’m part of that demographic – what do you mean “get worse”?
I’ve been hearing that SS would not be around by the time I reached retirement age, and, well here we are…
What we need to protect the future of SS is jobs that pay well, and lots of them.
The only “wealth transfer” that’s happening here is the predatory raid on dedicated FICA taxes to fund the MIC, Wall Street bailouts, and explicitly off-budget wars, including illegal assassinations. Unlike welfare, which subsidizes The see-castration charade is designed to square the books on this embezzlement and boost the stock of (not-so) Fancy Feast. You’re reading too much Rand.
http://livingstingy.blogspot.com/2011/07/is-social-security-wealth-transfer.html
Unfinished sentence: “Unlike welfare, which subsidizes…” the poor from general funds, Social Security is paid to those who have paid in, in direct proportion to their FICA premium payments.
“There were 40 million people in the U.S. 65 and over, according to the 2010 U.S Census and that demographic is going to get worse. The system won’t hold up; People entering the work force now won’t get a penny.”
You are undermining your own argument. So the ratio of workers to retirees is declining: the problem is very clearly not one of failing to have sufficient money to pay those workers, the problem is having sufficient productivity to produce the goods and services necessary to maintain retirees lifestyles. We will always have whatever quantity of dollars we require.
Can fewer workers grow the food, run the retail services, produce the electricity, supply the medical services, build the housing, etc. that a growing number of retirees will require? That is the true question, the one that cannot be known. Will we have the productivity to supply our demands?
The problem, for the financial elites, of the postwar exponential growth in productivity, was that much of the gains from that increased productivity were widely distributed, thereby creating a huge middle class and diminishing the total percentage of control the elites had over the whole economy.
Their primary objective is to regain their former total control over the economy, which translates into total political control, and ultimately, just total control.
If they have to slash actual grwoth in productivity to attain this goal, so be it. Gains in productivity are only useful to them when all the gains accrue to the .01%
Here’s a nice explanation on why saving/austerity hurts future generations and is out-and-out a stupid f*cking idea for all those like CoC et al. who just refuse to learn anything:
http://heteconomist.com/saving-as-a-burden-on-future-generations/
This is partly why the Capital Debates held such import. For neoclassical economists, private investment in the long run is supposed to adjust to the full-employment level of saving through real interest-rate adjustments. But, as leading neoclassical economists were forced to concede, the well-behaved ‘demand for capital’ function on which this theory rested was invalid – a fallacy of composition. At the aggregate level, it is not valid to argue that there is a monotonic inverse relationship between the real rate of interest and private investment. One implication of this for the non-neoclassical participants in the debate – though only one of many – was that there are no established theoretical grounds for supposing “saving calls forth its own investment”. Say’s Law does not hold, even in the long run.
If saving and investment are separate acts, undertaken by different economic actors, with different determinants, and there is no reason to believe investment will settle in equality with saving at just the right level to ensure full employment – which is the position of Keynes and Marx influenced economists – then saving’s status as sacrifice looks shaky, and the ideological and class-interested motivation for defending a claim on the output of future generations more transparent.
For Keynes and Marx influenced economists, saving is a function of income. Saving, from this perspective, is not brought into equality with private investment through real interest-rate adjustments. Rather, investment (and other demand expenditures) influence the level of output and income, and hence saving. Investment creates saving, rather than saving calling forth investment.
The argument is not that saving is unnecessary under capitalist social relations. The argument is, first, that prior saving is not necessary to fund investment, and so a lack of prior savings should not be used as justification for allowing the economy to operate below the full-employment level. Instead, full employment should be attained and saving will follow as a consequence. Second, the argument is that saving now does not in itself enable society to consume more in the future. It is investment (whether public or private) that does that. Third, if society invests now, the resulting savings – and claims on future output – impose less of a real burden on future generations, because those claims are accompanied by an enhanced productive capacity that future generations receive as a “gift” from earlier generations. Fourth, the typically unequal distribution of claims on future output (in the form of accumulated savings) produces and reproduces, via inheritance, a rentier class that imposes a burden on the productive members of society, and this raises additional policy considerations.
OK, saving bad, spending (investment) good – but on what?
Buying time while we cross our fingers that the economy recovers?
Direction restitution to the entire population, both debtors and non-debtors, for the predation of the banking cartel is morally justifiable.
Brilliant comment!
I wish it were a standalone post.
Agreed with ReaderofTeaLeaves. Very well articulated post, JS.
CofC seems to be saying that the $2.8 trillion our generation has saved over the last 45 years has no effect on our retirement since SS is paygo, yet money we spend today is money stolen from beneficiaries 45 years from now. Which is it? Can SS run account surplus and deficits over time or not?
