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(photo via Red and Black)
Traditions Monday: Why I Go Back To Athens
I’ll admit it: I am a lifelong Georgia Bulldog fan. I graduated from our state’s flagship university in 1984.
My wife and oldest son are also UGA graduates, and my youngest son is a student there. Attending…
A new study fom the Center for College Affordability and Productivity says that in 2010, forty-eight percent of 41.7 million working college graduates held jobs that required less than a bachelor’s degree. Thirty-seven percent held jobs that didn’t even require a high school diploma.
So, especially in this recession, a degree may not be worth as much as you think.
http://chronicle.com/article/Millions-of-Graduates-Hold/136879/?cid=at&utm_source=at&utm_medium=en
The fiscal cliff just SOUNDS bad.
But for those of you who aren’t exactly sure what it is, let me explain. The fiscal cliff refers to the economic effects that could result from tax increases, spending cuts and a corresponding reduction in the U.S. budget deficit beginning in 2013 if existing laws remain unchanged. These laws were initially put in place by Congress and the Obama administration a few years ago. But now Obama’s all “oops, bad idea,” Congress is all “shit,” Romney’s all “lolz” the Republicans are all “omg Palin’s starting to look like a godsent” and the NRA is still all “ok guys but what about the guns?”
Eventually a deal was reached, with some tax increases and reversals of certain tax cuts.
BUT, it’s not over. Crisis not adverted. We kind of put that on the back burner for later, and now the Obama administration is trying to deal with the issue of paying back our friggin gross, encompassing cesspool of debt—enter: debt ceiling.
For those of you who don’t totally understand the debt ceiling, let me relay to you a metaphor Obama used in a speech today.
He said: “This is not a complicated issue. You don’t go out to dinner, eat all your want, and leave without paying the bill.”
What in the hell did you order, Mr. President? Can we just drive through McDonalds next time? You ever heard of the dollar menu?
http://www.cnn.com/2013/01/02/world/meast/syria-american-journalist-abduction/index.html
James Foley is an international conflict reporter, just as I want to be. Stories like this break my heart. Praying that he returns home soon, and safely.
First, let me say that I was not jaded by some enveloping unrequited adoration for either candidate. I have never been religiously (no pun intended) conservative or liberal. I look at the candidates individually, and this is what I was faced with this election: a vote for Obama makes me a delusional, government-expanding commie liberal. A vote for Romney makes me an unrealistic, God-preaching gay-hating traditional female.
But that’s how it is every year. You can’t expect a candidate to be lenient on issues their party stands firmly against; that is just how the party system works—and we have to deal with that.
OK, so that being said.
When Obama first acquired presidential powers, he also inherited a LOT of long-standing problems. His mistake was assuming they could all be “changed” in a single term. With lofty campaign slogans that riled up the struggling middle-class, Obama was destined to disappoint; unless he miraculously Midas-touched his way through presidency.
The fact is, Obama hasn’t turned things around. And that is partially, but NOT entirely, his fault. I think the guy has good ideas. I think he honestly wants America to succeed. But you have to look at where our economy—our country—stands before you go implementing huge changes in government spending and programs. Obama and the democratic party didn’t. They fixated themselves on “change” and dove into an already dangerous pool of expanding debt. Obama thinks that a redistribution of falsely-acquired “wealth” will pick up the economy again. But you know those greedy, big-business big-money corp dudes the democrats are always hating on? Those are the guys that create jobs. You can’t keep taking money from them and funneling it into “programs” that simply have not reaped significant benefits. Like you said, people are still struggling. We have forgotten what job “growth” even means. As a college student, I am preparing to be thrown into a world of uncertainty, gripping my dual-degree with white knuckles and a prayer that some luck will come my way.
I don’t think Mitt Romney is (or was) the God-sent answer to all of our problems. I find many of the Republican’s social views to be ridiculous. But I am looking at our country, and what it needs NOW, just as everyone should. And we need to stop spending. We need OUT of this hole of debt that is slowly consuming us. The worst part of it all is that most people don’t even realize how bad it has gotten, because their heads are filled with delusional democratic campaign chants of “change, change!”
Change is exactly what we need. A change in administration.
