If i understand your analysis Monte you are making two main points:

1. What happened during WWII is not applicable to the current situation becuse once WWII ended the high levels of goverhment spending ended and in the current situation we have not such cut-off date and have come up with no reasonsble plan to cut spending the in the future
2. The debt crisis overrides any temporary concerns over how the existing economy is doing, including the unemployment rate. (this point is implied by your last sentence)

I think there be a third point which is

3.Future liabilities for Social Security and Medicare threaten to overwhelm our eocnomy in the long-term (I get this from your reference to Medi-Care and your past posts about 100 trillion in unfunded liabiliies in Social Security and Medi-Care.

With regard to WWII being differences, yes there are differences. However, the spending in WWII pulled us out of the depression. If the spending had made the economy worse, as any conservative conomist would say it should have, then things would not have gone back to normal after WWII. Massive government spending jump-started the economy and private demand was able to take over when government spending was reduced. The argument is not to continue spending piecemeal over a long period of time, but instead to spend enough to get the economy started. Atter that happens, then you reduce government spending. If we reduce government spending now and the economy tanks, you are still going to have a debt crisis.

Obviously, the debt crisis is a big deal (see credit downgrade). However, if we don't revitalize the economy then we are still going to have a debt crisis. This idea that business is being over-regulated and they are not investing and hiring workers because of "uncertainty" is a Republican talking-point and I have seen no proof of this contention (You did not say this here but if you're not going to have the government spend to increase demand then you have to have businesses to do it and I note your pro-business suggestions to end the economic crisis in another thread) The reality is that businesses have done just fine up to now (amassing huge profits by cutting labor costs) and Wall Street compensation is still extremely high--why do you expect business to take any risks? Tax breaks do little to change the risk calculus in a weak economy

As far as Social Security and Medicare I can't see getting exercised over problems that are far off in the future given our current predictament. If you have reasonable non-ideological people in Congress you will come with a reasonable compromise. Ypu are going to have adjust age requirments for Social Security and some means testing. With regard to Medicare that is simply symptomic of a dysfunctional health care system that is out of control. Eventually, we will have to go to socialized system to save costs. Care might go down but we can't keep spending this amount of health care--it is not sustainable

But one thing noteworthy about this credit downgrade is the idea that Congress cannot compromise and come up with reasonable solutions. I hope Tea Party members realize that by not willing to compromise, they are sending a unfavorable signal to financial markets that the U.S. will not be able to solve problems like Social Security and Medicare when they have to be solved

I am interested to see how the business community reacts to this credit downgrade in the next election. This credit downgrade was a great gift to Romney, I think. he tolerance level for the Tea Party in the business community has got to be pretty low right low. I think they will be supporting more mainstream candidates in 2012

Freeman,

Thanks ... you've correctly captured the heart of my argument. I don't think we will agree, but at least we can agree on that with which we disagree. Just a few comments:

Massive government spending jump-started the economy and private demand was able to take over when government spending was reduced.

During the 30's and WWII, consumers cut back dramatically on purchases, partially out of prudence, partially out of requirement, partially out of shortages, and partially out of government mandate. After the war, there was huge pent up consumer demand which compensated for the reduction in government spending.

There are very few scholars who would accuse our society of under consumption.

If we reduce government spending now and the economy tanks, you are still going to have a debt crisis.

Can we agree that we have not reduced government spending one bit? We've agreed to reduce future spending of something like $30 trillion over the next 10 years by $930 billion, and maybe $1.5 trillion after that. Keep in mind that the 10 years worth of $30 trillion in government spending is not based on steady spending, but on increased spending based on expected demographic changes, especially medicare and medicaid. You've suggested that I use Republican talking points -- and I'm not a Republican -- but this seems like a Democratic talking point that is not based on fact. We haven't reduced government spending, and the economy may still tank. So, you are not arguing against reducing government spending. you are arguing against increasing government spending by too little. That too little is in the hundreds of billions of dollars per year!

why do you expect business to take any risks?

Business will take risk for the opportunity of return. Ask business people why they are nervous about investing. Their perception is reality.

If you have reasonable non-ideological people in Congress you will come with a reasonable compromise.

