My fiscal cliff warning to Congress

If Steve is right, and I think he is, as does Richard Koo, we will likely have a US recession which will flow to many other countries (My fiscal cliff warning to Congress, December 10).
The question is whether a recession is a lesser evil than further increases in public debt. Bill Mitchell would argue no for the US as a sovereign currency issuer.
For those who argue yes, the next question is who should bear the pain? The presently poor and unemployed, those who will likely become so if a recession occurs and those who will lose their houses or should it be some some other sector of society?
Can the cost be spread over all employees by measures such as temporarily shortening the work week or work year?
If US annual leave was increased from 2 weeks to 5, there could be virtually full employment in the US. The cost to those in work would be partially offset by the lower total taxes at marginal rates.
The cost to government of lost income taxes would be largely offset by the reduction in benefit payments.

Hi Steve,
I read a US article recently about the change in activity from private versus public sector. The point is that private activity contributes to tax revenue both State & Federal. When unemployment increases the revenue side is much reduced while Public, Federal incurs the cost of unemployment benefits. Substantially higher public activity is required to replace private activity. US requires more imaginative solutions to their problems than is currently being considered.Complacency is rife in US today. When they wake from the 'debt binge'with a lower standard of living the reaction is not going to be pretty.Some program of public sector investment embracing the private sector is necessary (My fiscal cliff warning to Congress, December 10).

It's very interesting to see the interplay of public and private debt, but in the end it's the taxpayer who pays for both, and as unemployment gets worse there are even less people to pay it, and as the large boomer generation retires there'll be even less again (My fiscal cliff warning to Congress, December 10).
The other enormous problem not considered here is the off balance sheet/unfunded liabilities of superannuation and social security, Medicare, Medicaid,etc.
I hope nobody writes in saying how helpful WWII was in defeating the Great Depression : 40 million people were killed and there was greater deprivation for many years after compared with present day deprivation.
In the end the debt has to be repaid through financial repression by printing huge amounts of dollars [inflation] that will be worth much less than the dollars borrowed.

Alternative title: "How WW11 revived the free market." Scary precedent! (My fiscal cliff warning to Congress, December 10).

Maybe this is a necessary recession. The arguments are all against recession but isn't that the natural business cycle (hat tip Austrian economics). (My fiscal cliff warning to Congress, December 10.)

The problem with macroeconomics, and Keynesian economics in particular, is that it assumes that government spending is always good. For four years, the Obama administration has run annual budget deficits of about $1.27 trillion on average, representing about 9 percent of GDP. (The Eurozone policy limit is 3 percent.) What has an average annual deficit of 9 percent of GDP done for the US economy? Growth rates were less than one third of those deficits (My fiscal cliff warning to Congress, December 10).
The fiscal cliff negotiations are about reducing the US budget deficit by around $220 billion per year over the next decade, with Obama wanting no spending cuts and $2.2 trillion tax hikes and the republicans wanting only $800 billion tax hikes and the rest from spending cuts. The talks are hardly significant considering that the current annual interest expense is $223 billion on $16.3 trillion of Federal debt, even at a very low interest rate of less than 1.4 percent.
A recession is the natural way for the economy to shake out failed entrepreneurs, which may include the financial services sector, which created, through regulatory capture, the Great Moderation followed by the Great Recession, which was interrupted by bailouts. The recession needed to continue, according to the principles for captalism. If we do not have small bush fires regularly (sometimes man-made), then the risk increases that the accumulated fuel could cause a much greater disaster later.
The route that US Keynesian economic policy has taken is to continue to feed the parasites, until the host dies. Iceland appears to have better policies on government spending and on economic adjustments.

Noted (My fiscal cliff warning to Congress, December 10).
Do we the people continue to pay them the bureaucracy, more money than we the people can afford?
Are we getting value for money; can we get the same or similar service/s for less money? How long does this continue?
Economics, finance, investment, accounting, etc. business economics, property economics, the economics of Government are all different. But we are all in it together.
I say we cannot afford extravigant Governments here. Or overseas. It takes up too many resources to prop them up; pay them.
To get rid of the debt.

Bravo Steve. This is the most coherent and convincing explanation of the two great crises that I have ever read (My fiscal cliff warning to Congress, December 10).
Unfortunately the even bigger problem, which gets only a brief mention in your presentation, remains unarticulated: how to construct an economic system that does not fall prey to this periodic madness. And then where to find the political will to implement such a system. And how to turn around (or sink) the juggernaut of mainstream economic theory that gives intellectual justification to the mad behaviour.