The current Great Recession started in December 2007, so this was the second Thanksgiving in the worst downturn since the Great Depression. Unemployment is over 10 percent, and predicted to continue at that level well into next year. People who hoped to retire are struggling to rebuild their savings and facing years of additional work. Housing foreclosures remain a serious threat.
So you would think the discussion around the Thanksgiving table, when friends and family gathered, would have been about how to get the economy growing again.
But at least in my admittedly unscientific sample, people’s legitimate anxieties about losing their homes, or jobs, or retirement savings were focused in the wrong place. Instead of calls for continued job creation, I’m hearing a lot of misplaced fear about inflation and the growing federal debt — what Paul Krugman correctly calls the phantom menace.
So, in the spirit of having vigorous family discussions, if your Aunt Teresa the economist had been at your dinner table, here’s what I would have said.
Shouldn’t the Government balance its budget? Sure, over the long term, but no, not now. If the economy was booming, the government should be shrinking the debt. That is what the Clinton Administration did during its eight years in office, cutting it to zero, and actually leaving a surplus. And that is what George W. Bush didn’t do, increasing spending on prescription drugs, wars, and unnecessary tax cuts for the wealthy, while not paying for any of it.
Isn’t inflation a big threat? No. Because the economy is in such bad shape, there is no inflationary pressure. For the first time ever Social Security recipients will not get a cost of living adjustment.
Won’t foreigners stop buying our debt? No, even though big banks are trying to panic you into thinking that. Why? Inflation erodes the value of debt repayment.
Aunt Teresa reminds you that economic policy makers respond to particular historical and economic situations. Inflexible theology does not help. Our situation now calls for continued government deficit spending, keeping interest rates virtually at zero, and doing everything possible to create jobs. When the economy begins to recover, then we should fight inflation.
When an overweight patient with high blood pressure and high cholesterol has a heart attack, there are lots of things that should be done over time to make the patient healthy — better diet, exercise, proper medication. But first you have to save their life and deal with the heart attack. That’s our economy now — we need to save the patient, and then do the long-term rehab (deficit reduction, stricter regulation of the financial sector, stronger government guarantees for retirement savings) to stave off future crises.
I hope you had a Happy Thanksgiving weekend, and that this turkey of an economy is better by next year.
12 Responses to The Second Thanksgiving of the Great Recession
ledzep - November 30, 2009 at 1:59 pm
“Shouldn’t the Government balance its budget? Sure, over the long term, but no, not now.”So something like, say, a new wide-ranging entitlement program that starts in 2013, doesn’t contain costs in that sector, and has a horrible long-term deficit effect should be off the table right now? Right, I thought that’s what you were implying. Sorry, but it’s not just “big banks” and economic illiteracy that are driving the concerns you raise. The big domestic policy debate right now is not about stimulus or job creation – it’s about health insurance reform (duh!). And that fits squarely into the long-term category. And no, in the long term it is decidedly not deficit-neutral.
suomynona - November 30, 2009 at 7:16 pm
Given the uncertainties surrounding the current health reform bill, which, based on what’s going on in the material world now, will likely be horrible if it passes (that is, not effective enough in providing a reasonable alternative to the wholly non-competitive health insurance sector), no one with half a brain can plausibly suggest that whatever reform we get is ‘decidedly’ anything until we know what we’re getting. Likewise the notion that what we will get is likely to be in any way, shape, or form an ‘entitlement program’ is 100 percent pure bullshit. No one in Congress is talking about entitlements right now; what they’re talking about is whether they’ll pass a flaccid bill that looks like health reform but only allows employers to opt into making their employees pay more for their healthcare, or whether, at best, to create a reasonably priced public option for healthcare that filters through the government rather than one’s employer (i.e. NOT a single-payer system, NOT a socialized medicine system, NOT an ‘entitlement program,’ but an alternative way of paying for health insurance that would be paid for by consumers without raising taxes). If anyone is serious about actually cutting the deficit, rather than playing politics over healthcare reform, consider the possibility of freezing tax cuts, pulling out of costly and unprofitable ‘wars,’ not spending massive amounts of money on wild-west-style southern border control, and scrapping the War on Drugs. Let’s prioritize: healthcare versus…all this waste?
rbrunson56 - December 1, 2009 at 5:21 am
Aunt Theresa confirms her status as an academic, with precious little, if any, experience in the real world.
11216800 - December 1, 2009 at 7:25 am
At our Thanksgiving table, Aunt Teresa’s comments would have been met with uncontrollable laughter.
zizzer - December 1, 2009 at 8:16 am
I cannot improve upon what rbrunson56 or 11216800 have said.
kffdn - December 1, 2009 at 12:12 pm
Zizzer is right, commenters 3 and 4 summarized my reaction to this piece of garbage. Aunt Teresa, like all Keynesians, seems to have trouble swallowing the fact that massive government intervention always fails to produce much, if any, economic recovery. And, as she wrongly suggests, inflation is a very real threat. Perhaps she should consult an economist other than Uncle Paul. Krugman, Auntie Teresa, and the like simply can’t bring themselves to admit that even one small piece of this massive expansion was a bad move. Ridiculous!
calfrye - December 1, 2009 at 2:24 pm
Funny thing, these comments. I thought it was the real world that brought us this mess, not the academics. We’ve heard from this ideology, now, and the results are plain to see.
macheath - December 1, 2009 at 3:32 pm
These comments to Ghilarducci’s blog are depressingly predictable, and show why she needs to say these clear, simple things about the economy. Bluntly put, the posters who would have “laughed” at Ghilarducci’s economic analysis don’t know what the f**k they are talking about. They represent a smug, uninformed posture on the economy that could lead us right back into recession.One data point among many. Kffdn says: “Aunt Teresa, like all Keynesians, seems to have trouble swallowing the fact that massive government intervention always fails to produce much, if any, economic recovery.” We will refer Kffdn and his/her friends to today’s Wall Street Journal, quoting the Congressional Budget Office on the impact of the stimulus program:”The Congressional Budget Office late Monday said it estimates that the federal stimulus package sustained between 600,000 and 1.6 million jobs in the third quarter, and raised gross domestic product by 1.2 to 3.2 percentage points higher than it would have been without the program. [...]” Kffdn also assets, with no data whatsover, that inflation is “a very real threat.” Ghilarducci has actual data–Social Security recipients don’t get a COLA for the first time ever because inflation is so low. She might also have mentioned that long-term interest rates are staying down, and that market rates actually went negative for a brief period. Markets–not anyone’s ideology–are telling us there is no inflation threat.It is ok to have alternate points of view and to have reasoned arguments. But these posters attacking Ghilarducci simply smirk and posture, with no facts or analysis. Maybe they ate too much at Thanksgiving, and it cut off the blood flow to their brains.
macheath - December 1, 2009 at 3:48 pm
Another factual problem from those attacking Ghilarducci. Ledzep says:”And no, in the long term it [heath care reform] is decidedly not deficit-neutral.”That’s right, it isn’t. According to the CBO, both the Senate and House bills CUT the deficit rather than being neutral. Ledzep wants us to think that reform will increase the deficit. Again, posturing without facts–just what Ghilarducci warned about in her blog. But arguing with the right along these lines usually gets tiresome, because they start with a barrage of inaccurate statements, or assertions with no facts at all. We gamely try to respond, correcting one factual misstatement after another, to be met not with reasoned discussion, but a whole new barrage of false or unsupported assertions. It is a style polished by Limbaugh, Beck, O’Reilly, and others, and it is depressingly successfuly among certain parts of the electorate.
livefreeordie2 - December 1, 2009 at 4:42 pm
macheath – quick point. Ghilarducci almost always plays with facts and provides either misleading or outright false conclusions. The bit about COLA increases for Social Security recipients is a case in point. The reason there won’t be an increase is because it was given last year. This is how it works:The amount of the increase is based on the average Consumer Price Index (CPI-W) for the third calendar quarter, year over year. Last year, if you recall, the price of gasoline hit over $4 per gallon – dramatically higher than 2007. And the majority of the time it was in “spike” mode, it was also the third quarter. That caused a huge increase in COLA effective on Jan 1, 2009. The cost of gasoline was already on its way down, however, and is still low enough that the average CPI-W was lower in the third quarter of 2009 than it was in 2008. Hence, no COLA increase. Or. . . to look at it another way, Social Security recipients got this year’s increase last year! Not something to complain about!So when she suggests that one can use SS COLA to judge inflationary pressure, it’s a gross inaccuracy. The lack of a COLA increase was due to a bizarre, one-time (we hope) spike in gasoline prices at precisely the right time. It had nothing to do with the current economic situation in the country.
dank48 - December 2, 2009 at 12:39 pm
The virulence of some of these comments is striking. You’d think economics was a science, subject to testing and all that. Nassim Taleb points out in The Black Swan that taking L-dopa for Parkinson’s may cause a person to become less skeptical and to become more gullible, causing one to believe in tea leaves, tarot cards, astrology, palmistry, economics . . .
post_functional - December 3, 2009 at 2:36 am
Economics isn’t a science. For many it’s a religion. The free-market libertarians are the worst kind of fundamentalists. They believe that if we just adopted their beautiful, elegant world-view, systematic selfishness would create utopia. Their belief system is a matter of faith, made stubbornly in the face of overwhelming evidence of the inefficacy of that system.