Friday, May 21, 2010

A Lost Decade?

Krugman -

What’s behind this new pessimism? It partly reflects the troubles in Europe, which have less to do with government debt than you’ve heard; the real problem is that by creating the euro, Europe’s leaders imposed a single currency on economies that weren’t ready for such a move. But there are also warning signs at home, most recently Wednesday’s report on consumer prices, which showed a key measure of inflation falling below 1 percent, bringing it to a 44-year low.

This isn’t really surprising: you expect inflation to fall in the face of mass unemployment and excess capacity. But it is nonetheless really bad news. Low inflation, or worse yet deflation, tends to perpetuate an economic slump, because it encourages people to hoard cash rather than spend, which keeps the economy depressed, which leads to more deflation. That vicious circle isn’t hypothetical: just ask the Japanese, who entered a deflationary trap in the 1990s and, despite occasional episodes of growth, still can’t get out. And it could happen here.

So what we should really be asking right now isn’t whether we’re about to turn into Greece. We should, instead, be asking what we’re doing to avoid turning Japanese. And the answer is, nothing.
So while the tea baggers continue to complain about the lowest taxes in decades, they're only distracting us from what could be the real problem here: the government hasn't done enough.
I also suspect that Obama administration economists would very much like to see another stimulus plan. But they know that such a plan would have no chance of getting through a Congress that has been spooked by the deficit hawks.

In short, fear of imaginary threats has prevented any effective response to the real danger facing our economy.
Comforting, sign me up for a Gadsden flag.


  1. I think what hurts us most as a nation is that we can not act. In some ways we would have been more prone to act if the original bail out late in the Bush administration would have never took place. I believe if we did not act at that time the entire financial system would have been in ruin, and the country would have been more likely to Unite to fix the problem.

  2. Krugman you befoul TEA party patriots with your cheap vulgarity--shame on you who cloaks himself as an erudite economist! The reason tax rates have declined in the USA Today graph you link is because unemployment has massively increased during the Obama administration to 10%. With massive amounts of unemployed folk paying zero taxes, average rates will decrease.

    Tax rates, however, have NOT decreased. And what really miffs the TEA party crowd is the out of control spending that makes the heart yearn for the years of the mild Bush deficits that at worst were only $400B versus the Obama $1T+ annual deficits into the foreseeable perpetuity.

  3. (trying again this time without as much bad grammar and random words)

    it seems that you should stick to spelling backwards, as you've missed the boat here. but for the record unemployment is up around 1% from where it was when obama took office, the big jump took place in bush's last quarter, and unemployment is taxable after the first $2400.

    also, from the usa today article (there was more there than a graph, the words around the picture can be informative too, you should try them sometime) "Federal, state and local income taxes consumed 9.2% of all personal income in 2009, the lowest rate since 1950, the Bureau of Economic Analysis reports. That rate is far below the historic average of 12% for the last half-century. The overall tax burden hit bottom in December at 8.8.% of income before rising slightly in the first three months of 2010."

    and then there's this "Taxes paid have fallen much faster than income in this recession. Personal income fell 2% last year. Taxes paid dropped 23%. The BEA classifies Social Security taxes as insurance payments and excludes them from the tax calculation."

    so if you could explain to me how taxes paid have fallen faster than income without rates changing that would be nice. of course you said in the first part of your comment that tax rates have declined, so i'm really at a loss as to what you're talking about here. i think what you're trying to say here is that people are paying less in taxes because they're falling in lower tax brackets because they're making less money (it isn't trickling down from the bush tax cuts?), which does explain part of it, but as we saw above income fell more than taxes paid, how could that be? lets turn back to the words, since the picture didn't spell this one out for me. "Why the tax bite has eased:

    • Stimulus law. One-third of last year's $862 billion economic stimulus went for tax cuts. Biggest reduction: The Making Work Pay tax credit reduced income taxes $800 for married couples earning up to $150,000. (note, this is the majority of households).

    • Progressive tax rates. Presidents Clinton and Bush pushed through a series of tax changes — credits, lower rates, higher exemptions — that slashed income taxes for poor and middle-class families. A drop in income now can trigger big tax breaks and sharply lower rates, sometimes falling to zero.

    • Sales tax. Consumers cut spending sharply in this downturn, thereby paying less in sales taxes."

    oh, well that must explain the difference then huh, and look, they even gave credit to a republican too. so here's the deal, start doing a little time looking into things before you start typing, forwards or backwards, and then we can start talking about that spending problem you have, but you may want to start with the definition of foreseeable perpetuity.

    thanks for stopping by though, i look forward to some more aimless ramblings.