Why is the recovery so darn slow?

[JerichoHill]

Citation needed.

http://www.policypointers.org/Page/View/11141
"Secondly, the paper stresses that there are a range of complex and interlinked factors behind the emergence of the global financial crisis in 2007, namely loose monetary policy, global imbalances, misperceptions of risk and lax financial regulation"

http://www.google.com/url?sa=t&sour...ldzvCg&usg=AFQjCNHmj2fZYuB9pOnE85txNhnXQFwrUg
"While I have placed the onus of responsibility for the failures on the financial system, to a large extent they were doing what actors in a market system are supposed to do: pursue their own self interest.The major lesson of this crisis is that the pursuit of self-interest, particularly within the financial sector, may not lead to societal well-being, unless we set the rules of the games correctly. Fixing these “rules of the game” is the big task ahead."

I could list conservative and Austrian economists, none will say this was a demand side recession.

 

[Cutlass]

Strange this hasn't been brought up by any of the anti-stimulus people here, or maybe I am missing something. Perhaps the stimulus sort of "broke the fall, but killed the bounce".

I would say it broke the fall, but the lack of a bounce is because the of the crippling of the financial services industry. Not any actions taken by government after the crisis began.

 

[kochman]

I would say it broke the fall, but the lack of a bounce is because the of the crippling of the financial services industry. Not any actions taken by government after the crisis began.

Yes, the spector of massive new costs/taxes/etc from the ACA Health Care act hasn't had one little effect on our stalled economy.

 

[JerichoHill]

Koch,

Blaming the Great Recession on the ACA is silly. It wasn't in the top 10 drivers of the problem.

 

[Antilogic]

I could list conservative and Austrian economists, none will say this was a demand side recession.

No duh, they are clueless.

If you look at the quality of projections from the Austrian/freshwater economists over the last few years, they have been terrible. The recent fears of inflation and interest rate hikes on the US debt still haven't occurred despite the doomsayers' endless ranting otherwise.

That goofy "stimulus" bill passed in 2009 was only a third direct infrastructure spending (and not even all of those projects were "shovel-ready"), and the rest was Republican-style tax cuts and relief. Follow that by the extension of the Bush tax cuts. We've been doing the "conservative" recovery ideas and they don't work well.

What is killing the recovery is oddly enough one of the factors people most associate with the lack of recovery: high unemployment, which leads to very low disposable income. Money can be borrowed at incredibly low interest rates right now (so capital investment is relatively cheap), and all the capital people were using before they were laid off a few years ago didn't magically disappear. Thus, I would argue the supply side has fewer problems than the demand side at this moment, even if the immediate cause was not a demand-side crash.

 

[kochman]

Koch,

Blaming the Great Recession on the ACA is silly. It wasn't in the top 10 drivers of the problem.

I didn't blame the GR on the ACA.
I am putting some blame for the slow recovery on the ACA. I don't think that is a huge stretch.

 

[Antilogic]

Koch,

Blaming the Great Recession on the ACA is silly. It wasn't in the top 10 drivers of the problem.

Heh, it didn't even exist when the Recession hit. That's some mighty time-traveling legislation!

EDIT: Cross-posted, while it didn't exist, much of those new taxes don't go into effect for years (up to 2014). I'm not convinced ACA is to blame.

 

[kochman]

Heh, it didn't even exist when the Recession hit. That's some mighty time-traveling legislation!

EDIT: Cross-posted, while it didn't exist, much of those new taxes don't go into effect for years (up to 2014). I'm not convinced ACA is to blame.

The taxes are generally beginning, it's the benefits that don't start until 2014.
Also, business FORECAST into the future when planning...

 

[kochman]

the rest was Republican-style tax cuts and relief. Follow that by the extension of the Bush tax cuts.

So, wait... Tax cuts/relief are Republican owned?
It was Obama and his supermajority congress that enacted that though... hmmm...

Anyhow, it is widely accepted, by just about ALL economists, that you don't raise taxes when the economy is stalling...

 

[mrt144]

The taxes are generally beginning, it's the benefits that don't start until 2014.
Also, business FORECAST into the future when planning...

Obviously that's the problem with CDOs.

 

[Antilogic]

So, wait... Tax cuts/relief are Republican owned?
It was Obama and his supermajority congress that enacted that though... hmmm...

Anyhow, it is widely accepted, by just about ALL economists, that you don't raise taxes when the economy is stalling...

Responding to all your stuff in one post:

If you recall (or search for news stories at the time), Obama foolishly wanted to look "bipartisan" and thus incorporated Republican tax cutting into the stimulus package before any negotiation occurred. Then Snowe & Co. pushed for a little more before they would sign on so he could dangle a few Republican names on the bill and claim to be a consensus builder. Obama should have given up on that pipe dream a long time ago.

To be clear, by "relief" I mean the money sent to the states. Since they have balanced budget amendments, the states had the choice between cutting services and raising taxes. Thus, this is another form of tax relief (it prevented state taxes from increasing).

I am well aware businesses forecast in the future (you don't have to take an insulting tone); I would argue depressed sales are a far more important factor. It doesn't matter if your profits are taxed at 1% or 99% if you aren't selling anything. 1% of zero is equal to 99% of zero.

My problem with the tax cut arguments is more with Republican pushes for spending cuts because we are "broke" from too many tax cuts. That can be discussed elsewhere.

I'll assume you are not interested in actually listing the ACA taxes, benefits, and when they are going into effect. Your "generally beginning" statement glosses over wayyy too much for me to consider it a valid rebuttal.

 

[Cutlass]

Yes, the spector of massive new costs/taxes/etc from the ACA Health Care act hasn't had one little effect on our stalled economy.

Not really. Oh, it's an excuse. But it doesn't actually explain anything. Business just isn't heavily regulated in the US. And that isn't changing in the foreseeable future. And further, there just isn't a reason to think that businesses would invest more if you gave them every damned thing they could think to ask for. After all, that's what Reagan and Bush did, and they didn't get a surge in investment.

I didn't blame the GR on the ACA.
I am putting some blame for the slow recovery on the ACA. I don't think that is a huge stretch.

It really is. ACA is pro business in the long run.

So, wait... Tax cuts/relief are Republican owned?
It was Obama and his supermajority congress that enacted that though... hmmm...

Anyhow, it is widely accepted, by just about ALL economists, that you don't raise taxes when the economy is stalling...

Tax cuts are the Republican solution to everything. And many Democrats believe it too. But while you have a point that raising taxes during the bad part of a recession isn't productive, it is a lot less counter-productive than cutting spending is.

Cutting spending hurts the most.

Cutting taxes helps the least.

The stimulus was far too much designed to cut taxes rather than increase spending. And that's a large part of why the effectiveness of it was limited.

 

[metatron]

Anyhow, it is widely accepted, by just about ALL economists, that you don't raise taxes when the economy is stalling...

Nonsense.

 

[kochman]

If you recall (or search for news stories at the time), Obama foolishly wanted to look "bipartisan" and thus incorporated Republican tax cutting into the stimulus package before any negotiation occurred.

You mean, he wanted a scapegoat. He didn't need one Republican vote, just like how he rammed ACA through.

@Metatron...
Really? Wikipedia?
Come on... This is an established economic principle.
Anyhow, I don't think more tax cuts are the answer right now. That worked for Reagan, sure, when the top tax rate was like 70%... there was room to cut.
The top tax rate now is less than 40%...
Tax cuts aren't the answer.

I happen to believe that spending cuts aren't the answer either... BUT, they need to occur! Raising taxes would be bad.

 

[Cutlass]

In the short run, spending cuts hurt far more than tax increases.

 

[kochman]

In the short run, spending cuts hurt far more than tax increases.

Ummmm... not really. What makes you say that?

I say spending cuts, when you have a huge deficit, are better because...
1) With the amount of waste in the government, there is TONs of room to streamline things (within agencies, cutting pork, redundant programs between two or more agencies {the CBO recently found hundreds of millions of such cuts that could be made}, etc).
2) Lower deficits are good when we have such a large national debt... IF we were to default, the resultant cuts would be WAY larger and much more painful.

Reasonable cuts would have almost no negative impact. A few people might lose potential jobs, meaning, you scale back the work force through attrition rather than laying anyone off... But those people could find work elsewhere. The government doesn't create wealth after all, if functions by taking wealth from the private sector in return for worthwhile programs...

I hardly think the pork spending is worthwile, call me a stickler.

 

[Godwynn]

2) Lower deficits are good when we have such a large national debt... IF we were to default, the resultant cuts would be WAY larger and much more painful.

Why should we cut spending when we can borrow money cheaply? If we have major projects (and we do) now is the time to borrow and build.

 

[Cutlass]

Ummmm... not really. What makes you say that?

I say spending cuts, when you have a huge deficit, are better because...
1) With the amount of waste in the government, there is TONs of room to streamline things (within agencies, cutting pork, redundant programs between two or more agencies {the CBO recently found hundreds of millions of such cuts that could be made}, etc).
2) Lower deficits are good when we have such a large national debt... IF we were to default, the resultant cuts would be WAY larger and much more painful.

Reasonable cuts would have almost no negative impact. A few people might lose potential jobs, meaning, you scale back the work force through attrition rather than laying anyone off... But those people could find work elsewhere. The government doesn't create wealth after all, if functions by taking wealth from the private sector in return for worthwhile programs...

I hardly think the pork spending is worthwile, call me a stickler.

While I agree that there are pretty much always something that can be cut, you aren't looking at it from the point of view of its impact on the economy. As an example, with the state of Connecticut's budget problems the analysis showed that raising taxes, I think the number was $400million, deprived the economy of $400million. But to cut spending $400million deprived the economy of $1.4Billion.

What matters is the effect a policy will have. And tax cuts have a very small effect, while spending cuts have a large effect.

 

[kochman]

Why should we cut spending when we can borrow money cheaply? If we have major projects (and we do) now is the time to borrow and build.

Really?
Because our debt is huge! Our credit rating is about to go down, which is a nasty cycle to get into... because it makes interest on the debt yet higher.

If you have a low interest credit card, do you max it out just because it is low interest? With no plan as to paying it back?

While I agree that there are pretty much always something that can be cut, you aren't looking at it from the point of view of its impact on the economy. As an example, with the state of Connecticut's budget problems the analysis showed that raising taxes, I think the number was $400million, deprived the economy of $400million. But to cut spending $400million deprived the economy of $1.4Billion.

What matters is the effect a policy will have. And tax cuts have a very small effect, while spending cuts have a large effect.

But it is money we don't have.

 

[Thoughtful Thug]

In Ohio, there are recent reports of good state revenue projections. About 1.5 billions starting from July 1st. A bulk of them come from new income tax earning adjustment. Working poor get the shaft as usual.