Dan Kervick: US Double-Dip Death Watch Continues

By Dan Kervick, who does research in decision theory and analytic metaphysics. Cross posted from New Economic Perspectives

I thought I would take a break from the latest outburst of debt ceiling mania to call attention once again to the bipartisan plan of budget austerity and recession-tempting economic devastation that will be implemented in March in one form or another, and from which the debt ceiling debate is designed to distract us.

Jay Carney’s press conference today leaves no doubt that the situation is substantially as I described it in my previous post. The White House commitment not to negotiate on the debt ceiling is mainly fluff. Their public position is that the Congress must lift the debt ceiling with a “clean” vote first, before a deal can be struck on the massive spending cuts that will take place automatically in March. Carney implores listeners to believe that the debt ceiling and sequester are “separate” issues, and insists that “this not a negotiation the White House is going to have.” But of course the entire press conference is itself a public gambit in an ongoing negotiation that obviously includes back-channel talks.

As before, the difference between Republicans in Congress and the White House is that the Republicans prefer a cuts-only form of austerity, while the White House prefers an alternative Shared Painer austerity party mix made up of both cuts and tax increases. Both plans, of course, will cause a significant fiscal drag on a stagnant economy that is in no condition to endure such a drag. But the European austerity disease, like an influenza virus slowly but inevitably spreading through the United States after making its way here from abroad, is now so deeply established in the US among the political class and the punditry that any hope of ordinary Americans escaping infection is just about lost.

Both Congress and the White House long ago let Americans know that they have no particularly pressing concerns about the millions of Americans whose forlorn abandonment constitutes the human reality behind the massive 7.8% unemployment rate – a figure that never seems to budge. Lowly working people without jobs don’t count for much in Washington these days. But it is both interesting and mildly surprising to see just how willing both parties in Washington are not just to prolong the new normal of permanent mass joblessness, but also to court a second recession and bring more serious political repercussions down on their heads.

Anyway, Republicans will try to spend the next few months convincing Democrats that they hate taxes so much that they are willing to swallow the 10% in defense cuts that are part of the sequestration. The White House will gamble that the Republicans’ defense industry constituents will come down so hard on GOP members of Congress that they will eventually accept more tax increases. They will split the difference no doubt, and also come up with some compromise on the debt ceiling. Whatever the precise outcome, both parties are as one on the plan to begin sucking large quantities of scarce dollars out of the wobbling economy beginning sometime in March. So get ready for the St. Patrick’s Day massacre.

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26 comments

  1. YankeeFrank

    Oligarchy has such complete control over the political system, media, judiciary, law enforcement/justice department, etc., that we get no real choice when we vote any longer. Hence they ignore the plight of regular Americans because they know there will is little we can do to hurt them anymore. They will go their way and do as they please, and if it hurts us they just don’t care.

    The fact is that Keynesian economic policy would do little good at this juncture as any fiscal stimulus our government squirts out of its dessicated anus is swallowed whole by the plutocracy which then wastes it in speculation that results in commodity and asset price inflation; all of which either hurts most Americans or, at best, does nothing to help.

    A $12/hour federal job guarantee, medicare for all and dropping the social security age to 60, massive fiscal stimulus (say in the realm of $5 to $10 trillion) aimed at education, infrastructure, manufacturing, and renewable energy production, would set this country on a solid footing for the next century. That $10 trillion would seem like nothing as our economy expanded and demand shot through the roof. The rich would still make a killing while the rest of us would finally have the bare minimum we need in order to live with dignity. And yet just writing those proposals makes me laugh as they are so far from likely we might as well imagine a time machine we could use to send a crack medical team back to 1945 to save FDR so he could pass the economic bill of rights.

    Things are so far out of whack that the idea we ever left recession for the 99% is laughable, never mind a “double-dip”: we never climbed out of the first dip, no matter what silly numbers economists come up with.

    Its too bad, but it appears we are going to have to experience a crash bad enough to unseat the current power structure (by bankrupting and discrediting the lot) if we are ever going to see real economic justice and a sound economy again. Short of a meteor crashing into downtown Washington DC annihilating the houses of congress (while in session of course), K Street, the Federal Reserve, Justice Dept., Supreme Court, Treasury Dept., Grover Norquist’s fat squishy body, the White House (with Barry, the wife and kids all “tragically” squashed), oh, and miraculously the U. of Chicago economics department, all of Wall Street, select parts of midtown Manhattan where Barclays, HSBC, Deutsche Bank, Citicorp, etc., various corporate law firms including especially Proskauer Rose, Fox News HQ, hell, why not the Time Warner building, NY Times building, NBC, ABC, CBS, MTV/Viacom, whatever American anus ClearChannel HQ is hiding in, etc. etc. etc… Short of that, well, what are the chances the American people aren’t on the short road to fascist, neo-feudal dystopia?

