Tag Archives: Depression

News

Harvard economist explains why spending cuts are better than tax increases

Leave a comment

From Investors Business Daily, an editorial by Dr. Alberto Alesina of Harvard University, that explains which approach to reducing debt and deficits works best. Is it cutting spending and reducing regulation? Or is it continuing to borrow and spend, and raising taxes?

Let’s see what Dr. Alesina says:

The evidence speaks loud and clear: When governments reduce deficits by raising taxes, they are indeed likely to witness deep, prolonged recessions. But when governments attack deficits by cutting spending, the results are very different.

In 2011, the International Monetary Fund identified episodes from 1980 to 2005 in which 17 developed countries had aggressively reduced deficits. The IMF classified each episode as either “expenditure-based” or “tax-based,” depending on whether the government had mainly cut spending or hiked taxes.

When Carlo Favero, Francesco Giavazzi and I studied the results, it turned out that the two kinds of deficit reduction had starkly different effects: cutting spending resulted in very small, short-lived — if any — recessions, and raising taxes resulted in prolonged recessions.

[…]The obvious economic challenge to our contention is: What keeps an economy from slumping when government spending, a major component of aggregate demand, goes down? That is, if the economy doesn’t enter recession, some other component of aggregate demand must necessarily be rising to make up for the reduced government spending — and what is it? The answer: private investment.

Our research found that private-sector capital accumulation rose after the spending-cut deficit reductions, with firms investing more in productive activities — for example, buying machinery and opening new plants. After the tax-hike deficit reductions, capital accumulation dropped.

The reason may involve business confidence, which, we found, plummeted during the tax-based adjustments and rose (or at least didn’t fall) during the expenditure-based ones. When governments cut spending, they may signal that tax rates won’t have to rise in the future, thus spurring investors (and possibly consumers) to be more active.

Our findings on business confidence are consistent with the broader argument that American firms, though profitable, aren’t investing or hiring as much as they might right now because they’re uncertain about future fiscal policy, taxation and regulation.

But there’s a second reason that private investment rises when governments cut spending: the cuts are often just part of a larger reform package that includes other pro-growth measures.

In another study, Silvia Ardagna and I showed that the deficit reductions that successfully lower debt-to-GDP ratios without sparking recessions are those that combine spending reductions with such measures as deregulation, the liberalization of labor markets (including, in some cases, explicit agreement with unions for more moderate wages) and tax reforms that increase labor participation.

Let’s be clear: This body of evidence doesn’t mean that cutting government spending always leads to economic booms. Rather, it shows that spending cuts are much less costly for the economy than tax hikes and that a carefully designed deficit-reduction plan, based on spending cuts and pro-growth policies, may completely eliminate the output loss that you’d expect from such cuts. Tax-based deficit reduction, by contrast, is always recessionary.

UPDATE: George Mason University economists agree: debt is wrecking the economy and the right way to stop it is with spending cuts, not tax increases. In order to grow the economy we need a balanced approach of spending cuts and tax cuts.

Excerpt:

The United States’ high levels of debt are already contributing to slower economic growth and decreased competitiveness. These impacts will worsen if the nation’s debt-to-GDP levels continue to rise, as is currently projected.

[…]High levels of government debt undermine U.S. competitiveness in several ways, including crowding out private investment, raising costs to private businesses, and contributing to both real and perceived macroeconomic instability.

[…]Carmen Reinhart and Kenneth Rogoff examine historical data from 40 countries over 200 years and find that when a nation’s gross national debt exceeds 90% of GDP, real growth was cut by one percent in mild cases and by half in the most extreme cases. This result was found in both developing and advanced economies.

Similarly, a Bank for International Settlements study finds that when government debt in OECD countries exceeds about 85% of GDP, economic growth slows.

[…]While fundamental tax reform is required to correct a host of structural inefficiencies, policymakers can quickly reduce the U.S. statutory rate of 35% to the OECD average rate of 26% or less.

That’s what research tells us. But that’s not what we are doing, because we voted for Barack Obama.

News

U.S. birth rate hits all time low, 41% of babies born to unmarried women

2 Comments

CNS News reports on a very disturbing story. (H/T ECM)

Excerpt:

The birth rate in the United States hit an all-time low in 2011, according to a report released this month by the federal Centers for Disease Control and Prevention.

“The 2011 preliminary number of U.S. births was 3,953,593, 1 percent less (or 45,793 fewer) births than in 2010; the general fertility rate (63.3 per 1,000 women age 15-44 years) declined to the lowest rate ever reported for the United States,” said the report.

More than 40 percent of all babies born in the country last year, the report said, were born to unmarried women.

[…]Although the percentage of babies born to unmarried women was highest among teens, the percentage of babies delivered by unmarried women of older ages increased from 2010 to 2011.

This is disturbing for many reasons, but one of those reasons is surely that Social Security will go bankrupt faster if there are not enough replacement workers paying into the system. People like me who are paying for Social Security today will never get back what we paid into it. There just aren’t enough people being born to pay out those benefits. I don’t think that fatherless children will do as well at earning income, either, which is just going to make the system go bankrupt faster.

Part of the problem, I think, is that when the economy goes south, fewer men will marry and take on the burden of having and raising children. In order to enter into the roles of husband and father, a man has to be earning a decent income and keeping what he earns. When the deficits are over a trillion dollars a year, and the job market stinks, men look at the responsibilities of marriage and parenting and they say no. This is another reason why women should not be voting for Obama.

News

New study: more Americans dying from suicide than from car crashes

3 Comments

From the UK Daily Mail.

Excerpt:

Suicide is the cause of more deaths than car crashes, according to an alarming new study.

The number of people who commit suicide in the U.S. has drastically increased while deaths from car accidents have dropped, making suicide the leading cause of injury death.

Suicides via falls or poisoning have risen significantly and experts fear that there could be many more unaccounted for, particularly in cases of overdose.

The results were compiled using National Center for Health Statistics data gathered from 2000 to 2009.

Researchers noted a 25 per cent decrease in fatal car accidents, medicalxpress.com reported, while deaths from falls rose 71 per cent, poisoning 128 per cent and from suicide 15 per cent.

[…]Previous research has suggested that suicide rates go up during recessions and times of economic crisis.’Economic problems can impact how people feel about themselves and their futures as well as their relationships with family and friends,’ Feijun Luo of CDC’s Division of Violence Prevention told Bloomberg.

‘Prevention strategies can focus on individuals, families, neighborhoods or entire communities to reduce risk factors.’

Suicide is now the most frequent cause of injury deaths, followed by car crashes, poisoning, falls and murder.

The study also looked at gender and race, concluding that fewer women died from the four main causes than men.

Men especially are the hardest hit, because in a recession, they have a lot of anxiety about their provider role.

NBC News explains:

Middle-aged men from disadvantaged backgrounds are 10 times more likely to commit suicide, often because they have lost a sense of identity and masculine pride, researchers said on Thursday.

In a report commissioned by the British helpline charity the Samaritans, health experts explored why men in their 30s, 40s and 50s are at such a substantially higher risk of ending their own lives.

The findings suggest suicide is not simply a mental health problem, the researchers said, but also one of men’s place in societies and of societies’ inability to adapt to men’s needs when trying to deal with depression, anxiety and other problems.

[…]”The changing nature of the labour market over the last 60 years has affected working class men,” it said. “With the decline of traditional male industries, they have lost not only their jobs but also a source of masculine pride and identity.”

The World Health Organisation estimates that every year, almost a million people commit suicide – a rate of 16 per 100,000, or one every 40 seconds. It also estimates that for every suicide, there are up to 20 attempted ones.

Men are more likely to commit suicide than women in almost every country in the world, and the WHO says the main risk factors are mental illness – primarily depression – and alcohol abuse, as well as violence, loss, abuse and pressures from cultural and social backgrounds.

The Samaritans study found that in Britain on average about 3,000 middle-aged men from disadvantaged backgrounds kill themselves each year.

I can’t speak for everyone, but it seems obvious to me that a lot of people, especially young people who have college debt and can’t find jobs, need to be asking themselves an important question: are you better off now than you were four years ago?