I voted for Mitt Romney. Though the election has past, I hold to my beliefs. I truly hope, for the sake of small business-owners like yourself, that Obama’s programs succeed. My prediction (especially in the wake of the fiscal cliff fiasco) is that things are about to get much, much worse before they look any better. But who knows—maybe we will rise from the ashes. It wouldn’t be the first time.
The issue here is that al Qaeda is allegedly operating terrorist training camps in Mali and supporting militant islamic radicals there. While the U.S has sent humanitarian aid packages, and while many people believe Mali should fall under the active protectionist umbrella of Operation Enduring Freedom..the UN has not approved any fundings to take immediate action. Hell, the UN hasn’t even approved the deployment of forces to Syria. The U.S certainly recognizes Mali as an up-and-coming powerful Islamic threat, but the reason you haven’t seen it much in the news essentially boils down to the likelihood that it will join Syria in the ranks of a “sad, brutal tale we watch on television from the comfort of our homes.” Can the U.S afford to deploy troops to Mali, especially in the wake of such turbulent economic times? Of course, we haven’t hesitated to meddle in Afghanistan, so what’s stopping us now?
SJL
The United States credit crisis is essentially the result of commercial and investment banks lending out vast sums of money to borrowers that were unable to repay them. There are many different perspectives on the underlying causes of the crisis. The embedded liberal perspective blames the crisis on excessive risk taking, insufficient regulation, and rewarding risk taking by implementing bailout funds and executive compensation. The socialist perspective blames the crisis on wealthy elites exploiting the working class, the crisis of overproduction, and essentially income disparity and inequality. The economic nationalist perspective blames excessive consumption, pressure from interest groups, and reliance on finance instead of manufacturing. The classical liberal perspective blames excessive social programs, bailouts, and and extremely low interest rates. Raghuram Rajan, chief economic adviser to the government of India and University of Chicago economist, had theories consistent with the classical liberal perspective. He stated that there were three underlying causes for the credit crisis: Poor housing policy, low interest rates (which fueled bubbles from excessive lending), and mercantilist exchange policy. He is best known for warning about the excessive risk in the financial system before the crisis itself began. Now, in 2012, we are still feeling the pressure of a recession due to a major credit crisis. There is much dispute over how this crisis can be solved. Instead of looking at solutions on the premise of more or less state intervention, I will argue for less stimulus and the implementation of mild austerity measures as a possible solution (or at least a means of relief) to the credit crisis.
It is not practical to examine solutions to the crisis on a scale that only examines state intervention. The question of whether we need more or less government intervention is a complicated one. Classical liberals advocate for small and limited government, yet even they have to accept that at least some form government regulation was necessary for a functional state. Therefore, it is not an argument about whether state intervention is necessary, but rather about what type of intervention is necessary (and to what extent). In the short term, policy makers often look toward stimulus packages to help relieve some of the pain felt by an economic recession. An economic stimulus package is a set of tax rebates and special business tax incentives meant to motivate a slow economy. The type of stimulus implemented is extremely important and time sensitive. Long term unemployment can lead to the deterioration of certain skills. Offering stimulus packages secures short term employment gains, which helps the public retain their skills until the economy picks up again. The rationale behind a stimulus package is that by giving people more money to spend, consumption will increase, companies will hire more workers, unemployment will decrease, and spending will gradually pick up until the economy is out of a recession.
A stimulus package seems like a simple enough answer to an economic crisis. However, they are not always effective. In 2008, the United States passed a stimulus package that provided for tax rebates to low and middle income taxpayers, tax incentives to stimulate business investment and an increase in the limits imposed on mortgages eligible for purchase by government sponsored enterprises like Fannie Mae and Freddie Mac. The total cost of the stimulus bill was projected at about $152 billion. Many people decided to save this money or used it to pay off bills, which did not help increase consumption as much as was hoped. Heritage Foundation Senior Policy Analyst Brian Riedl explained further why the stimulus did not achieve the success it aimed for: “Every dollar Congress injects into the economy must first be taxed or borrowed out of the economy. No new spending power is created. It is merely redistributed from one group of people to another…Yes, government spending can put under-utilized factories and individuals to work–but only by idling other resources in whatever part of the economy supplied the funds. If adding $1 billion would create 40,000 jobs in one depressed part of the economy, then losing $1 billion will cost roughly the same number of jobs in whatever part of the economy supplied Washington with the funds. It is a zero-sum transfer regardless of whether the unemployment rate is 5 percent or 50 percent”.
