Up goes the Unemployment!

[kaeneth]

http://newssun.suntimes.com/business/64 ... nt-in-june

Hiring slowed to a near-standstill last month, raising doubts that the economy will rebound in the second half of the year after a spring slump.

The economy generated only 18,000 net jobs in June, the fewest in nine months. The unemployment rate rose to 9.2 percent, the highest rate of the year, the Labor Department said Friday.

Stocks plunged after the report was released. The Dow Jones industrial average fell more than 120 points in midday trading. Broader indexes also declined.

“June’s employment report doesn’t have a single redeeming feature,” said Paul Ashworth, an economist at Capital Economics. “It’s awful from start to finish.”

Two years after the recession officially ended, companies are adding fewer workers despite record cash stockpiles and healthy profit margins.

Businesses added just 57,000 jobs last month— the fewest in more than a year. Governments cut 39,000 jobs. Over the past eight months, federal, state and local governments have cut a combined 238,000 positions.

It was the second straight month of feeble job growth. The number of jobs added in May was downwardly revised to 25,000.

Companies have pulled back on hiring after adding an average of 215,000 jobs per month from February through April. The economy typically needs to add 125,000 jobs per month just to keep up with population growth. And at least twice that many jobs are needed to bring down the unemployment rate.

“Our economy as a whole just isn’t producing nearly enough jobs for everybody who is looking,” said President Barack Obama, during a speech in the Rose Garden.

Obama used the dismal job data to press Congress to raise the government’s borrowing limit. He also said Congress could help the economy by passing three free trade agreements, approving government projects that would create jobs for construction workers, and extending a payroll tax cut.

[Lord MJ]

Correct me if I'm wrong but if corporate profits are healthy, and unemployment continues to rise, doesn't that in effect disprove the notion of giving more power to the private sector will decrease unemployment, and indicate that government initiatives or stimulus is needed?

It means one or more of the following:

1.) Small businesses don't have the funds to expand or hire - Which could be caused by anything from lack of ability to obtain capital to being choked out by major corporations.
2.) Corporations simply don't need to hire more people - which means some investment needs to be made to create new opportunities
3.) Workforce Skills are obsolete which means that some new skills training is needed
4.) Corporations are profitable because they have off shored work, which means that in this limited case taxes could be lowered on corporations provided that they hire enough Americans so tax revenue from the new workers offsets the lower taxes and only if the corporation in question would go in the red from replacing off shore workers with Americans.
5.) A more thought out Stimulus (not the hastily slapped together one of 2009) is needed.

It seems ethically dishonest to attack Obama for unemployment when anything that would realistically create jobs is unacceptable to republicans (in the absence of offsetting spending cuts which essentially means in order to fund job growth, we need to take it from the social safety net).

[Lord MJ]

This would also mean that cutting the safety net and lowering taxes is the worst thing that can be done. Lowering taxes will not create jobs since corporations are already making money hand over fist. Also it will cause the government's revenue to decrease expanding the deficit.

If they cut the social safety net also, there is the problem of their being no jobs, which would cause a humanitarian crisis as people will have no safety net combined with no jobs available.

It seems that the only option is to raise taxes because the corporations can afford it, while investing the money into job creating activities.

[Johonebesus]

Correct me if I'm wrong but if corporate profits are healthy, and unemployment continues to rise, doesn't that in effect disprove the notion of giving more power to the private sector will decrease unemployment, and indicate that government initiatives or stimulus is needed?

It means one or more of the following:

1.) Small businesses don't have the funds to expand or hire - Which could be caused by anything from lack of ability to obtain capital to being choked out by major corporations.
2.) Corporations simply don't need to hire more people - which means some investment needs to be made to create new opportunities
3.) Workforce Skills are obsolete which means that some new skills training is needed
4.) Corporations are profitable because they have off shored work, which means that in this limited case taxes could be lowered on corporations provided that they hire enough Americans so tax revenue from the new workers offsets the lower taxes and only if the corporation in question would go in the red from replacing off shore workers with Americans.
5.) A more thought out Stimulus (not the hastily slapped together one of 2009) is needed.

It seems ethically dishonest to attack Obama for unemployment when anything that would realistically create jobs is unacceptable to republicans (in the absence of offsetting spending cuts which essentially means in order to fund job growth, we need to take it from the social safety net).

