Friday, March 15, 2013

On Budget Proposals

http://economistsview.typepad.com/economistsview/2013/03/paul-krugman-after-the-flimflam.html

11 comments:

  1. What initially drew me to this article was, admittedly, the fact that it uses the word 'flimflam." After reading it, however, I found that I agreed with basically everything Krugman said. He makes some excellent points the priorities of Congress today when it comes to setting budgets, and he presented his arguments in a way that anyone can easily understand. I appreciated how he cuts through the superfluous information (the fact that there are three proposals currently out there in Congress) and quickly gets to the important bits (that only one is really feasible or worth pursuing).
    It's interesting, but not really surprising, that the proposal that most Americans are familiar with is not the one Krugman believes to be the best. The proposal given by Senate Democrats is probably well known because it takes a strong party line and is likely polarizing, pleasing to liberals while alienating conservatives. However, the Progressive Caucus' proposal has gotten much less airtime. From the short overview Krugman gave, it sounds to me like the steps the caucus is proposing are all rational, logical things to do: spend more now to help the economy recover, and pay down the debt a little later on by raising taxes on the rich and pollution. Krugman presents these ideas in a way that makes sense and really makes the reader believe that the Progressive Caucus' plan is the best one for America.

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  2. I liked the article and I hope Krugman is right about congress moving towards more practical compromises about the budget. It's a good sign that Paul Ryan's proposal is being viewed skeptically not only by fellow policy makers but also by reporters and actual economists. I'm glad that, at least according to Krugman, there are proposals out there founded on "solid macroeconomic analysis" and not an entirely fabricated economic theory like Ryan's "expansionary austerity." It also sounds like the Congressional Progressive Congress has put forth a proposal with the longview in mind, which calls for increased spending now and defecit reduction in the future. This is exactly what we have been saying in class for weeks: although the deficit is a siginificant issue, there are more pressing needs at the moment and cutting budgets/ raising taxes won't end the recession. Investing in technology and education can increase long term aggregate supply, which will eventually boost employment and could make deficit reduction easier in the future.

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  3. I thought this article was very insightful and did well to address the proposed solutions to the current economic situation. I found it amusing that the author calls Paul Ryan a “flimflam man” which seems to perfectly capture Ryan’s lack of quality substance when it comes to economic policy. Moving past Ryan’s ill-advised proposal, the article mentions two more proposals. Unfortunately the article doesn’t say much about the first plan other than that it doesn’t call for enough immediate yet temporary spending increases. The article goes into much more detail, however, about the proposal from the Congressional Progressive Causus which calls for an increase in government spending followed by deficit reduction later mainly through higher taxes. This proposal appears to be the best option since it correctly places emphasis on unemployment over the deficit in the short run. By first working to lower unemployment through government investment spending, the government will hopefully be able to kick-start the economy and GDP production while increasing the long run aggregate supply line at the same time. Then, once the economy is finally in a healthy state, the government can shift back its focus to lowering the deficit.

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  4. While I am rarely a fan of progressive movements and groups, the budget plan from the CPC holds firmly to the principles of modern macroeconomics and is easily the best of the three budget plans. As per usual Krugman gets in a nice personal jab. I am not sure what he is referring to in the third to last paragraph about "courage," but his conclusion that the progressive movement in Washington is "finding it's voice" is very interesting. While progressives might have a better understanding of macroeconomic policy than other movements, it is alarming that progressivism is again increasing in notoriety.

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  5. Like Krugman and the other comments, I am glad to see serious budget proposals based on sound economic analysis in Washington. I am very interested in what this article reveals about our political system. Krugman shows that in our political system, we should not expect a “grand bargain anytime soon,” but rather our goal should be a movement in the right direction. The three budget proposals this past week show a movement in the right direction. The 1st proposal is Paul Ryan’s and, “rests on expansionary austerity economics.” This proposal was not well received in Washington and has received much derision. Next, the democrats put forth a proposal considerably better than Ryan’s, but still too cautious. Lastly, the Congressional Progressive Caucus put forth a proposal calling for substantial spending in the short term and major deficit reduction in the long term. This policy rests on solid macroeconomic analysis, but is too audacious to ever pass. Despite this last proposal being unable to pass, this past week must be considered a move in the right direction and therefore a success. Washington has recognized the flaws in Ryan’s policy and has been exposed to policy based on sound economic analysis.

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  6. The thing that struck me most about this article was something that William touched on and something we did discuss in class. And that is the fact that so many people in Washington are framing the state of our economy incorrectly. We really need to focus on the long run and Krugman points out that this solution is not talked about nearly enough. Simply looking at short run problems and short run fixes can only lead to more issues. Maybe a long run solution might be bad for some Americans at first but I would argue that it is worth it if we can eventually get back on our feet and return America to where it once was.

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  7. While I do applaud Krugman for his certainty, I do think he should give Ryan's ideas a bit more consideration. Though Ryan's plans may be a bit too austere, some form of austerity might be necessary in today's economic conditions. Deficits need to be reduced, and attempting to reduce them in the short term is a lot safer than allowing them to grow. My problem's with the CPC proposal is mostly in its wording. The first goal is "promoting job creation and economic recovery". The author writes as though this isn't the goal of every single economic policy ever put into place? Though this plan may be our best option for the time, I do not believe it is as sound as it appears. It's main goals are obviously everything we could ever want for our economy, but impossible to all have at the same time. It is unlikely that there can ever be a "Grand Bargain" in a Congress with no collective action, but I personally do not think either plan is realistic enough to be put in place.

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  8. Krugman’s incessant attacks on Ryan preclude any criticism of the progressive’s ‘Back to Work’ budget, as a brief read through of the budget’s major points elicits some uncertainty. The substantiality of the proposed increase in government spending is worrisome in terms of the potential for crowding out of the private sector to occur. This concern for the private sector is only amplified by the budget’s* proposal to tax corporations more heavily as a means of deficit reduction following the surge in government spending. Such taxation is arguably contradictory to the budget’s ‘Back to Work’ title as it would increase the financial strain on corporations, inhibiting the creation of new jobs. In addition to corporations, pollution is another target of the higher taxes proposed by the progressives. While taxing pollution would help eliminate the negative externalities that it maintains, corporations end up taking another hit as they are the primary sources of pollution. This is not to say that the ‘Back to Work’ budget is incapable of producing the “significant, positive impacts” it boasts. Rather, it is to shed light on seemingly confounding aspects of the budget proposal that failed to be acknowledged in Krugman’s post.

    *budget = the Congressional Progressive Caucus’s ‘Back to Work’ budget

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  9. I think it's a good sign that Krugman believs people are finally recognizing Ryan's plan as skeptical and unrealistic. As we talked about in class, it is important to pay attention to present conditions of the economy when talking about a model and Ryan clearly does not do this. It is very encouraging that Krugman thinks there are policy proposals out there that are actually founded on "solid macroeconomic analysis" and that pay attention to the needs of our economy by applying a theory that is not just made up such as Ryan's "expansionary austerity". It seems to me that Krugman is recognizing that we really need to focus on the long run and that getting wrapped up too much on short run solutions is not going to help improve our economy. The Congressional Progressive Caucus seems to put forth a long term plan that recognizes now is a great time to spend and that we can address the deficit in the future. As we have discussed in class, cutting the deficit should not be a main concern because this will not take us out of a recession.

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  10. We've talked repeatedly in class and on the blog about how cutting the deficit should not be the most pressing concern in the current recession. What I found most encouraging about the plan Krugman endorses is that, unlike many of the other articles we've read which push addressing the deficit into a vague future, it plans specific taxes in a specific time frame. These include taxes on pollution, which as we discussed last class would address the negative externality pollution causes. It seems one of the most solid plans we've read about, though knowing Washington politics I would still be skeptical about whether or not these taxes would actually be enacted in the next decade.

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  11. Although I thought Krugman was overly critical and slightly ignorant of Ryan's budget proposal, I agree with his long run view of the budget and the economy. Ryan is focused heavily on reducing the deficit by reducing government spending and raising taxes on the poor. However, Krugman does not think that now is the time to be practicing contractionary fiscal policy. Rather, Krugman thinks we must increase government spending and increase taxes on the rich in order to better stimulate the economy. He thinks we will pay back the debt at a more stable time. While I do agree that times of recession are not the times to be drastically decreasing government spending, I do not agree with the raise in taxes for the rich. The highest tax bracket is already at 39.6%. It seems absurd to be asking people to give over 40% of their earnings to the government. Rather, the government should borrow more because with interest rates so low, the long run benefits will outweigh the costs.

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