Portugal’s government has just fallen in a dispute over austerity proposals. Irish bond yields have topped 10 percent for the first time. And the British government has just marked its economic forecast down and its deficit forecast up.
What do these events have in common? They’re all evidence that slashing spending in the face of high unemployment is a mistake. Austerity advocates predicted that spending cuts would bring quick dividends in the form of rising confidence, and that there would be few, if any, adverse effects on growth and jobs; but they were wrong.Unbelievable. Simply unbelievable. Krugman ignores the possibility that massive and unsustainable spending caused Europe's problems to begin with. Instead of letting the party go on forever, many governments are opting for austerity measures to try and save themselves from default (which would actually be my preferred option) and Krugman disagrees with this? Well of course cutting spending to a system reliant on the large accumulation of government debt is going to cause problems, it doesn't take a Nobel Prize winner in economics to figure that out. Sunflowers aren't gonna instantly spring from the ground as confidence skyrockets once spending is cut significantly. It took Europe many years to dig itself into this hole, its going to take longer to get out. The correct, and fast, solution would be outright default. The pain would be great but brief and no country would have to go through the humiliation of taking orders from the ECB and IMF. Every time I think Krugman has sunk to a new low in idiocy, he surprises me again.
Since I am on the topic of Europe, Standards and Poor's downgraded Portugal two notches to BBB status today while Bloomberg estimates it may need $99 billion to be bailed out. $99 billion looks like nothing compared to what Spain may need. The Wall Street Journal reports:
The cost of saving Spain, a €1.1 trillion ($1.56 trillion) economy, would dwarf previous bailouts and could test the financial strength of Europe as a whole.I guess spending cuts caused this according to Krugman.
But if Spain can continue to repair investors' trust, as in recent weeks, then Europe stands a chance of containing the debt crisis to three countries, Greece, Ireland and Portugal, whose combined economies are half the size of Spain's.
First Portugal, and now Canada:
(AP) – Canadian opposition parties toppled Prime Minister Stephen Harper's government in a no-confidence vote today, triggering the country's fourth election in seven years. The opposition parties held the Conservative government in contempt of Parliament in a 156-145 vote for failing to disclose the full financial details of his crime legislation, corporate tax cuts, and plans to purchase stealth fighter jets.A combination of Japan, MENA, Europe, and now Canada. Escalating inflation is only going to make things worse. Even when Fed criticism is starting to go more mainstream, Fed economists are starting to question the status quo:
From Dow Jones: "An inflation-only mandate would be more appropriate for the U.S. Federal Reserve than its current dual goal of managing price stability and facilitating job creation, U.S. Federal Reserve Bank of Dallas President Richard Fisher said Friday. "I do believe that the full employment mandate puts us on a slippery political slope," Fisher said in a panel discussion in Brussels. "Personally, I would prefer to have a single mandate."The New York Times has a great article on General Electric's favorable position within the federal government:
The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.
Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.
G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.
President Obama has said he is considering an overhaul of the corporate tax system, with an eye to lowering the top rate, ending some tax subsidies and loopholes and generating the same amount of revenue. He has designated G.E.’s chief executive, Jeffrey R. Immelt, as his liaison to the business community and as the chairman of the President’s Council on Jobs and Competitiveness, and it is expected to discuss corporate taxes.And the revolving door continues. Timothy Carney lays it out pretty well in the Washington Examiner today:
Except for maybe Google, no company has been closer and more in synch with the Obama administration than General Electric.First, there’s the policy overlap: Obama wants cap-and-trade, GE wants cap-and-trade. Obama subsidizes embryonic stem-cell research, GE launches an embryonic stem-cell business. Obama calls for rail subsidies, GE hires Linda Daschle as a rail lobbyist. Obama gives a speeech, GE employee Chris Matthews feels a thrill up his leg. I could go on.Then there’s the personal connections: CEO Jeff Immelt sits on the President’s Economic Recovery Advisory board and was asked by Obama’s Export-Import Bank to the opening act for the President at the most recent Ex-Im conference.
Since clueless politicians never seem to get the fact the over burdensome taxes drive people away, Mark Perry has a great graph illustrating that Detroit's population has reached a low not seen in 80 years:
I will end with one more example of a stupid politician. I present to you, Harry Reid on the importance of federal government monetary support for cowboy poetry: