David Coates

The Shadows of a Greek Tragedy

Throughout May 2010 the problems of Greek debt – and the danger of a Greek default – threw a dark shadow back over the US debate on the size of our public deficit. Republican lawmakers fighting their internal primary battles found themselves under attack if they had voted for TARP (Senator Robert Bennett lost his Utah primary primarily on this issue); and conservative elements in the ranks of the Democratic Congressional caucuses worried publicly about the danger of a Greek tragedy here.

The initial price of that worry was paid by the long-term unemployed. When the initially $116 billion ‘American Jobs and Closing Loophole Act of 2010’ went through the House immediately before the Memorial Day recess, the extension of health insurance subsidies for the unemployed was cut out in an attempt to lessen the cost of the legislation (the House bill did spend $99.5 billion to extend long-term unemployment benefits to November: the bill’s final cost was $93 billion). The Senate, for its part, failed to pass any equivalent legislation before it left town for a 10 day break, leaving in limbo 5.3 million unemployed workers relying on federal emergency unemployment benefits – at least 22,000 of whom will lose benefits before Congress returns.

Two things at least are odd here.

  • One is that opinion and concerns within Washington about deficit reduction did not replicate equivalent concerns in the country at large. The Pew Research Center poll taken that month found that jobs were the main popular concern. 81 percent of those polled prioritized job creation as the main topic that Congress should address. A Fox News poll found 47 percent of its respondents similarly concerned, and only 15 percent concerned with the deficit.  ‘There is no significant difference across party lines” on this, Pew reported (data and quotes from The Washington Post, May 26, 2010)
  • The other is that the “cost” of TARP is regularly being estimated down. Though it is regularly castigated in right-wing circles as a giant give-away to delinquent bankers And a permanent burden on generations to come, the reality is that within 19 months of voting to spend $700 billion to stabilize the banking system (a) the system is stabilized, at least temporarily, and (b) money keeps coming back to the Treasury. “Pro Publica records that of $566.3 billion that the treasury has dispersed to date on the TARP and the programs to rescue Fannie and Freddie, $216.8 billion has already been returned” and more is on the way, making the Geitner estimate of the eventual cost – $117 billion – probably excessive. (This, from Zachary Roth on Alternet, M ay 11 2010, available at

http://tpmmuckraker.talkingpointsmemo.com/2010/05/could_much-maligned_bailout_be_more_like_a_stunnin.php

So spending by the federal government is less a problem now than that of too rapid a cut in the size of the public deficit. The biggest danger of deficit reduction of too great a scale is a prolongation of unemployment and low rates of economic growth.

  • Paul Krugman argued in his “”Lost Decade Looming?” article in The New York Times, May 20th that “the truth is that policy-makers aren’t doing too much: they’re doing too little”; and that the danger we faced was less of “a Greek-style collapse of investor confidence” than “a Japan-style lost decade, trapped in a prolonged era of unemployment and slow growth”.
  • Robert Kuttner posted a similar argument on The Huffington Post: available at

http://www.huffingtonpost.com/robert-kuttner/get-a-grip-austerity-does_b_586611.html

Larry Summers reportedly made the case for another round of stimulus spending in a speech at John Hopkins University, May 24 2010. Reinforcing that view was the May 2010 CBO report on the estimated impact of the American Recovery and Reinvestment Act in the first quarter of 2010. Recipients of ARRA funds reported their use to create almost 700,000 full-time equivalent jobs between January and March 2010, leading the CBO to estimate that in that quarter

ARRA policies raised the level of real (inflation adjusted ) gross domestic product by between 1.7 percent and 4.2 percent; lowered the unemployment  rate by between 0.7 percentage points and 1.5 percentage points; increased the number of people employed by between 1.2 million and 2.8 million; and increased the number of full-time equivalent jobs by 1.8 million to 4.1 million compared with what those amounts would have been otherwise.” (report, pp. 1-2]

The full report can be accessed via

http://www.calculatedriskblog.com/2010/05/cbo-stimulus-raised-gdp-17-to-42-in-q1.html

David Coates holds the Worrell Chair in Anglo-American Studies at Wake Forest University. He is the author of Answering Back: Liberal Responses to Conservative Arguments, New York: Continuum Books, 2010.

He writes here in a personal capacity.

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