Mitt Romney joins France in rejecting austerity

I would only consider such an approach in a situation were, because of poor fiscal management, the size of the national debt posed a constraint on the ability to use fiscal stimulus.

Unfortunately, because of irresponsible fiscal management of 3 of our 4 administrations prior to Obama, that is excatly the situation we found ourselves in in 2009.

 

I don't know about your definition of an austerity measure, but to me austerity measures are being imposed on everybody by the deficit and debt (which Republicans told us do not matter just a few short years ago). Those austerity measures come in the form of tight credit, high unemployment and stagnant growth. And these we ALL caused by the Republican/Bush-era tax cuts and ill-advised wars.

 

It's quite possible that Mitt Romney will bury himself without the help of the Democratic party. He'd better hope that he has some good damage control people on board.

 

Interesting definition. In reality, austerity is nothing of the sort. Both tax cuts and spending increases are Keynesian expansionary fiscal policies, counterintuitive to spending cuts or tax increases, which are austerity measures.

In addition, the current Republican Party spouts rhetoric in regards to austerity that is quite in-line with the Expansionary Fiscal Contraction (EFC) hypothesis. This concept suggests that significant decrease in government spending and taxes will lead to drastically increased private consumption, and therefore increases in real GDP. Ironically, it is called the "German View".

The International Monetary Fund invalidated such a hypothesis in a recent working paper:

http://www.imf.org/external/pubs/ft/wp/2011/wp11158.pdf

Lastly, contrary to Republican claims, tax cuts are not considered a viable austerity measure.

 

Romney is right, austerity kill the growth!

 

Well he isnt a Communist either....which makes him look wonderful compared to The Kenyan Tyrant. I despise Romney.....but Im going to crawl through glass to vote for him.
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As Ron Paul gains more popularity, and his by-the-cover-of-night sneak attack on the delegate process, I start to get a little worried that this election is not just about keeping Obama in but also now, at any peaceful cost, keeping Ron Paul out.

If Ron Paul was playing a game of hot potato, he'd be the guy that deliberately holds onto it so it blows up in his hands just to prove some kind of antiquated point, but effectively ending the game for everyone(in my analogy, ending the game is NOT a good thing, and equals, the death knell of this country. Don't misinterpret it.)

 

I guess it depends on how you look at it. Higher taxes are an austerity measure (not so much if that 75% would otherwise be spent abroad or on irrationally exhuberant investments), but beginning to pay down the debt is a pro-growth measure.

 

In the long-run, yes, paying down debt is a pro-growth measure. However, it comes at the expense of growth now.

 

And given the cowardice of 99% of today's politicians, coupled with the malice and constant fear tactics of the desperate for ratings media, it is essentially political suicide for any politician, let alone an entire group of politicians (ie, Congress) to give up immediate gains strategies for slow, steady growth over a long period of time. Since Reagan burned the Carter administration to the ground over inflation fears and slow growing economic policies, politicians driven by media and public demands for constant growth and prosperity have hitched their ideologies (on both sides) to whatever can cause immediate and artificial gains in GDP and Wall street growth. They've thrown out common sense practicality and true value in the markets and worked with financial institutions to continually show some sort of upward trend that keeps them in office (ie, the bubbles).

Until the voters stops punishing common sense long term strategies that cause short term pain, no politician or group of politicians is going to sacrifice their jobs and future to take our country where it needs to go. I wish someone had the guts to run on that type of campaign, but it's not possible in the "gimme now" generation.

 

What would be a policy that would cause growth now?

 

Simply put, tax cuts and spending increases, also known as Keynesian expansionary fiscal policy.

 

I don't think slow and steady is exactly what Obama wants, but it seems to be the path we have been on for the past 3 years.

 

Gee I wonder why no one thought to try that yet....

 

Even the conservative WSJ admits austerity isn't the path to go!

http://blogs.wsj.com/economics/2012/05/08/unemployment-rate-without-government-cuts-7-1/

 

Extensions of the Bush Tax Cuts do nothing to spur economic growth. We need actual tax cuts as well as simplification of the tax code. Furthermore, spending increases on government transfers provide small gains in economic growth. This s why the stimulus failed. It did not incorporate enough direct government spending, but mostly tax rebates and transfers increases.

 

Keynesians claim that transfer payments provide the largest multipliers.