“Social Security is causing seniors to steal from future generations”?
Oh!? Untaxed off shore profits. Tax cuts for the upper 1%. Un-negotiated Medicare Part D drug prices. QE for the banks, but nothing for the state deficits. Five hundred dollar toilet seats for the military contractors. Trillions of retained, corporate profits. And so on …. Lot’s of other places to look for money than my Social Security.
Seniors will be supported one way or another. Reducing the size of the government support program doesn’t change that; it just punts it out to the non-government sector.
I send my parents money every month to help support their retirement. If Social Security was larger and more progressive, I perhaps wouldn’t have to do that. Now, I don’t think they are robbing me. Rather I think I am doing my filial duty to them. In every society the young as a group have to in some way support the elderly as a group. The income they draw in retirement is the society’s deferred payment for the work they did when they were younger, when their work was collectively supporting the retirement of an earlier group of seniors. But there are different ways of sharing and distributing that obligation.
Do you think the elderly are too rich? Are you hoping that if more of the burden of supporting the aged is shifted from public programs to private programs, the result will be to make the elderly poorer as a group? If not, then you have to recognize that cutting Social Security will do nothing to alter the net draw of the retired on the output produced by younger people who are still working.
The question is this: should we have a society in which rich people in rich families have rich retirements; and poorer people in poorer families have poorer retirements. Or should we aspire to a system in which all of the retired share in society’s general wealth?
Enter stage right, Anonymous and CoC as Tweedledee and Tweedledum.
Tweedledum: “I sing TINA TINA TINA.”
Tweedledee: “Contrariwise, if it was so, it might be: and if it were so, it would be; but as it isn’t, it ain’t. That’s logic.”
Tweedledum: “Oy, then, that’s it. Let’s go.”
I’m struck by the way they speak directly to the issues raised in the interview.
Scintillating, yes? And now, 6 hrs later: Re-enter stage right, Tweedledee and Hogwash as Tweedledoo. Enter stage left, Birds on a Wire.
Tweedledee: I also sing PAUG PAUG PAUG
Reduction and deduction is construction.
Bird1: Nonsense. Ongoing fructification is of no concern.
Tweedledoo: White house corruption bloats and bilks!
Bird2: Invisible hands bring bilge, bile and bog!
Tweedledoo: Blog slogs whitewashed hog!
Enter Red Queen, center stage: I love a warm pig belly for my aching feet.
Heiner Flassbeck focuses on the effect of cutting ependitures, but somehow misses the effects of the tax increases that have hit since January 1. I would argue this is the bigger issue. People see their take-home pay decrease and cut their spending accordingly.
CoC– read and re-read the last paragraph of jsmith above at 12:48. Read it and reread it, and read it again.
CoC,
Although one is not an American citizen, my understanding is the tax increases you refer too are not actually tax increases at all, rather, tax breaks given by Obama/Bush have been removed and the original tax rates resumed, that is, no more tax breaks for the majority – the minority, call it the 1% or in reality, 0.1% could not give a toss they avoid most tax an average Joe would have to pay – hence, the likes of Buffet and Romney can have effective tax rates of 15-17%, whilst the average Joe, i.e. those lucky enough to have an income above the US poverty level have to pay in excess of 25% tax and thats before we consider consumption taxes.
Given your elites aversion to paying tax and actually investing in productive capacity that actually results in jobs within the USA, what is your answer to this fact?
If you were actually a Conservative, and not a neoliberal conservative, you’d be shouting from the rooftops to prevent the outsourcing of jobs to the Far East, together with imposing capital restraints to stop huge capital flows to low paying anti democratic nations globally – effectively, you’d be proscribing a Hamiltonian economic solution that favoured both the ruling elite and US manufactured goods – that your elite now has no interest in production/manufacturing may explain why your nation, much like the UK, is in dire straits – to say otherwise, ignores the facts all around you.
Both tax increases and spending cuts have an inhibitory effect on economic activity, and shouldn’t be carried out while the economy is running way below capacity with high unemployment. Unfortunately this bread-and-butter Keynesian fiscal policy wisdom has been lost by both parties in Washington. I don’t think it matters much whether the tax increases are the reversals of earlier cuts, or are new types of taxes.
The cancellation of the payroll tax holiday is having an impact as is the decline over the past two years of government consumption and gross investment.
I fully support increasing taxes on the rich in the pursuit of economic equality. But the fiscal impact of those tax increases should be offset by either giving more tax breaks to the non-rich, or by more spending, so that we continue to run a healthy-sized deficit.
Oh, it will do no such thing.
Cutting 2% of the federal budget, one that bloated under Obama, will do nothing but good. Americans kost 3.6% of their income. The govenment cannot find 2% of waste to cut.
The Feeral Government is way too large. Democrats need to find some useful and productive work rather than bilking the taxpayer. What a bunch of parastic crooks.
It is not even “austerity”, even in the sense that the Commies in the EU use the term. It has no binding to cut any off those communist “social servies” you love so much. Are you serious saying that canno trim 85 billion from that huge budget?
These are cuts in increases in spending, right? You get that? They are not even real cuts.
You are listening to the CBO? foolish you. Like they were right about Obamacare. Obama has thoroughly corrupted government. You cannot believe a word they say now.
With this garbage you show that you have not the slightest clue about economics in the real worls.
Honestly, this blog has become nothing more than a platfoem for marxist agit-prop.
U be a dummy. Federal spending is someone’s private income.
So why do you wish to cut someone’s income? Hmm?
“You cannot believe a word they say now”
I havnt trusted a word the government has said since at least 2003-4. I dont know about you but at that time I had never even heard of Obama. Obama is just another clown in the long line of bad presidents we have had for over 30 years.
> Cutting 2% of the federal budget, one that bloated under Obama, will do nothing but good.
We should cut 2% of everybody’s wealth, and pay off all the debts with the proceeds.. a wealth tax.
Of course the super-wealthy would pay slightly more than I would, but that’s the way the marbles fall sometimes.
“We should cut 2% of everybody’s wealth, and pay off all the debts with the proceeds.. a wealth tax.”
I’m in. And I actually have a little “wealth” — as distinguished from income. I have very little income. But I would be glad to contribute 2 percent of my “wealth,” right off the top, for the good of my country and my neighbors.
Back in 2008, when my (paid-off) house was worth more than twice what it is now, and my “equities” were doing better, my wealth was greater and my net contribution would have been more, but that’s the way the cookie crumbles.
This is really a great idea, but I doubt it could work, who would we trust to actually fairly collect and pay out these contributions?
An overall reduction in debt would probably cause your remaining wealth to produce more income. I’m sure many people would see this as an agreeable tradeoff.
It’s just ironic that so much of global wealth falls under the control of so few people. This is the legacy of interest-bearing debt-based money. It concentrates wealth instead of distributing it.
Equity-based money would work much better in the long run.
Equity based money is the way to go for sure; it “shares” wealth and power rather than concentrates them.
It’s interesting that the common stock company was invented slightly before central banking. We had the chance to adopt honest money but didn’t.
Welcome back Beard.. missed hearing your enlightened ideas.
WELL, I am old, I have been hearing all the dire stuff about Social Security all my adult life, has not come true. Perhaps those who cast runes and such to gain all this knowledge should check the bones again.
The coruption of the banks and the political class has no solution, except the disaster of a depression with millons
of lives ruined. This is a replay of the thirties, the cheap labor markets in dictatorships like China, are ruining the labor markets in the first world. Demand
higher wages in China and you get a bullet in the head or Jail. The revolutions that will follow this economic collaspe will be global in scope and bloody. In America where the left has been crushed by the capital class there will be no organized response molded by labor unions (crushed), or socialists (crushed)
or communists (crushed). So the response will be leaderless
and even more dangerous because it will be a wild duck reponse. The prison nation of America will finally run
out of cops, jails and will need its army to crush its own people. History shows that this will be used if needed and I predict it will be needed. The aftermath will be a sullen
and then prehaps another civil war. There was another way to go but the elite chose to ignore history and common sense
so we are all doomed in America now and in Europe where
fascism will probably re emerge from its long slumber.
1. $44 billion is not austerity, in a $15 trillion economy it barely registers as a rounding error.
2. IF our economy is so fragile that the refusal to spend $44 billion is enough to drop us into a recession then the economy is too fragile to continue on the current path.
3. IF our economy is impacted that significantly by $44 billion in government spending then government is too large an influence in our economy AND…
4. IF $44 billion of government spending is necessary to keep the economy growing, government is too great an foundation for our economy.
I don’t know what Yves is looking at, but cutting the rate of growth (not even the actual amount of spending) is no more austerity than drinking a Diet Coke once a year is a diet.
Cutting deficit spending by the monetary sovereign during a recession/depression is dumb.
But we ARE NOT cutting deficit spending – only slowing its increase. And if deficit spending is GOOD, how much? We are doing annually a $trillion more than in 2008. Are we so sensitive that 1.24 Trillion is safe but $1.2 trillion isn’t?
well from what I have read, the government needs to spend enough to maintain full employment and to satisfy the desire to save.
