Look: I am eager to learn stuff I don't know--which requires actively courting and posting smart disagreement.

But as you will understand, I don't like to post things that mischaracterize and are aimed to mislead.

-- Brad Delong

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Monday, December 13, 2010

Quote of the Day - Krugman on the Tax Deal

Krugman usually editorializes in the NY Times on Monday and Friday.  Here is an excerpt from today's entry

The root of our current troubles lies in the debt American families ran up during the Bush-era housing bubble. Twenty years ago, the average American household’s debt was 83 percent of its income; by a decade ago, that had crept up to 92 percent; but by late 2007, debts were 130 percent of income. 

All this borrowing took place both because banks had abandoned any notion of sound lending and because everyone assumed that house prices would never fall. And then the bubble burst.

What we’ve been dealing with ever since is a painful process of “deleveraging”: highly indebted Americans not only can’t spend the way they used to, they’re having to pay down the debts they ran up in the bubble years. This would be fine if someone else were taking up the slack. But what’s actually happening is that some people are spending much less while nobody is spending more — and this translates into a depressed economy and high unemployment.

What the government should be doing in this situation is spending more while the private sector is spending less, supporting employment while those debts are paid down. And this government spending needs to be sustained: we’re not talking about a brief burst of aid; we’re talking about spending that lasts long enough for households to get their debts back under control. The original Obama stimulus wasn’t just too small; it was also much too short-lived, with much of the positive effect already gone. 

 He goes on to note that deleveraging is working - household debt is down to 118% of income. 

H/T to Thoma, who has an overlapping, but more extensive quote, which includes PK's final paragraph, and that is the really crux of this bad deal - it will all have to be played out again in 2012, with the backdrop of an election year.

I continue to become more pessimistic.
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1 comment:

Martha Z said...

I too am becoming more pessimistic.
The common folk have come to believe in Santa Claus, the Tooth Fairy and the free lunch, sold a bill of goods by the right. A recent Newsweek article was very discouraging stating that people have already grown tired of frugality and are back to spending beyond their means. I fear that if the GOP succeeds in dismantling Social Security that people will not save but spend the money and the nation will be left with an elderly, destitute generation. We’ll be gone by then but not our children and grandchildren.