Krugman: Baltic Brouhaha

[ProSense]

Last edited Sat May 4, 2013, 12:23 PM - Edit history (2)

Baltic Brouhaha

Martin Wolf has a very good piece on the attempts to put the Baltic states, Latvia especially, on a pedestal and claim that they prove that austerity works. Mainly he makes points I have made previously: first, that output is still well below the previous peak, and unemployment still very high despite drastic out-migration:

<...>

First of all, the idea that real GDP and employment can be hugely inflated above sustainable levels by a bubble is questionable. We know that economies can operate far below capacity; operating far above capacity is a tougher proposition to defend. In fact, it’s normal to assess trends in capacity by “peak to peak” interpolation, assuming that the peaks are much more similar than the troughs, that “overfull” employment, while it can happen, can’t be all that large...think about what this kind of apology would imply for the United States in the 1930s. Here’s real GDP for America from 1924 to 1936:



The US economy plunged from 1929 to 1933, but grew very fast from 1933 to 1936. By 1935 it was already producing more than in 1924; by 1936 it was above its 1929 level. So, was the Great Depression over, and was America a great success story? Few would make that claim; surely we were still far short of where we should have been.

But there’s an even bigger logical hole in the Baltic story as it’s told. The claim is that Latvia shows that austerity works as a response to a deeply depressed economy. But then when you point out that recovery has still left output and employment well below their pre-crisis levels, you’re told that those levels weren’t sustainable anyway. Do you see the problem? The apologists, by claiming that the pre-crisis peak isn’t a realistic goal, are also claiming that Latvia has never been that deeply depressed an economy in the first place.

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http://krugman.blogs.nytimes.com/2013/05/01/baltic-brouhaha/

Here's a chart of the current economic crisis.

Specifically, government spending cuts dragged down GDP by 0.8%. That may not sound like much, but it's actually enormous -- today's report would have shown economic growth of 3.3% instead of 2.5% had it not been for these cuts.

http://maddowblog.msnbc.com/_news/2013/04/26/17928755-economic-growth-improves-but-falls-short-of-expectations

To give an idea of just how much Republican belligerence is slowing the recovery, here are two posts by Krugman:

States of Depression

By PAUL KRUGMAN

The economic news is looking better lately. But after previous false starts — remember “green shoots”? — it would be foolish to assume that all is well. And in any case, it’s still a very slow economic recovery by historical standards.

There are several reasons for this slowness, with the most important being the overhang of household debt that is a legacy of the housing bubble. But one significant factor in our continuing economic weakness is the fact that government in America is doing exactly what both theory and history say it shouldn’t: slashing spending in the face of a depressed economy...if it weren’t for this destructive fiscal austerity, our unemployment rate would almost certainly be lower now than it was at a comparable stage of the “Morning in America” recovery during the Reagan era.

Notice that I said “government in America,” not “the federal government.” The federal government has been pursuing what amount to contractionary policies as the last vestiges of the Obama stimulus fade out, but the big cuts have come at the state and local level...We’re talking big numbers here. If government employment under Mr. Obama had grown at Reagan-era rates, 1.3 million more Americans would be working as schoolteachers, firefighters, police officers, etc., than are currently employed in such jobs.

And once you take the effects of public spending on private employment into account, a rough estimate is that the unemployment rate would be 1.5 percentage points lower than it is, or below 7 percent — significantly better than the Reagan economy at this stage.

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http://www.nytimes.com/2012/03/05/opinion/krugman-states-of-depression.html

This is why Republicans in Congress and State Governorships have been working hard to sabotage the recovery.


http://www.democraticunderground.com/1002322208

The Jobs Program That Wasn’t

Macroeconomic Advisers on the American Jobs Act, proposed a year ago:

We estimate that the American Jobs Act (AJA), if enacted, would give a significant boost to GDP and employment over the near-term.

-The various tax cuts aimed at raising workers’ after-tax income and encouraging hiring and investing, combined with the spending increases aimed at maintaining state & local employment and funding infrastructure modernization, would:
-Boost the level of GDP by 1.3% by the end of 2012, and by 0.2% by the end of 2013.
-Raise nonfarm establishment employment by 1.3 million by the end of 2012 and 0.8 million by the end of 2013, relative to the baseline

Of course, it that had happened, Obama would be more or less a lock for reelection. Instead, having blocked the president’s economic plans, Republicans can point to weak job growth and claim that the president’s policies have failed.

http://krugman.blogs.nytimes.com/2012/09/08/the-jobs-program-that-wasnt/

It's a vicious cycle, and the 2010 election made it worse. Republicans blocked job-creating bill that also offered aid to states, and then Republican Governors cut jobs at the state level.


Edited to remove duplicate posting.

[ProSense]

1. Kick! n/t

[xtraxritical]

2. We all know that Congress is bought and paid for by the Koch's & Pete Peterson.

GOTV

[ProSense]

4. Without Republican sabotage,

the recovery would have been much stronger, millions more jobs and an unemployment rate likely at 6 percent or below.

[zipplewrath]

6. A second round

Despite my extensive differences with Obama, without the GOP, I believe we would have seen a second, and third, round of stimulus, and vastly more of it would have gone to shoring up state government employment, and vastly less to tax cuts. Having done that, we'd probably be at about 5.5% unemployment right now.

[ProSense]

3. Kick! n/t

[Quantess]

5. Thanks for a great OP!

[ProSense]

7. You're welcome. n/t