**Fiscal Discipline da 2


Growth Solves Debt Crisis



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Growth Solves Debt Crisis

The debt doesn't have to be paid- only has to grow significantly less than the economy


Krugman, Nobel Prize Economics and Professor of Economics and Int. Affairs Princeton, 12

[Paul, End This Depression Now, 2012,]AHL


Suppose that the bond vigilantes aren’t set to make an appearance and cause a crisis. Even so, shouldn’t we be concerned about the burden of debt we’re leaving for the future? The answer is a definite “Yes, but.” Yes, debt we run up now, as we try to cope with the aftermath of a financial crisis, will place a burden on the future. But the burden is a lot smaller than the heated rhetoric of deficit hawks suggests. The key thing to bear in mind is that the $5 trillion or so in debt America has run up since the crisis began, and the trillions more we’ll surely run up before this economic siege is over, won’t have to be paid off quickly, or indeed at all. In fact, it won’t be a tragedy if the debt actually continues to grow, as long as it grows more slowly than the sum of inflation and economic growth. To illustrate this point, consider what happened to the $241 billion in debt the U.S. government owed at the end of World War II. That doesn’t sound like much by modern standards, but a dollar was worth a lot more back then and the economy was a lot smaller, so this amounted to about 120 percent of GDP (compared with a combined federal, state, and local debt of 93.5 percent of GDP at the end of 2010). How was that debt paid off? The answer is that it wasn’t. Instead, the federal government ran roughly balanced budgets over the years that followed. In 1962 the debt was about the same as it had been in 1946. But the ratio of debt to GDP had fallen 60 percent thanks to a combination of mild inflation and substantial economic growth. And the debt-to-GDP ratio kept falling through the 1960s and 1970s even though the U.S. government generally ran modest deficits in that era. It was only when the deficit got much bigger under Ronald Reagan that debt finally started growing faster than GDP. Now let’s consider what all this implies for the future burden of the debt we’re building up now. We won’t ever have to pay off the debt; all we’ll have to do is pay enough of the interest on the debt so that the debt grows significantly more slowly than the economy. One way to do this would be to pay enough interest so that the real value of the debt— its value adjusted for inflation—stays constant; this would mean that the ratio of debt to GDP would fall steadily as the economy grows. To do this, we’d have to pay the value of the debt multiplied by the real rate of interest—the interest rate minus inflation. And as it happens, the United States sells “inflation-protected securities” that automatically compensate for inflation; the interest rate on these bonds therefore measures the expected real rate of interest on ordinary bonds. Right now, the real interest rate on ten-year bonds—the usual benchmark for thinking about these things—is actually slightly below zero. OK, that reflects the dire state of the economy, and that rate will rise someday. So maybe we should use the real interest rate that prevailed before the crisis, which was around 2.5 percent. How much burden would the $5 trillion in additional debt we’ve added since the crisis began impose if the government had to pay that much in interest? The answer is $125 billion a year. That may sound like a big number, but in a $15 trillion economy, it’s well under 1 percent of national income. The point is not that debt doesn’t impose any burden at all but that even shock-and-awe debt numbers aren’t nearly as big a deal as often claimed. And once you realize that, you also realize just how wrongheaded the pivot from jobs to deficits really was.


Econ-Unemployment Kills-VTL



Unemployment kills value to life

Kervick, PhD in Philosophy from Univ. of Mass, 12

[Dan, “Doing what needs to be done: Facing the Future with Full Employment and a Renewed Public Sector,” New Economic Perspectives, Feb. 2, 2012,http://neweconomicperspectives.org/2012/02/02, accessed 7-2-12]bg


Let’s be clear about one thing: Unemployment on the scale we are seeing right now, both in the United States and around the world, is a moral catastrophe. The human costs of unemployment have been well documented by Bill Mitchell and his colleagues at CofFEE, the Center of Full Employment and Equity at the University of Newcastle in Australia. The unemployed often experience feelings of worthlessness and incompetence, and suffer higher rates of depression and suicide. They can lose their sense of connection and engagement with the broader society, and their alienation can become self-perpetuating. Their marketable skills atrophy and are lost as the economy moves forward without them. Marriages and family relationships are strained by unemployment, sometimes to the breaking point. Some of the persistently unemployed will turn to crime, and to other forms of self-destructive and anti-social activity. And in any society that values and promotes hard work, unemployment is simply humiliating, consigning the unemployed person to the lower caste status occupied by the jobless and the needy. In a word, unemployment sucks.

