"Getting Close to the Debt Ceiling is Bad Enough"

Turns Out They Weren't All That Concerned With Academic Support

From Jonathan Chait's, "The Arguments of the Great Recession Are Over. Hooray.":

"Academic support for that position has almost entirely collapsed. I don’t even see many conservative intellectuals defending it in columns. And yet the Republican Party marches on, opposing any effort to lift short-term austerity policies that economists almost all believe are holding back the recovery. It’s as if the head of the austerity monster has been sliced off, but the body lurches forward regardless."

Why should this come as any surprise? We're talking about the party that has set itself forward as opposed to the "reality-based community". What use have they for we who "believe that solutions emerge from ... judicious study of discernible reality" when our reality conflicts with their ideology?

Education Cost and Benefit: Why Ed Loans Should Not Be Seen As a "Distortion" From a Perfect Market

Some see low interest education loans as distorting the market for education and therefore bad, supposedly making the market less perfect, less efficient, less well-tuned.

Why focus on the narrow education loan segment alone as if it weren't entirely and necessarily interconnected with the needs it serves. What about business needs? The larger market ecosystem -- the economics of business and education -- involves a requirement for a supply of educated workers. Limiting the supply to only those who can pay their own way into education impedes business, a practical flaw in the greater job market. How would it be perfecting the greater job market to reduce the supply of educated workers to business when it is already insufficient?

This opposition to "distortion" on a narrow, inextricable segment of the greater system fails to qualify as an objective "good". It's an artificial and aesthetic goal rather than a practical, objective improvement of the greater economic system. The greater economic system for workforce education can relatively objectively be seen as functioning more perfectly when it yields a supply of qualified labor that's sufficient to foster business profits and yet not so excessive as to detract from employee prosperity. The current system falls short in supply of educated workforce.

Seeing loans as a distortion here is rather like seeing the spokes in a gear as a distortion from a perfect circle. Yes, those teeth on a gear distort its form from a perfect circle. But cut the teeth off the gear that drives the propulsion and a machine won't get very far. Education loans serve as teeth for the workforce capability gear. Remove the "distortion" from education loans and the wheels of modern business will slow towards a halt.

Sometimes getting rid of distortion would rob us of what we need most.

The Lesson That Ought To Be Learned

From Mark Thoma's The Great Lesson For The Great Recession for the Fiscal Times,

"Fiscal policymakers in Congress deserve more blame and scorn than they have received for their poor response to the recession. Congress failed to implement a fiscal stabilization package that was large enough to address the big problems the economy was facing, and due to Republican opposition it refused to implement additional measures when it became clear the initial package was too small in both size and duration. Congress could have, for example, followed up by putting people to work on infrastructure projects that would have more than paid for themselves just in terms of their value to society, never mind the additional benefits from helping the unemployed. 

That failure was bad enough. But even worse is that fiscal policymakers actually began moving in the wrong direction – toward austerity – at a time when just the opposite policy was needed. The result has been a much slower recovery than we might have seen otherwise."

Continued

The trend continues. No real surprise, except perhaps that efforts to obstruct any real progress by avoiding jobs bills and by other general deficit hawkery haven't quite managed to interrupt the all-too-gradual recovery ... at least so far.

It's not for lack of trying.

That there's more or less a picture of our current fiscal contraction. The reduction in Real Government Consumption Expenditures and Gross Investment drains the life out of our recovery, making it tepid at best. And if our recovery halts before we make a dent in our output gap, that's the obvious main culprit right there.

Senator Warren On Productivity Growth Returns And The Minimum Wage: It Sure Didn't Go To The Worker

From "Elizabeth Warren: Minimum Wage Would Be $22 An Hour If It Had Kept Up With Productivity":

"'If we started in 1960 and we said that as productivity goes up, that is as workers are producing more, then the minimum wage is going to go up the same. And if that were the case then the minimum wage today would be about $22 an hour,' she said, speaking to Dr. Arindrajit Dube, a University of Massachusetts Amherst professor who has studied the economic impacts of minimum wage. 'So my question is Mr. Dube, with a minimum wage of $7.25 an hour, what happened to the other $14.75? It sure didn't go to the worker.' 

Dube went on to note that if minimum wage incomes had grown over that period at the same pace as it had for the top 1 percent of income earners, the minimum wage would actually be closer to $33 an hour than the current $7.25."

Senator Warren apparently wasn't actually arguing for a $22 / hour minimum wage but rather only something over $10 / hour. Still, it's quite an observation.

Reminders From The 1970s and 1980s: Financial Crises Happen; The Latest Wasn't Unique Or Even Rare; It Was Just A Big One

To hear some talk, one would think our Financial Crisis of 2007-08 was a bizarre event that must have been caused by exceptional circumstances. In size, it may have been somewhat unusual. It came with quite a large market bubble from private institutions going hog-wild for leveraged investments. But we don't even have to go back nearly as far as the Great Depression to find similar -- if smaller -- troubles. The market does this sort of thing quite a bit. Really, we rarely go long without such crises.

Hyman Minsky describes several in "Stabilizing an Unstable Economy", such as:

"The sharp drop in output and the explosive rise in unemployment in the third quarter of 1974 and the first quarter of 1975 were accompanied by the failure of Franklin National Bank, the troubles of the REITs, and a spate of business bankruptcies. It looked as if the economy was on the verge of a great depression; as if the sky were about to fall. But the disaster failed to occur. The combination of a massive government deficit (augmented by a tax rebate) and the lender-of-last-resort interventions contained the recession and reversed the course of the economy. 

... 

Aside from the details of who failed and the nature of the organizations involved, the 1981-82 recession conforms quite remarkably to that of 1974-75. Once again there was a sharp decline in income and output and a dramatic rise in unemployment; once again there was a massive increase in deficits (the extreme Keynesian side of Reaganomics), once again there were both quiet trauma and spectacular declines, and once again there was a spate of lender-of-last-resort interventions by the Federal Reserve. Once again, as the unemployment and bankruptcies situations were getting worse, some six months after a major lender-of-last-resort intervention there was a sharp turnaround in income and employment. Once again the sky did not fall."

The tools of deficit spending and lender-of-last-resort intervention aren't new, radical approaches. They're tried and true; they're traditional methods of kicking the economy back into gear. They've repeatedly shown success.

Unfortunately, our efforts this time were trimmed down by deficit-hawk opposition and not sufficiently scaled to achieve a serious kick start rather than just propping up the sky a bit. And now, with budget cuts, we're on track to the usual means by which recoveries have been sabotaged by fiscal conservatism.