What it means is that there is insufficient demand. With high unemployment, low wages for those that do have jobs, and a rising cost of living, people don't have the money to go to the mall and buy stuff, i.e., there is low demand for most goods and services. Businesses aren't selling much stuff, so they don't need more workers. They don't need different workers with different skills. They don't need different investment strategies. They need more customers, and that won't happen until employment goes up. Without a New Deal style work program, or some other giant stimulus, things won't get better. We are stuck in a feedback loop, and the only way anyone knows how to get out of it is for the government to get money to the people so they will buy stuff and start demand going up again. Unless that happens we will probably go the same way as Japan, or worse.

[The Jester]

Correct me if I'm wrong but if corporate profits are healthy, and unemployment continues to rise, doesn't that in effect disprove the notion of giving more power to the private sector will decrease unemployment, and indicate that government initiatives or stimulus is needed?

Well, according to Richard Koo of the Nomura Research Institute you have a situation where corporations do have cashflow, but their liabilities are so huge from a massive drop in the value of their assets that they're technically bankrupt when you look at their balance sheets. So whatever profits these corporations do have, most of them are being used to repair their balance sheets rather than trying to expand business and hire more workers.

Mr. Koo's proposal for trying to fix the situation is significant increase in government spending to offset all the money that's be used to pay of liabilities in the private sector. This of course means that the US government has to go even further into the red which is going to be hard to sell politically given the current US deficit, but a necessary evil because if you don't pay now, you're going to pay more later as the private sector continues to deleverage.

In my opinion, options for helping alleviate the situation would include:

1) Public infrastructure improvements.
The current state of US public infrastructure should be very well known to most people who read N&P on this board, so this should be pretty obvious. Of course, you are going to get a few bridges to nowhere (and you can bet the sink that Republicans will be up in arms over every dollar that wasn't optimally spent), but on the whole this would be money well spent.

2) Improve social safety nets.
Again, something pretty obvious for most people on this board given the appalling state of social and welfare benefits in the US. While the idea of "welfare queens" work against people's sense of justice, the reality is that these people are spending money and are generating demand for goods and services.

3) Government grants for entrepreneurship.
This is probably the most feasible, politically speaking, though I guess some people would cry foul that it would create an "imbalance" in competition. But for all their rhetoric about helping small businesses, it would be much harder for Republicans to oppose such a measure.

4) Australian style household stimulus.
Professor Steven Keen argues that this did a lot to help the Australian economy since it increased the money supply without having to rely on the banks to make new loans at a time when the private sector is avoiding credit.


It's unfortunate that in US political climate that the Republicans have taken up a strategy of looking at every piece of public spending under the microscope and denouncing anything that might produce the slightest amount of waste or generate feelings of resentment over imbalances in perceived social justice. While such a strategy does seem to be working for them in the short-term, over the long-term it is unlikely to help them as the economy continues to tank.

[Starglider]

2) Improve social safety nets. Again, something pretty obvious for most people on this board given the appalling state of social and welfare benefits in the US. While the idea of "welfare queens" work against people's sense of justice, the reality is that these people are spending money and are generating demand for goods and services.

Improve how? Do you mean target existing benefits better or increase the total value of benefits?

3) Government grants for entrepreneurship. This is probably the most feasible, politically speaking,

It's certainly the most useful. The bulk of social benefits pass directly through Wal-Mart to China, and directly through mortage payments to parasite banks.

It's unfortunate that in US political climate that the Republicans have taken up a strategy of looking at every piece of public spending under the microscope and denouncing anything that might produce the slightest amount of waste or generate feelings of resentment over imbalances in perceived social justice.

While many Republicans want to reduce the size of the public sector as a fraction of the economy, the immediate reason given for wanting to reduce public spending is the simple fact that the US spent $1,400,000,000,000 more last year than it raised in revenues, and with this ceiling increase will pass the 100% gross federal debt to GDP ratio*. At this point any other justifications for reducing spending are merely emotive garnish for the less financially informed sections of the electorate.

* You cannot simultaneously claim that only the public debt (not gross debt) matters and that social security is full funded to 202X, although a lot of left-wing supporters try to.

[Broomstick]

2) Improve social safety nets. Again, something pretty obvious for most people on this board given the appalling state of social and welfare benefits in the US. While the idea of "welfare queens" work against people's sense of justice, the reality is that these people are spending money and are generating demand for goods and services.