I'm curious what sort of stimulus plan you would have put together.

 

The economy was taking at -9% and losing 700,000+ jobs a month before the stimulus. Now it has grown for 10 straight quarters, and created 4+ million jobs since Jan 2010. I would personally not call that a "failure." How much more of an effect would you think a stimulus program that represented approximatley 6% of GDP would have?

 

Transfer payments are similar to that of tax cuts. They have smaller multipliers because they provide money to consumers who have marginal propensities to consume and marginal propensities to save.

Lets say, for example, a $4 billion dollar tax cut is implemented. In this sample economy, the marginal propensity to consume is 0.5. The tax multiplier, which is different from the direct government spending multiplier, is MPC/MPS. In this case, the multiplier is 1. A $4 billion dollar tax cut, therefore, renders a $4 billion dollar increase in real GDP.

However, a $4 billion dollar increase in direct government spending has a multiplier of 1/(1-MPC). The multiplier in this case is 2. This $4 billion dollar increase in direct government spending yields an $8 billion dollar increase in real GDP.

Consequently, my stimulus would have been primarily direct government spending focused on human capital and physical capital development. This would include critical infrastructure development, renewable energy and alternative energy development, a public option based health care system that would incorporate entitlements and make the necessary changes to the awful Affordable Care Act, and increased merit-based scholarships and grant financing for higher education.

I would have also established a three income tax bracket with a maximum rate of 28 percent, and eliminated all income tax expenditures which did not promote consumption and real investment spending. I would have initiated comprehensive corporate tax reform by establishing a United States-based territorial system with a single rate of 26 percent with no tax expenditures.

In regards to transfers, my key goal would be to restructure these programs to make them more direct government spending oriented. I would eliminate Medicare Part D in favor of a Department of Veterans Affairs prescription drug program. Social Security would have a mandatory education, vocational, and paid internship requirement attached to compensation in accordance with a career path of one's choice or in accordance with the infrastructure and energy component of the bill.

 

They key is to create demand for products and service which much be produced. Monetary transfers from wealthy folks, how only spend a fraction of their incomes, to poorer folks, who spend almost all of their income, would result in a net increase in spending, and therefore demand for goods and services. Other transfers would be less effective. Direct Govt expenditure creates demand for goods and services fairly directly.

Tax cuts provide marginal benefit, if the effect goes to the wealthier and the money is not spent. Furthermore, tax cuts require the govt to borrow more money, which also comes from the wealthier. The Govt in effect borrows money from the wealthy to provide lower tax rates that mostly go to the wealthy. You have a transfer from tax revenue to debt with little effect on the economy, except a govt that is much more in debt.

 

That of course depends upon to whom the transfer is made. Transfers to poorer folks or those who are unemployment are likely to be almost completely expended.

That doesn't make sense. If the marginal propensity to consume is .5 (and for the wealthiest who reap most the benefit from an income tax cut, that figure may be far smaller) then 50% of $4 billion is expended, or $2 billion. The $4 trillion tax cut results in a $2 billion increase in real GDP.

A $4 billion dollar increase in direct government spending would result in a $4 billion increase in GDP, who could it be $8 billion?

 

The direct government spending multiplier is 1/(1-MPC). In this case the MPC is 0.5. Therefore:

1/(1-0.5)=1/(0.5)=1/(1/2)=(2/2)/(1/2)=2.

$4 billion*2=$8 billion

In regards to tax cuts, in basic economic analysis, a tax cut acts the same way as a transfer. In this scenario, because the MPC and MPS is 0.5, an increase in transfer payments or tax cuts would yield an equal increase in real GDP to the amount of money allocated to the effort. Your analysis would be correct in regards to how much money would be allocated to just spending or saving.

 

I see the math but I don't understand the concept. Direct Govt expenditure is a component of GDP, but they do not multiple it by 2 or any other factor.

 

I see the math but I don't understand the concept. Direct Govt expenditure is a component of GDP, but they do not multiple it by 2 or any other factor.

 

Who is "they"? The BEA? If so, can you direct me to the methodology contrary to my example? When the autonomous increase in direct government spending is multiplied by the multiplier, one is calculating the end effect of the policy on real GDP. The initial effect is always an equal increase in real GDP by the amount of money allocated to the effort.