The problem of unemployment for the jobless individual is thus not solely due to a loss of income, although the loss of income is certainly at the root of many of the problems. In every thriving society, a tacit bond exists among the members of the society, a bond that is based on norms of reciprocity and mutual obligation. Each person receives substantial benefits by virtue of their membership in the society, and in return they are made to understand from an early age that they are expected to contribute their fair share of the work burden that is required for the society to prosper. Most people grasp and internalize these norms, and earnestly seek an opportunity to earn their way in the society and prove their value to their fellow citizens through their work. People want to be full and equal adult participants in their societies, not dependents on the charity of others. So when we deprive people of the opportunity to participate in the work force, and to put their best talents and skills to work for the good of themselves, their families and their societies, we rob them of an opportunity to manifest their dignity to others, and we steal their self-respect in the process.

But unemployment is not just a personal problem for the unemployed individual; it is also an economic problem for the larger society. When there is significant work to be done, mass unemployment represents a tremendous opportunity cost. It means that the society is failing to invest all they should in their current prosperity, and in the world they are going to leave to their descendants. We should therefore regard full employment as both a moral and economic imperative.


Unemployment ruins lives in multiple ways


Krugman, Nobel Prize Economics and Professor of Economics and Int. Affairs Princeton, 12

[Paul, End This Depression Now, 2012, p. 8-10 ]AHL


Well, the U.S. Bureau of Labor Statistics tries to capture these unfortunates in a broader measure of unemployment, known as U6; it says that by this broader measure who had lost a job. Moreover, almost 40 percent of families had suffered from reduced hours, wages, or benefits. The pain, then, is very widespread. But that’s not the whole story: for millions, the damage from the bad economy runs very deep. Ruined Lives. There is always some unemployment in a complex, dynamic economy like that of modern America. Every day some businesses fail, taking jobs with them, while others grow and need more staff; workers quit or are fired for idiosyncratic reasons, and their former employers take on replacements. In 2007, when the job market was pretty good, more than 20 million workers quit or were fired, while an even larger number were hired. All this churning means that some unemployment remains even when times are good, because it often takes time before would-be workers find or accept new jobs. As we saw, there were almost seven million unemployed workers in the fall of 2007 despite a fairly prosperous economy. There were millions of unemployed Americans even at the height of the 1990s boom, when the joke was that anyone who could pass the “mirror test”— that is, anyone whose breath would fog a mirror, indicating that they were actually alive— could find work. In times of prosperity, however, unemployment is mostly a brief experience. In good times there is a rough match between the number of people seeking work and the number of job openings, and as a result most of the unemployed find work fairly quickly. Of those seven million unemployed Americans before the crisis, fewer than one in five had been out of work as much as six months, fewer than one in ten had been out of work for a year or more. That situation has changed completely since the crisis. There are now four job seekers for every job opening, which means that workers who lose one job find it very hard to get another. Six million Americans, almost five times as many as in 2007, have been out of work for six months or more; four million have been out of work for more than a year, up from just 700,000 before the crisis. This is something almost completely new in American experience— I say almost completely, because long-term unemployment was obviously rife during the Great Depression. But there’s been nothing like this since. Not since the 1930s have so many Americans found themselves seemingly trapped in a permanent state of joblessness. Long-term unemployment is deeply demoralizing for workers anywhere. In America, where the social safety net is weaker than in any other advanced country, it can easily become a nightmare. Losing your job often means losing your health insurance. Unemployment benefits, which typically make up only about a third of lost income anyway, run out— over the course of 2010– 11 there was a slight fall in the official unemployment rate, but the number of Americans who were unemployed yet receiving no benefits doubled. And as unemployment drags on, household finances fall apart— family savings are depleted, bills can’t be paid, homes are lost. Nor is that all. The causes of long-term unemployment clearly lie with macroeconomic events and policy failures that are beyond any individual’s control, yet that does not save the victims from bearing a stigma. Does being unemployed for a long time really erode work skills, and make you a poor hire? Does the fact that you were one of the long-term unemployed indicate that you were a loser in the first place? Maybe not, but many employers think it does, and for the worker that may be all that matters.