Let’s see. 4.6% is considered full employment – which I assume you mean rather than 0 unemployed. Our current workforce, even assuming some of the loss over the last 3 years has been due to ‘retirement’, is about 162.3 million. Currently employed is 134,688,000. Deducting the 4.6%, leaves 154,834,000. That means we have 20 million unemployed. Based on the stimulus attempts, the government is spending $278,000 per job, time 20 million is $5.6 trillion for JOBS above the current spending of $4.1t. In an economy of $16t, that puts the government at 60% of GDP and will add $6.7trillion PER YEAR to the debt.
Yea, sounds like a REALLY good idea to destroy the economy in a year…
wow, big numbers
A. The economy is ALREADY destroyed, unless you’re too rich to notice.
B. The government is owned by Wall Street and is giving all of OUR money to the banks, who are sitting on it, except for of course paying out big bonuses to their fearless leaders.
C. The “debt” is a phoney invention of crony capitalism.
D. Why don’t you check out what one contract position supporting our troops in Afghanistan costs (and there is a high proportion of contractors to troops). I’ll bet it’s at least $278,000 a year. For that matter, check out what it costs to support one member of our U.S. military in Afghanistan for one year (not what they’re paid, what it costs) and I’ll bet it’s $278,000 or more.
Carla,
A. I disagree – but it is oriented towards disfunction right now due to ‘government’.
B. Banks can’t survive without gov and gov – at least 1st world governments, can’t survive without the banking system. WE can, the gov’s can’t.
C. The debt is the debt. It is not a figment of anyone’s imagination. Frankly, I’d cancel every penny of debt owed to the banks (the TBTGB ones).
D. I have already suggested getting rid of contract workers within the military and unless you are suggesting we turn out couple hundred thousand military members to the unemployment lines, bringing them home and working is cheaper than putting them on ‘welfare’ of unemployment/food stamps/medicaid.
we are cutting deficit spending, look at the facts, if the deficit is decreasing, that means the spending attributed to the deficit is being cut. you need to establish this basic fact before you begin a discussion on a false premise.
if the deficit is shrinking (which it has been under Obama, relative to GDP especially), then the amount of spending that adds to the deficit is being cut. pretty clear there that deficit spending is in fact being cut, even if gov spending as a whole isn’t necessarily being cut.
you’re talking about spending in general which is increasing at a slower rate, not being cut. but in practical terms, when gov spending is slowing its increase in an environment of near-deflation and general stagnant growth, that constitutes austerity, since all economic systems that rely on perpetual growth need constantly increasing gov spending and national debt. it’s a feature of the system.
I’m posting this graph to you so that you can stop telling people a lie about deficit spending not being cut, please view and learn and stop disbursing lies/half-truths/whatever the hell you want to call this method of discussion:
http://imgur.com/lzDe5xb
See the deficit shrinking? That means we’re cutting deficit spending, which has only hurt growth and employment, and further reduction will leave us in dire circumstances similar to the UK and Eurozone whose self-inflicted austerity pain has only made things even worse for their people.
BTW i’m of course referring to the shrinking deficit AFTER the large increase in response to the financial crisis, so the focus should be from 2009 until today where there’s cuts in deficit spending.
Ok Chris, you are saying because the deficit was $1.4t in 2010 and it is only $1.1t this year, that we are cutting spending. Given that $300b “cut”, in a $3.3t gov that equates to a 9% cut in spending which is HUGE compared to other years, and because all of that “cut” is the result of the GDP going from $15.1t to $15.9t we can ignore that actual government spending INCREASED $500b – because well, that represents austerity.
Disingenuous at best.
An excellent interview.
Love the focus on wages, slumping aggregate demand, and the danger of deflation outweighing that of inflation.
And to hear it come from a German…my word… :)
One issue I have is that productivity has risen, but haven’t laborers captured some of it through ownership in 401(k)’s and pension schemes? That has enabled workers to at least accumulate savings in the form of owned capital that has appreciated due to the productivity increase (even though wages have not made up for it).
Not sure how the data shakes out on this, and I’m not saying that wages are fairly priced in light of adjustment for inflation/productivity over the past few decades, but part of the gains in productivity that went to capital owners must have benefited laborers who had owned some of that capital through retirement savings vehicles. I haven’t seen this really addressed by the CEPR, CBPP, or EPI to name a few left-leaning think tanks, so I’m not sure where exactly this fits into the discussion. Just something I have been thinking about as the minimum wage discussion has picked up.
Recession? Larry Summers said it was over in 2009…..