    1. Mark P.

      ‘Its too bad, but it appears we are going to have to experience a crash bad enough to unseat the current power structure (by bankrupting and discrediting the lot)’

      You’re dreaming. They weren’t bankrupted and discredited in 2008, were they? And the next time, likewise, they’ll just print themselves some more money and loot the rest of us some more on the next leg down.

      1. aikanae

        I think education is in order before there can be any organization. The talk at Commerica Bank is what’s being broadcast to the masses as gospel truth and fact. People are not told about alternatives and it’s hard to get the messaging out against slick corporate campaigns. This was why Occupy was treated as a terrorist movement and Tea Party gatherings (with guns) was welcomed.

    2. jake chase

      We would most likely have a crash this Spring were it not for the fact that nearly all reported numbers are now phony. With fictitious accounting we can expect improved corporate earnings, reduced unemployment, a housing recovery, etc., etc., etc.

      Of course, if a few corporations unaccountably report the truth…..

    3. Ian Ollmann

      How long do you have to wait before it can’t be considered a double dip anymore? Can the 2008 recession be considered a Great Depression double dip? Its been 5 years. Having the business cycle come around again wouldn’t be a surprise at this point, no?

  2. nowhereman

    And when you put all the pieces together, you can begin to understand why they see the need for gun control.

  3. taunger

    I understand that raising taxes can be decrease aggregate demand, and that taxes are not necessary to pay for gov’t expenditures, but were the top marginal rates to continue to increase, wouldn’t that be a good thing rather than austerity? I understand the use of high marginal rates to be one of the best redistributers – although, that would require fiscal stimulus rather than budget cutting. Humph – when will my countrymen get sick of being fooled again?

    1. Dan Kervick

      Redistribution is a very good thing in my book. Increasing top marginal rates could be part of that – but only if you increase spending along with increasing the taxes. If all you do is use the increased revenue to contract the deficit, then the taxes both depress aggregate demand and don’t do any redistributing.

      If the economy were much stronger, I’d say fine. Tax those rich mofos and throw the money in the ocean for all I care. At least there would be a leveling effect, if not a redistributive effect.

      But the kinds of changes that were just enacted are fairly cosmetic, and will make no serious impact on the income structure in America. Grotesque social stratification and inequality will continue as usual. The tax increases are just a kind of bogus reality television version of class warfare carried out to please the Democrats who treat public policy as a kind of meaningless team sport.

      1. Tim

        “Rich Mofos”

        You need to be more specific. Some people are rich, some people are mofos and a subset are rich Mofos.

        That’s not trivial. The more everything is branded as class warefare instead of Fraud warfare by specific wealthy actors, (predominately old money, financial and corporate types) we are losing focus on the ultimate solution.

        Kleptocratic cost shifting is the problem. Raising taxes on the rich is a blunt tool to fix a symptom of the problem not the problem itself. Note this latest tax increase will not impact those I mentioned above at all, it will affect extremely well compensated wage earners, like professional atheletes, entertainers, and doctors.

        1. JTFaraday

          “Raising taxes on the rich is a blunt tool to fix a symptom of the problem not the problem itself.”

          Good point. I find the whole deficit/spending thing a deeply frustrating sideshow and I think people who single mindedly trawl the spending side of the issue, far from being the righteous moralists they portray themselves as being, are fully participant in enabling that corruption.

          It’s like if they throw me a bone, I’m going to forget about it. Good luck with that.

  4. Brooklin Bridge

    At this point, the fake drama is as much for the owner’s entertainment (watch em squirm) as it is to prevent unrest in the masses. If being kept in a perpetual state of semi panic distracts the retards while their skin is being removed, fine, if not, fine; just suck the blood straight out. Appearances are sooo 1980’s. And they have some pretty damned sophisticated crowd control toys now-a-days just begging to be played with. All good either way.

  5. sharonsj

    There are three reasons for the debt: (1) the Bush tax cuts, (2) two unfunded wars, and (3) prohibition on negotiating for better drug prices. We’ve known these reasons since the shrub was in office, so let’s look at whether Congress has fixed any of them.

    1. Congress just made 98% of the Bush tax cuts permanent.
    2. Both wars will continue for at least two more years.
    3. Congress still hasn’t taken the muzzle off of agencies to negotiate for better prices.

    Instead, we get these jokers blaming Social Security, Medicare, and Medicaid for our problems. No wonder their approval rating is lower than a cockroach.

    1. Me

      You missed a big one: the transfer of the Wall Street financial parasties’ debt onto the tax payer. Government debt grew slower than private debt and much slower than the debt of the financial sector in recent decades. That changed when the financial sector’s debt was pushed off (without any say by the people) onto tax payers. A repudiation of that transfer and the massive an upayable private and public debt is in order but that would require that creditors, who own the government, have a pay for the horrible wreck they’ve created. Not going to happen, which is why the financial system is likely to bring down the capitalist system. The pro-capitalist elites, the millionaire journalists and the right wing politicians had a choice, the financial economy or the real economy and they chose finance. Many THINK they’ve choosen a path that rescues the economy, but they haven’t. They’re going to destroy their own system and many don’t seem to realize it. What a wreck of a president Obama is. I didn’t think it would be possible to be as a bad as Bush. Despite the fact that he is much more intelligent, he’s just as bad. Him allowing for the transfer of the finanical junk onto tax payers then pushing for this austerity is horrible and immoral. Rotten bastard. To hell with him and his mindless “progressive” defenders.

    2. Cynthia

      Out-of-control healthcare costs are also contributing enormously our nation’s debt. But Congress has done next to nothing to rein in these costs by putting a much-needed muzzle on the voracious medical-industrial complex.

  6. Cynthia

    Hospitals are having to bear a major part of financing for the “doc fix” (see link below). On top of that, does anyone really believe that Congress and the president will also pass a 2% cut in Medicare spending, most of which will affect hospitals? Perhaps I’m wrong, I think that the hospital lobby is way too powerful to let that happen.

    http://www.seacoastonline.com/articles/20130106-LIFE-301060317

  7. kevinearick

    Servomechanisms: Programmable People

    Miller: The advent of WWII was really the turning point in the automatic control field. This was especially true in the military field where the control of ships, submarines, aircraft, radar systems, etc., greatly accelerated the study, advancement, and practice of servomechanism.

    [C]omparison is performed by a transducer, which is simply a device that converts energy from one form to another. Regardless of the type of variable, if the controlled output is not at its desired value, then the devise used for comparison creates an error signal which is fed to an amplifier, which in turn feeds an error-correcting device, which then drives the system to restore the variable to the desired value.
    ////
    Replace the pertinent words with accounting, law, reward/punishment, etc. The empire has done you the favor of programming itself onto a dc chip set. The majority sets the value system setpoint to stupider, to control its children downstream, and places them on the conveyor belt. Capitalism, socialism, and communism are simply levels of decay, drop in orbit. There are many ways to adjust the system, but, basically, you can adjust efficiency of the delay circuitry for speed, effectiveness of the value system at the setpoint for direction, or starve it into a black hole short.

    Reward and punishment is the lowest form of regulation. Curiosity is one step up, and employing gravity is another. You can set your watch/timer by the behavior of the manufactured majority. The Fed prints on the expectation that the majority will extort sufficient return from the minority, to float, until it can’t.

    When peer pressure extortion fails, the empire rolls out early childhood ‘education’ and enacts laws based upon outlier behavior on the back end, normalizing arbitrary, capricious, and malicious behavior over time. Stupider becomes stupider. In this case, it’s chasing PLC problems into monetization, in a positive feedback loop, returning an out-of-control fixed cost structure. It’s one thing to have your laptop operating system lock up, another to have nuclear meltdown.

    So, they enact laws to prohibit guns in a collapsing economy, and everyone runs out and buys guns. Whether it’s a DreamLiner or a NightmareLiner depends upon your incestual make-work perspective. Agency pays itself to pay itself, with ever-increasing obscurity.

    What is your child’s reference? Is the empire the dependent or independent variable in your life? How do you traverse a black hole?

    1. jsn

      When one proves one’s “credibility” as a candidate for office by one’s efficacy at soliciting bribes, one’s suitability as a candidate, once established, guarantees one’s unsuitability to serve.

      Voters have no say in it at all by the time it matters.

      Voters should get up stream of the issue, but that is the essence of “problem of collective action”: those who benefit from corruption are few and focused, those who suffer many and diffuse.

      http://cobblehillbilly.blogspot.com/2011/03/kochs-are-effects-not-causes.html

  8. AnOnymous

    How do you traverse a black hole?

    Go with the irresistible flow, traverse the fabric of space/time, and hopefully come out on the other side in one piece again. One thing’s for sure, a universal paradigm shift is definitely in order about now.

  9. Jill

    Brooklin Bridge,

    I also think the hype is profitable! These people whip that stock market around everyway they want. If they say one thing, it goes up, they make money. Then, they plant another set of propaganda, it goes down, they make money.

    The just averted fecal cliff made some people a whole lot of ill gotten gain. Now there’s three more “opportunities” created in response to the first crap. HMMMMM….

  10. Ep3

    Yves, I attended a Luncheon sponsored by comerica bank the other day. Mostly talking about their views on the 2013 economy. Their economists predict 1% anemic growth.
    But, what really got me mad was that they blamed everything on the gov’ts debt problems and that entitlements are the reason for the debt. Now, from reading you, I think we can agree that yes, entitlements are a problem. But, as I told the gentlemen that we’re with me, health care costs are the problem that are causing entitlements to have problems. Even if we cancel Medicare, health insurance prices will still rise uncontrollably.

  11. Phraser X

    We can not accept Austerity nor give up hope to avoid it.

    Prepare for it by organizing a massive march, education and sit-in in DC
    before this comes due in March.

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