Jobs key to happiness and well-being; involuntary unemployment an inherent issue


Krugman, Nobel Prize Economics and Professor of Economics and Int. Affairs Princeton, 12

[Paul, End This Depression Now, 2012, p. 5-8 ]AHL


Economists, the old line goes, know the price of everything and the value of nothing. And you know what? There’s a lot of truth to that accusation: since economists mainly study the circulation of money and the production and consumption of stuff, they have an inherent bias toward assuming that money and stuff are what matter. Still, there is a field of economic research that focuses on how self-reported measures of well-being, such as happiness or “life satisfaction,” are related to other aspects of life. Yes, it’s known as “happiness research”— Ben Bernanke even gave a speech about it in 2010, titled “The Economics of Happiness.” And this research tells us something very important about the mess we’re in. Sure enough, happiness research tells us that money isn’t all that important once you get to the point of being able to afford the necessities of life. The payoff to being richer isn’t literally zero— citizens of rich countries are, on average, somewhat more satisfied with their lives than citizens of less well-off nations. Also, being richer or poorer than the people you compare yourself with is a fairly big deal, which is why extreme inequality can have such a corrosive effect on society. But when all is said and done, money is less important than crude materialists— and many economists— would like to believe. That’s not to say, however, that economic affairs are unimportant in the true scale of things. For there’s one economics-driven thing that matters enormously to human well-being: having a job. People who want to work but can’t find work suffer greatly, not just from the loss of income but from a diminished sense of self-worth. And that’s a major reason why mass unemployment— which has now been going on in America for four years— is such a tragedy. How severe is the problem of unemployment? That question calls for a bit of discussion. Clearly, what we’re interested in is involuntary unemployment. People who aren’t working because they have chosen not to work, or at least not to work in the market economy— retirees who are glad to be retired, or those who have decided to be full-time housewives or househusbands— don’t count. Neither do the disabled, whose inability to work is unfortunate, but not driven by economic issues. Now, there have always been people claiming that there’s no such thing as involuntary unemployment, that anyone can find a job if he or she is really willing to work and isn’t too finicky about wages or working conditions. There’s Sharron Angle, the Republican candidate for the Senate, who declared in 2010 that the unemployed were “spoiled,” choosing to live off unemployment benefits instead of taking jobs. There are the people at the Chicago Board of Trade who, in October 2011, mocked anti-inequality demonstrators by showering them with copies of McDonald’s job application forms. And there are economists like the University of Chicago’s Casey Mulligan, who has written multiple articles for the New York Times website insisting that the sharp drop in employment after the 2008 financial crisis reflected not a lack of employment opportunities but diminished willingness to work. The classic answer to such people comes from a passage near the beginning of the novel The Treasure of the Sierra Madre (best known for the 1948 film adaptation starring Humphrey Bogart and Walter Huston): “Anyone who is willing to work and is serious about it will certainly find a job. Only you must not go to the man who tells you this, for he has no job to offer and doesn’t know anyone who knows of a vacancy. This is exactly the reason why he gives you such generous advice, out of brotherly love, and to demonstrate how little he knows the world.” Quite. Also, about those McDonald’s applications: in April 2011, as it happens, McDonald’s did announce 50,000 new job openings. Roughly a million people applied. If you have any familiarity with the world, in short, you know that involuntary unemployment is very real. And it’s currently a very big deal. How bad is the problem of involuntary unemployment, and how much worse has it become? The U.S. unemployment measure you usually hear quoted in the news is based on a survey in which adults are asked whether they are either working or actively seeking work. Those who are seeking work but don’t have jobs are considered unemployed. In December 2011 that amounted to more than 13 million Americans, up from 6.8 million in 2007. If you think about it, however, this standard definition of unemployment misses a lot of distress. What about people who want to work, but aren’t actively searching either because there are no jobs to be had, or because they’ve grown discouraged by fruitless searching? What about those who want full-time work, but have only been able to find part-time jobs?




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