By 2009, the Federal Reserve had lowered interest rates to near zero as an attempt at promoting fiscal stimulus. Thus, economic stimulus was the only other option. Tax cuts for individuals generally encourage short-term spending. Tax cuts for companies encourage both spending and investment. Expenditures on public works create contracts for firms and provide short- to medium-term employment opportunities. Investments in research and development take a longer-term approach under the theory that businesses will thrive in the future (and thus provide jobs) if they have the money to make intelligent investments in their operations now. Again, all of this seems simple. However, stimulus plans have one huge downfall—cost. Adding to our already massive debt is arguably a very unwise decision. There is a consistently present risk that the stimulus package itself will not work or won’t do enough, and that the economic crisis could continue despite massive government expenditures. In a time of economic instability and compounding debt, throwing stimulus packages at the economy in hopes of improvement may actually do more harm than good. 2009 marked the highest U.S. budget deficit as a percentage of the country’s Gross Domestic Product (GDP) since World War II. More money being put into a stimulus package could be extremely detrimental to a nation at a time of such economic instability and increasing debt.
Some analysts point out potentially dangerous risks if a stimulus package is implemented and works too quickly. If a rapid economic recovery leads to a sudden flight from U.S. debt, some analysts say, the result could be inflationary pressures and an environment in which Washington couldn’t borrow as easily internationally. Permanent cuts to marginal tax rates can encourage more business investment and economic growth. However, George W. Bush’s 2008 tax cuts and President Barack Obama’s 2009 tax cuts were both strictly tax rebates, which are essentially economically indistinguishable from government spending. It is a good and long-standing argument that the economy is self-regulating, and will eventually bring itself out of a crisis. Government spending, which ultimately leads to a larger burden of debt, may stall this process.
Austerity measures are one way to reduce the deficit by lowering spending and by reducing the amount of benefits and public services provided. Austerity policies are often used by governments to try to reduce their deficit spending. Supporters of austerity measures argue that such a huge reduction in government spending can encouraging private consumption and result in the overall expansion of the economy. Those who believe austerity measures are counter-productive base their argument on the assumptions that reduced government spending can increase unemployment and reduce GDP. They argue that short-term government spending financed by deficits is a good thing, because it supports economic growth when consumers and businesses are either unwilling or unable to do so themselves. I argue, however, that austerity measures may be necessary in times of massive economic decline. There is only so much money a nation can borrow from the international community before it faces uncertainty about its ability to pay it all back. Following banking and credit crises (such as the case of the United States), many governments become highly indebted to the international community in attempts to reverse the recession. This can cause major problems for a nation trying to regain its international strength.
Austerity measures do have their downfalls, as seen in the recent case of Greece. By the end of 2009, Greece faced its most severe economic crisis since the restoration of democracy in 1974. International confidence in Greece’s ability to pay off its increasing debt was at an all time low. The European Commission, the European Central Bank, and the IMF required Greece to adopt harsh austerity measures to control its compounding deficit. This austerity package was met with anger and resistance by Greek citizens. Still, austerity measures do not necessarily always fail, even if they are met with public unrest. Much of the success of these programs has to do with the politics and culture of the nation. During the European sovereign debt crisis, many nations adopted austerity programs, reducing their budget deficits relative to GDP from 2010 to 2011. According to the CIA World Factbook, for example, Greece improved its budget deficit from 10.4% GDP in 2010 to 9.6% in 2011 despite public dissent, riots, and economic uncertainty (The World Factbook 2011, 5). Iceland, Italy, Ireland, Portugal, France and Spain also improved their budget deficits from 2010 to 2011 relative to GDP by implementing austerity measures.
The Baltic countries are an excellent example of the success of austerity policies. Latvia, Lithuania and Estonia recently faced housing bubbles and excessive spending, resulting in economic collapse. Latvia’s economy plummeted by 18 percent in 2009 alone. Austerity measures were implemented in these states, and (perhaps surprisingly to European nations) reaped success. Latvia’s economy grew 5.5 percent in 2011, and 6.9 percent in the first quarter of the year. Unemployment, which reached more than 20 percent, has fallen to around 16 percent. Other Baltic nations saw very similar improvements. Latvia suffered the worst recession in Europe, with a 24 percent drop in GDP between 2007 and 2009. A short two years later, as a result of austerity policy, its economy was the fastest growing in the EU. Estonia’s economy grew by 7.6 percent last year, five times the European average.