Improve how? Do you mean target existing benefits better or increase the total value of benefits?

Both, really - the only benefit most able-bodied adults without children can get are food stamps, at about $3-4 per day at most (it's actually given monthly, but that's what it works out to on a daily basis). No housing support, no medical care, nothing for clothing or even soap to keep body odor down.

Adults with children can get some cash for the kids - with a lifetime limit of 5 years total per child. In other words, assuming coverage since birth, the money runs out about the same time the kid goes to school.

Waiting list for public housing are frequently 10 years long. In some instances, the waiting list is closed - if you aren't on it already you can't get on it and you're screwed.

[KrauserKrauser]

One thing you are ignoring is that the US employment picture is becoming progressively shittier but large scale businesses are becoming more and more multi-national in nature and the jobs are flowing to non-US locations.

The fact that businesses are showing increasing profits does not correalte with increasing job demand in the US as more and more of their profits are coming from non-US based activities thereby breaking the chain of US based business more profitable == more demand jobs.

Add all of that together with the fact that the Federal Reserve is debasing the US dollar with a recklessness not yet seen in recent history and the gross revenue figures that are being generated are much more lackluster. If your profits are stated in US dollars and the US dollar has decreased by 15% in buying power, if you are not showing 15% increase in profits you are losing ground.

It's shitty out there and the powers that be are trying desperately to ensure that the thick covering of wool that has been pulled over the public's eye remain held there in the vain hopes that the property bubble will be re-inflated. They are going to fail and we are going to suffer accordingly.

[JME2]

It seems ethically dishonest to attack Obama for unemployment when anything that would realistically create jobs is unacceptable to republicans (in the absence of offsetting spending cuts which essentially means in order to fund job growth, we need to take it from the social safety net).

I don't understand Obama's insistence on bi-partisan cooperation with the GOP.

At this point, to hell with the Republicans. They're not part of the solution and they're playing games when people are suffering, when me and my generation are be denied full-time work and futures. Fuck 'em and leave 'em behind.

[Simon_Jester]

They do hold a majority in the House, now.

The time for this would have been in 2009-10. Without a concerted effort by the Senate Dems to steamroll stuff over Republican filibuster threats, which was problematic in the face of the conservative wing of the Democrats, it wasn't happening and would be under equally ferocious attack by wingnuts now, who would actually be in a position to defund the program.

We can theorize that if Obama and the congressional Democrats had openly declared his hostility to the corporatist model of economic policy and deliberately invoked the Spirit of the New Deal or whatever you want to call it, they would have been in a position of strength in 2010... I'd like to think so. Sigh.

[UnderAGreySky]

the Federal Reserve is debasing the US dollar

Is there proof for this? I don't believe QE1 or QE2 actually debased the dollar at all, with interest rates hovering at 0 it was never going to help much.

If the US Dollar had actually dropped significantly, the US might have been better off. For example, with respect to the Indian Rupee the US dollar was 45:1 in July (pre-Lehmann brothers). Today it is... 44:1.

What financial incentive is there for a company today compared to then? American wages have stagnated. If the dollar was being debased, you'd get into a nice wage-price spiral. Not fun.

Now, the Pound on the other hand has gone from 84:1 to 71:1. A nice 20% drop. If the Brits actually made more stuff in Britain they would have been even better off, but nevertheless there has been a surge in export. My company since 2009 has been getting a lot of orders which would have been outsourced to India but the cost of supervision+time lag is not as low now as it used to be.

Germany has done well too - the Euro dropped around 10%. German exporters loved it.

[edited to fix quote tag]

[JME2]

They do hold a majority in the House, now.

The time for this would have been in 2009-10. Without a concerted effort by the Senate Dems to steamroll stuff over Republican filibuster threats, which was problematic in the face of the conservative wing of the Democrats, it wasn't happening and would be under equally ferocious attack by wingnuts now, who would actually be in a position to defund the program.

We can theorize that if Obama and the congressional Democrats had openly declared his hostility to the corporatist model of economic policy and deliberately invoked the Spirit of the New Deal or whatever you want to call it, they would have been in a position of strength in 2010... I'd like to think so. Sigh.

Yeah, the opposition would have made more sense 2 years ago -- and it's too late now.

The idea of the GOP retaking the White House in 2012 scares the hell out of me. The Republicans will run this country into the ground and damm us all.

And I have every faith in the American people to try and revenge themselves on Obama and the Dems by voting Tea Party/GOP again.

[kaeneth]

...

The idea of the GOP retaking the White House in 2012 scares the hell out of me. The Republicans will run this country into the ground and damm us all.

And I have every faith in the American people to try and revenge themselves on Obama and the Dems by voting Tea Party/GOP again.

They are making a good effort towards fucking everyone over with just control of the House although they seemed to have partially backed down finally.

http://www.cbsnews.com/8301-503544_162- ... 03544.html

The move by Boehner means the negotiations will likely fall back on the smaller reform package that Vice President Joe Biden and GOP leaders had been negotiating, which would amount to as much as $2.4 trillion in savings, the Post reports. That package includes only cuts to federal agency budgets and modest reforms to entitlement programs like Social Security and Medicaid.

If approved by all parties, the smaller savings plan would allow for Congress to approve an extension of the federal debt ceiling into the spring of 2013, the Post reports.

[Simon_Jester]

Is there any word from the Democratic campaigners or anything, along the lines of whether anyone (including Obama) is going tot be trying to making hay out of this?

[Flagg]

Their wall street masters have finally pulled on the Retardlicans' leashes. Anyone with a brain knew that the Republicans would eventually cave for fear of destroying their paymasters portfolios.

[Phantasee]

Not to brag, but I find it interesting that the US created only 18,000 jobs in June, and the only reason it's a gain is because they revised the May numbers down sharply, while Alberta, one province with 1/85th the population of the US, created 22,000 jobs in June.

[Flagg]

Well according to Rachel Maddow, the reason we only netted 18k was because of all the public sector layoffs due to Republican budget cuts.

[kaeneth]

Well according to Rachel Maddow, the reason we only netted 18k was because of all the public sector layoffs due to Republican budget cuts.

Ya but its still not enough to keep up with new people entering the work force, let alone all of Canada :/

[The Jester]

Improve how? Do you mean target existing benefits better or increase the total value of benefits?

In general, increase the total value of benefits given out through improving access (shorter waiting lists, fewer hurdles to jump through), improving coverage and increasing the payouts. I'm sure there are ways to optimise the distribution to maximise the overall economic benefits, but as Broomstick explains, the total value of benefits for the unemployed in the US is apallingly low. By contrast, being unemployed in Finland (if you're a member of an unemployment insurance fund or union) you will gross around 1600€/month for up to 500 days of unemployment if you were earning ~3000€/month before becoming unemployed. Now, I'm not saying that the US should improve unemployment benefits to this sort of level, but there certainly is a lot of room for improvement.

3) Government grants for entrepreneurship.

It's certainly the most useful.

As opposed to public infrastructure improvements? You are aware of the state of public infrastructure in the US, right? I certainly agree it's useful and needed to give grants for entrepreneurship, but certainly not the most useful.

The bulk of social benefits pass directly through Wal-Mart to China, and directly through mortage payments to parasite banks.

I'm going to have to ask you for evidence on this claim. While I'm not going to argue that none of the money will end up like this, or that the US does not have a problem with its trade deficit with China or with predatory lending institutions, not all the money needs to be used 100% efficiently for it to yield a net improvement to the economy.

Realistically, I would think that all of the proposals I've listed would need to be implemented to varying degrees since some are more long-term than others (and I consider grants for entrepreneurship and infrastructure improvements more long-term fixes). As pointed out by Mr. Koo, deleveraging happens very quickly so you will need some short-term fixes to help weather the storm.

While many Republicans want to reduce the size of the public sector as a fraction of the economy, the immediate reason given for wanting to reduce public spending is the simple fact that the US spent $1,400,000,000,000 more last year than it raised in revenues, and with this ceiling increase will pass the 100% gross federal debt to GDP ratio*.

And as much as what the deficit sucks right now, these are the cards the US has and it's going to have to play them. The point the US should be learning from Japan is that trying to reduce the deficit now is only going to exacerbate the problem even further.

At this point any other justifications for reducing spending are merely emotive garnish for the less financially informed sections of the electorate.

Yet this is the tactic they often seem to employ when campaigning about government spending, at least from what I've seen. I guess because it's much easier to tug at people's emotions with more specific and personal appeals to justice and waste rather than use huge numbers that it's really difficult for a lot of people to grasp the scope of what those numbers really mean.

I remember Gingrich appearing on The Daily Show and when arguing over public healthcare. He didn't try to argue on the basis of cost versus effect of the whole system, instead he took a specific case of misappropriated funds and used that as the justification of saying such a system is wasteful. This sort of tactic seems to be very effective for them in the past; since you'll always find problems with things sufficiently large if you look at it under a microscope and the argument will never lose its emotional appeal.

* You cannot simultaneously claim that only the public debt (not gross debt) matters

I'm not sure who is claiming only public debt matters (actually, if you watch the video I linked to, one of the issues raised was that not enough people are paying attention to private debt). The point here is that the government needs to make up for the shortfall in private sector spending. Since the private sector is using its cashflow to pay down its debts, somebody has to cover the reduction in aggregate demand lest the whole economy continue it's downward spiral as it continues to deleverage.

As costly as it seems to increase the US deficit even further now, if you don't, it's really going to be unaffordable in the future.

and that social security is full funded to 202X, although a lot of left-wing supporters try to.

Not sure how this is a particularly left-wing belief. You see both sides of the political spectrum in the US unwilling to do anything about social security. And the reality is, the US is not in a position to deal with this problem. The deficit does need to be closed, but not right now. Now is the worst time to try to fix the deficit.

[Starglider]

In general, increase the total value of benefits given out through improving access (shorter waiting lists, fewer hurdles to jump through), improving coverage and increasing the payouts. I'm sure there are ways to optimise the distribution to maximise the overall economic benefits, but as Broomstick explains, the total value of benefits for the unemployed in the US is apallingly low.

If budgets were not a factor, I would be happy to increase benefits, subject to appropriate measures to keep on top of fraud and maintain motivation to work (not a major concern at these unemployment rates). The problem is paying for them. Unless you believe that a powerful economic recovery is just around the corner (IMHO highly unlikely) the US is going to have to have to increase taxes to European levels just to keep up with rising debt service costs and the spiralling costs of exisiting entitlement programs (Medicare particularly). That or print so much currency that vicious stagflation sets in (flirting with outright dumping of treasuries by overseas investors).

So basically, how are you going to pay for this, given that 'raise taxes to European levels' isn't enough.

3) Government grants for entrepreneurship.

It's certainly the most useful.

As opposed to public infrastructure improvements? You are aware of the state of public infrastructure in the US, right?[/quote]

The primary need is economic activity to provide decent jobs and fill unmet demand; essentially, tackle unemployment and poverty. Do infrastructure improvements cause companies to hire more people? Certainly not immediately; once the projects are complete they may reduce some costs a little (e.g. vehicle maintenance), but that just pushes up profit margins. They may eventually tip the scales in a factory siting decision by a multinational company. Investment in education takes even longer to have an effect. Even the short term construction benefit of infrastructure spending is diluted by the fact that the multiple layers of US government are very good at wasting the money, and the fact that major items (e.g. prefab bridges) are increasingly outsourced to China.

Subsidising new hiring creates an immediate increase in employment, with consequent tax revenues, consumer spending, benefits cost reduction and morale/wellbeing improvements. Subsidising capital equipment purchases directly improves the competitiveness of local industry and generates or safeguards jobs almost immediately. Plenty of mechanisms exist for ensuring the government gets return on investment and avoiding moral hazard of no-strings subidies to private compaies (not that the US government seems bothered by the later anyway, as long as the recipients are big banks).

While I'm not going to argue that none of the money will end up like this, or that the US does not have a problem with its trade deficit with China or with predatory lending institutions, not all the money needs to be used 100% efficiently for it to yield a net improvement to the economy.

There are plenty of articles on how Wal-Mart and JP Morgan have profited from the food stamp program while continuing to destroy local stores and offshore as much as possible to China. A fraction of government handouts goes on local business and services, but clearly this is much less use than spending the whole thing on job creation programs. Even the money spent on food stamps could be more usefully spent on funding food banks to buy and distribute local produce, instead of buying ice cream at Wal-Mart.

(and I consider grants for entrepreneurship and infrastructure improvements more long-term fixes)

Entrepreneurship and applied R&D is medium term; obviously it directly creates hiring, but to get the multiplier effect takes a couple of years. Subsidising expansion of existing companies, in hiring, tooling and general loan guarantees is near term (this can be expressly required in the contracts). Education and most infrastructure (excluding critical repairs to prevent interruption of service) is long term. Infrastructure spending does have the virtue of stimulating the demand side, which we need to do in order to make investments in industry expansion meaningful, but only if the money is spent on components and materials sourced from local industry rather than China.

As pointed out by Mr. Koo, deleveraging happens very quickly

Large companies still have plenty of access to cash; smaller companies have more trouble, but the problem is overwhelmingly consumer deleveraging and demand destruction. Lamenting this is silly; consumers should never have been so leveraged in the first place, and they wouldn't have been if it wasn't for excessive financialisation and an attempt to cover up falling real wages.

The point the US should be learning from Japan is that trying to reduce the deficit now is only going to exacerbate the problem even further.

On the contrary, the Japanese government has spent and stimulated their way up to well over twice the relative debt level of the United States. If anything they have demonstrated that pissing money away without structural changes is ineffective. Unfortuantely the US has more than enough political gridlock and self-denial to match Japan in this respect.

At this point any other justifications for reducing spending are merely emotive garnish for the less financially informed sections of the electorate.

Yet this is the tactic they often seem to employ when campaigning about government spending, at least from what I've seen. I guess because it's much easier to tug at people's emotions with more specific and personal appeals to justice and waste rather than use huge numbers that it's really difficult for a lot of people to grasp the scope of what those numbers really mean.

Correct.

He didn't try to argue on the basis of cost versus effect of the whole system, instead he took a specific case of misappropriated funds and used that as the justification of saying such a system is wasteful. This sort of tactic seems to be very effective for them in the past; since you'll always find problems with things sufficiently large if you look at it under a microscope and the argument will never lose its emotional appeal.

Yes, the majority of the population has no understanding of or appreciation for statistics.

I'm not sure who is claiming only public debt matters

Nitram loves to do this when saying that the US is absolutely fine and can borrow as much as it likes forever with no risk of interest rates spiking.
In other threads he says that Social Security is completely fine and fully funded and there is no way the US government would default on its obligations to SS>

The point here is that the government needs to make up for the shortfall in private sector spending.

The lack of demand is due to the twenty year stagnation of real wages, which is essentially due to efficiency improvements being used to reduce staffing and increase profit margins rather than expand productive capacity. An apparent continued growth in living standards was maintained by borrowing and massive imports.

Neither giving people money to buy Wal-Mart crap from China, or subsidising states to buy bridges from China, is going to fix the fundamental problems. The basic anger about income inequality is well-founded, but imposing punitive transfer payments alone is not going to rebuild the economy. Hence

Since the private sector is using its cashflow to pay down its debts, somebody has to cover the reduction in aggregate demand lest the whole economy continue it's downward spiral as it continues to deleverage.

the essential problem with this assumption is that orthodox economics is fine, the economy is structurally fine, and all that is needed is a little extra spending. Everything is not fine; they are major and growing structural problems. Any attempt to address this with borrow-and-spend alone is doomed to failure, and focusing on government handouts to replace missing wages is particularly futile.

You see both sides of the political spectrum in the US unwilling to do anything about social security. And the reality is, the US is not in a position to deal with this problem. The deficit does need to be closed, but not right now. Now is the worst time to try to fix the deficit.

You are essentially saying that everything will be fine if we leave things alone, maybe borrow and spend a little more, the recovery will be along any month now, a bit more debt is not going to cause any problems. IMHO this is a Pollyanna position propagated by Keynesian economists who refuse to admitt the fundamental insufficiency of their theories and their fundamental vulnerability to corruption.

The opposing positions are;
* There is room for one more massive stimulus effort, as evidenced by Japan's survival with 200%+ debt-to-GDP. However if this is not coupled with major structural reform it will not achieve anything useful; in fact it will reinforce, hide and perpetuate systemic flaws. This is exactly what happened with the US bank bailouts and appears to be happening with the Greek sovereign bailouts.
* The US is heading for a treasury market collapse and massive crash, which will cause massive damage through forced austerity and possibly hyperinflation. No amount of plausible economic growth can maintain the borrow-and-spend. Only decisive action now can turn away from this path. This is basically the Republican's claimed position.
* The US is heading for a massive crash regardless of whether austerity or borrow-and-spend is persued. The trends in play are now so strong as to be unavoidable. This debate is fairly academic, but austerity is still preferable because it reduces the amount of looting by government cronies, reduces the dependence on the government and hence likelihood of fascism, and might maintain the US reserve currency status (monetising all the way into hyperinflation will destroy it). Hopefully a new balanced economy not dependent on massive credit and government cronyism will grow out of the ashes.

I mostly hold the first position, in that if we must have government intervention then it should be economically constructive rather than spraying money directly or indirectly at campaign contributors. Although unfortunately the third position seems more reasonable every week.

[The Jester]

Okay, it's pretty clear that you didn't take the time to watch the video which I linked to in my initial post, so I took the time to get charts for you.

If budgets were not a factor, I would be happy to increase benefits, subject to appropriate measures to keep on top of fraud and maintain motivation to work (not a major concern at these unemployment rates). The problem is paying for them. Unless you believe that a powerful economic recovery is just around the corner (IMHO highly unlikely) the US is going to have to have to increase taxes to European levels just to keep up with rising debt service costs and the spiralling costs of exisiting entitlement programs (Medicare particularly). That or print so much currency that vicious stagflation sets in (flirting with outright dumping of treasuries by overseas investors).

So basically, how are you going to pay for this, given that 'raise taxes to European levels' isn't enough.

Strawman/black-and-white fallacy. An increase in public spending doesn't need to be offset by an increase in taxation or miraculous recovery for it to result in an improvement, it just has to be better than the alternative of not increasing public spending at all. The thing is that public spending isn't that it's going to produce an immediate recovery, it's only there to cushion the downward spiral from becoming even worse. It's very clear that the road ahead for the US is going to be long and hard, it's just a question of how you're going to deal with it.

To take Japan as an example again, we just have to look at what happened when they tried fiscal consolidation when they were still recovering under Hashimoto and Koizumi. You can see very clearly that in both cases, the financial reforms were met with reductions in tax revenue and subsequent increases in the deficit, prolonging the recovery for about another five years.

It's like a cancer patient going through chemotherapy. If you have ever seen someone go through chemo, you'll know how much is sucks. But as horrible as the treatment might be, it's still better than letting the cancer go unchecked.

The primary need is economic activity to provide decent jobs and fill unmet demand; essentially, tackle unemployment and poverty. Do infrastructure improvements cause companies to hire more people?

Wait. What? If, for example, a government commits to a project of increasing network infrastructure you're going to need people to plan and supply that infrastructure. Those people are paid wages who in turn spend a proportion of their wages purchasing other goods and services from other people who spend those wages, and so forth, increasing overall aggregate demand in the economy.

Certainly not immediately; once the projects are complete they may reduce some costs a little (e.g. vehicle maintenance), but that just pushes up profit margins.

Improvements to road, bridge and rail infrastructure reduces congestion, increases fuel efficiency, improves supply chain predictability. You see similar cost reductions from inland waterways. Energy infrastructure is vital to any modern economy which again improves reliability and reduces costs for everyone. Levees (surprise, surprise) are particularly severely underfunded adding immense risk to life and property. Improvements to drinking water, dams, wastewater, solid waste and hazardous waste infrastructure all improve public health and again reduce damage to infrastructure and improve emergency response in the case of natural disasters (and are all seriously underfunded).

They may eventually tip the scales in a factory siting decision by a multinational company. Investment in education takes even longer to have an effect. Even the short term construction benefit of infrastructure spending is diluted by the fact that the multiple layers of US government are very good at wasting the money, and the fact that major items (e.g. prefab bridges) are increasingly outsourced to China.

I'm going to need more than your word to show that the dilution effects are significant enough to remove all net benefit from such an action.

Subsidising new hiring creates an immediate increase in employment, with consequent tax revenues, consumer spending, benefits cost reduction and morale/wellbeing improvements.

In an ideal economy, ignoring labour market friction, where the employees don't spend their money on goods from China and the companies spend their increased revenues on not paying down debt, or that they don't abuse the system by churning employees. Hey, wow! I can do that too.

Subsidising capital equipment purchases directly improves the competitiveness of local industry and generates or safeguards jobs almost immediately. Plenty of mechanisms exist for ensuring the government gets return on investment and avoiding moral hazard of no-strings subidies to private compaies (not that the US government seems bothered by the later anyway, as long as the recipients are big banks).

Not to say that either of the above are not good options. I'm sure a lot of effort could be spent in arguing of the specifics of what distribution of government spending will result in the best returns but reading further down in your post, you at least seem to agree that some amount of government spending is the best choice to take given the severity of the circumstances. I still maintain that spreading the stimulus around so some of it can also get into the hands of those that have a much harder time finding employment (like Broomstick) is better for the economy as a whole. The basis for that opinion is that it helps diversify the risks of the stimulus (since politicians are imperfect and there is always a risk of loopholes written into laws), and that the Australian Household Stimulus was effective particularly because it was spread out amonst the whole population allowing the capital to better flow into the economy.

There are plenty of articles on how Wal-Mart and JP Morgan have profited from the food stamp program while continuing to destroy local stores and offshore as much as possible to China.

Yeah... this isn't evidence I was asking for. And no, I'm not doing your homework for you.

Education and most infrastructure (excluding critical repairs to prevent interruption of service) is long term. Infrastructure spending does have the virtue of stimulating the demand side, which we need to do in order to make investments in industry expansion meaningful, but only if the money is spent on components and materials sourced from local industry rather than China.

You're understating the state of US infrastructure. The reality is that the US infrastructure is in very poor shape requiring approximate $2.2 trillion to bring it up to a state of good repair, receiving a grade of D in overall quality from the American Society of Civil Engineers. The present state is severely underfunded, running ever increasing risks to public health and safety along with poorer resilience to natural disasters.

Furthermore, a recent study suggests that the marginal productivity of public capital in a country like the US is around 27.5% which is substantially higher than the marginal productivity of private capital. Though this study doesn't definitely say that public capital is more productive, it certainly detracts from your argument spending on public infrastructure is inferior to subsidising private corporations.

Large companies still have plenty of access to cash; smaller companies have more trouble, but the problem is overwhelmingly consumer deleveraging and demand destruction. Lamenting this is silly; consumers should never have been so leveraged in the first place, and they wouldn't have been if it wasn't for excessive financialisation and an attempt to cover up falling real wages.

For the most part, private industry in the US is now paying down debt now even with interest rates at 0%. What this means is that they're now technically bankrupt due to a collapse in asset prices; they're just unwilling to tell anyone since they still have cashflow. So they're now using a strategy of debt minimisation (as opposed to profit maximisation) in order to get their balance sheets above water again. Sure, large companies have access to cash, but what they're doing with it now is the more important part of the question since they're not out to maximise profits any longer.

On the contrary, the Japanese government has spent and stimulated their way up to well over twice the relative debt level of the United States. If anything they have demonstrated that pissing money away without structural changes is ineffective.

This is false when you look at the data. The Japanese government ran a cumulative deficit of ¥315 trillion from 1990 to 2005. Sounds really horrible until you realise that the cumulative gains in GDP over that same period was about ¥2000 trillion against the projected losses had the government not stepped in.

I'm not sure who is claiming only public debt matters

Nitram loves to do this when saying that the US is absolutely fine and can borrow as much as it likes forever with no risk of interest rates spiking.
In other threads he says that Social Security is completely fine and fully funded and there is no way the US government would default on its obligations to SS>

So how does that make it a left-wing position?

the essential problem with this assumption is that orthodox economics is fine, the economy is structurally fine, and all that is needed is a little extra spending. Everything is not fine; they are major and growing structural problems. Any attempt to address this with borrow-and-spend alone is doomed to failure, and focusing on government handouts to replace missing wages is particularly futile.

Where in my arguments do I assume that?

You are essentially saying that everything will be fine if we leave things alone, maybe borrow and spend a little more, the recovery will be along any month now, a bit more debt is not going to cause any problems.

Strawman. Nowhere in any post have I stated that a recovery will be along any month.

IMHO this is a Pollyanna position propagated by Keynesian economists who refuse to admitt the fundamental insufficiency of their theories and their fundamental vulnerability to corruption.

Strawman again. I'm haven't relied on any Keynesian arguments, just data from what Japan experiences from 1990 to 2005.