Krugman: Depression is Coming Unless We Spend More; Obama: Higher Taxes are Coming No Matter What


From the Happy Monday file, here’s Paul Krugman in the NYTimes, predicting another depression:

But future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.

Those “future historians” are always right, aren’t they? And then our president comes, to issue this warning:

“People should learn that lesson about me because next year when I start presenting some very difficult choices to the country, I hope some of these folks who are hollering about deficits and debt step-up because I’m calling their bluff. We’ll see how much of that, how much of the political arguments that they’re making right now are real and how much of it was just politics.”

“Difficult choices” as we all know is code for “Hello, IRS!” Among the “difficult choices” are sure to be higher taxes, higher fees, more intake in general. Among the “difficult choices” are sure not to be lower spending, smaller government, fewer members of AFSCME.

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  1. Profile Photo Member

    Nail on head, Rob. “Difficult choices for thee, not for me,” says Obama as he signs another 100 billion dollar spending bill.

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  2. Profile Photo Member

    The “next year” part is what gets me. If it’s so important, why aren’t we making the choices now? It’s impressive to accuse opponents of being political — in the future –while making a political calculation about the best time to raise taxes.

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  3. Profile Photo Inactive

    I’m not an economist, but I wonder if fiscal austerity combined with rescheduling the debt on a new 50-year T-bill might work?

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  4. Profile Photo Member

    The frustrating part of this line of argument from Krugman and his ilk is that they completely discount what I think most Americans believe intuitively, which is that all spending is not equal. What Americans have been able to see up close now is how pork-laden, misdirected and wasteful the spending in the Stimulus has been. I think conceptually many might be sympathetic to the principle of stimulating the economy in the face of high unemployment. But what they know will happen is that public sector workers and unionized workers will see their jobs secured and their benefits untouched, while private sector workers continue to suffer. They will see programs continued as is with no hard choices made about where to direct the spending. And they will see government’s role continue to expand with no confidence that expansion will ever be reversed. I think a President with a different track record, one with a healthy mistrust of big government, might actually have been able to get more Stimulus now, but this one is no longer trusted on the issue of government intervention in the economy.

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  5. Profile Photo Member

    Paul Krugman and the other Keynesians are right– in the short term. Yes, we can enjoy a bit more prosperity for a while if we continue to borrow and spend. But the long term picture just gets bleaker every time we spend our way to prosperity for the here and now.

    It’s just more of the same, but bigger each time. To avoid the short-term hangover after one bubble explodes, we get ourselves drunk on another bubble. First it was the dot-com bubble. Next, the mortgage and real estate bubble. Now it’s sovereign debt. Each time the bubble gets bigger. Eventually no one will be able to salvage the system with a bigger bubble.

    Krugman is right. Austerity will bring pain. But what we are telling him is this: we’d rather take the pain now than die later. We’d rather amputate our toes now than lose our whole leg or body later. And that’s what it’s coming down to. Politicians are not used to this kind of blunt talk, but it’s going to be forced on them (and us) the hard way, or the harder way. Take your pick.

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  6. Profile Photo Member

    Obama only thinks the real “difficult choice” is 9 iron or 7 iron.

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  7. Profile Photo Member

    First – Great one John Boyer. I will steal that on a regular basis.

    Maybe a bit more pain will get folks moving. Sadly, we will get to test that idea.

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  8. Profile Photo Editor

    Pain, sure, but you know how this is going to go: we’re going to raise taxes on the “rich” — which will include, as Joe the Plumber knew but the liberals in the media did not — a lot of people who will be surprised to find themselves in that category.

    I think it’s a strategy that may work, sadly: create a big enough fiscal mess that tax hikes just have to be part of the solution. Promise cuts to accompany them, mostly from the military. Turn this country into a high-tax, low-defense-spending place with a large, bureaucratic social “safety net.” Stately decline into irrelevance as China and India and Brazil rise. Obama is engineering what he thinks is a “soft landing” for us.

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  9. Profile Photo Member

    …..which is why November is so important. The big money-making taxes that Obama wants will necessarily have to come from the middle class–specifically a VAT. If Republicans can win in sufficient numbers this fall, they can block this–because popular opinion will be with them–regardless of whether Obama “calls their bluff.” Hold the line on taxes, and simple math will force spending down (see Jersey). Succumb on taxes, and the math will look less scary, and so the spending will continue unabated.

    Starve. The. Beast.

    • #9
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