The Greeks met austerity policies with revolt, anger, and unrelenting opposition. The Baltics, on the other hand, quietly dealt with pay cuts and social hardships. In fact, both Latvians and Estonians re-elected the politicians that brought in the stringent measures. This may have been a huge reason the Baltic nations were successful in recovering their economy (while Greece was not necessarily). The politics, culture, and reception of a nation can vastly determine the success of such measures. It is difficult to say that the so-called Baltic model should be directly applied to the United States, seeing as the nations are so different. However, it is important to
notice that funneling borrowed money into the economy in the form of stimulus is not the only way to get out of a recession.
Jeffrey D. Sachs stated in a New York Times article that the United State’s attempts at monetary and fiscal policies have resulted in “ever-more desperate swings in economic policies in the attempt to prevent recessions that cannot be fully eliminated”. In this article, he argues that stimulus programs and zero interest rates implemented to counteract the recession may be beneficial in the short term, but may worsen the crisis for the future by adding to our national debt. Massive debt and interest rates set to near zero may promote short-term spending, but at significant risk. Should the international community begin to doubt the United State’s ability to pay off its debts, it may find itself in a situation similar to Greece in 2009. Sachs argues that the deficits should remain limited (less than 5 percent of U.S. GNP) and that our interest rates should be kept far enough above zero to avoid future reckless short-term policy swings. His ultimate argument is that stimulus programs are not necessary to get our economy back on track.
Essentially, stimulus is not always the answer. The stagflation of the 1970s is a great example of this. Richard Nixon’s implementation of wage and price controls resulted in raised unemployment, reducing demand, and slowing economic growth. When Nixon took the U.S. off of the gold standard, the price of gold skyrocketed, the value of the dollar subsequently plummeted, and import prices rose. The Federal Reserve utilized expansive monetary policies
combined with hefty fiscal policies such as economic stimulus packages and record highs of deficit spending. in attempts to rescue the economy. When Jimmy Carter became president, he replaced Arthur Burns as Fed chairman with G. William Miller. Carter encouraged Miller to continue a policy of rapid monetary expansion, which produced steadily rising inflation between 1977 and 1978. Just as in the early 1970s, unnecessary stimulus produced rising inflation (ill-timed, as a second oil-price shock was about to hit). The combination of rising inflation expectations and rapidly rising oil prices resulted in a leftward shift of aggregate supply, causing inflation to rise as output fell. A second period of stagflation was the unfortunate result.
It is also important to consider the means by which the crisis came to be in the first place. The government has a tendency to intervene in the economy more than it should. The credit crisis may have been avoided in the first place if the Federal Reserve had not embarked on unprecedented monetary and credit expansion, subsequently inflating a housing bubble of epic proportions. The housing market itself is built on a questionable foundation of moral hazard we willingly assumed by allowing Freddie Mac and Fannie Mae, enjoy a protected lending status. Bailouts ultimately transfer money from the quite arguably fiscally responsible taxpaying public to irresponsible corporations who have come to expect a savior (and thus take huge risks with the funds we so generously keep supplying them). While the market system is far from perfect, it should be allowed to function based on the interaction between self-determining individuals (instead of the arbitrary dictates and whims of policy-happy politicians). Businesses will make mistakes, and the public will suffer. This is a natural result of a self-regulating market, not an invitation for the Fed to rush in with internationally borrowed bailout funds.
We have seen that reduction of stimulus and implementation of austerity measures may be effective in some nations (like the Baltic countries), and ineffective in others (like Greece). Therefore, the argument of whether or not a stimulus package would offer relief to the United States crisis is a valid one. However, we have also seen the numerous times stimulus has failed in the United States, as well as its failures elsewhere. Stimulus policies pose significant risks in any nation, whether it eventually proves effective or not. Adding to national deficit by borrowing from other nations poses issues of international skepticism and fiscal entrenchment. Markets can be surprisingly resilient, and stimulus programs and bailouts would serve only to worsen the crisis.
Picture of the Day: Aleppo, Syria. A father carries his son and his gun home from Friday prayers.
Credit: Odd Andersen/AFP/Getty. Via.
(via thepoliticalnotebook)
what did you all think about the debate last night?
(Source: sassytornado, via underthemountainbunker)