If this is a requirement for your argument to be successful, then you don't have an argument. Our Congress is hyper-ideological. Politics is about Ideology. It drives Congress even during reasonable times.

But one thing noteworthy about this credit downgrade is the idea that Congress cannot compromise and come up with reasonable solutions. I hope Tea Party members realize that by not willing to compromise, they are sending a unfavorable signal to financial markets that the U.S. will not be able to solve problems like Social Security and Medicare when they have to be solved

I agree. Although it is relevant that more Democrats voted against the final agreement than Republicans.

I am interested to see how the business community reacts to this credit downgrade in the next election. This credit downgrade was a great gift to Romney, I think. he tolerance level for the Tea Party in the business community has got to be pretty low right low. I think they will be supporting more mainstream candidates in 2012

Romney was against the plan and joined with all of the other Republican candidates (except Huntsman) in denouncing it.

freeman

What happened during WWII is not applicable to the current situation becuse once WWII ended the high levels of goverhment spending ended and in the current situation we have not such cut-off date and have come up with no reasonsble plan to cut spending the in the future

Defence spending was very much curtailed. But a lot of other New programs did spring up. Education spending is one that leaps to mind. And the investment in infrastructure (highway system. So although this is true as a statement, it isn't true that the US reverted back to pre-1930.

Johnathon Kay in the National Post today, summarizes the problem with dissonance in the American discussion quite lyrically. Below is a quote

But as several generations of conservative populists can attest, the romance always ends in heartbreak: Once elected, every modern politician, no matter how ostensibly conservative, eventually will have to hang up his tricorner hat, sit down at his desk, and confront the same modern-world realities that greeted his predecessor. Ronald Reagan is the greatest hero in the history of American conservatism. But even he couldn’t find a way to eliminate a single major spending program during his presidency. George W. Bush, denounced by liberals as a heartless “neocon” during his two terms in office, actually added a major spending program — the Medicare drug benefit.

Such hypocrisy is old news among American political pollsters. As far back as 1964, two scholars — Lloyd Free and Hadley Cantril — used Gallup Poll data to cross-index American attitudes toward government programs and respondents’ professed ideological beliefs. What they found was that overlapping majorities of Americans expressed support both for small government in principle, and big-government programs in practice — a paradox Cantril identified in an influential book, Political Beliefs of Americans, as nothing less than “mildly schizoid.”

The same phenomenon manifests itself today among conservatives who make radical claims about the need to scale back the size of government, but also express satisfaction with classic welfare-state programs such as Medicare and Social Security. In late 2010, a poll conducted by the Washington Post, the Henry J. Kaiser Family Foundation, and Harvard University revealed that a majority of Americans who say they want more-limited government also believe that Medicare and Social Security are “very important.” Likewise, more than half of self-declared Tea Party supporters said the government should maintain or increase its involvement in poverty eradication.

Since the New Deal era, America has been ravaged by a noisy on-and-off culture war, waged, in part, between those who are at peace with the need for bigger government, and those who are not. The “mildly schizoid” quality of American political life means that this culture war is fought not only between two camps of political partisans, but often within Americans’ own dissonance-wracked minds. Which explains why the war is not only shrill, but endless: Since most American conservatives would never actually accept the much smaller government they claim as their goal, their war demands will never be met — even when their legislative armies conquer Washington.

This is the reason we are at the current, surreal moment — in which the most successful economy in the history of human civilization is now more precarious, and less credit-worthy, than those of many nations once deemed “Third World.” What’s worse: There seems to be no clear end to the crisis, aside from outright bankruptcy, because there is no policy solution that can simultaneously satisfy the dictates of both 21st-century economic reality and 18th-century libertarian dreamscape.

If you aren't geo blocked
source:
http://fullcomment.nationalpost.com/2011/08/08/jonathan-kay-on-sps-u-s-downgrade-the-%e2%80%98schizoid%e2%80%99-roots-of-an-economic-collapse/#more-47123

Ray Jay wrote:We've agreed to reduce future spending of something like $30 trillion over the next 10 years . . .

I think that grossly understates spending. We're spending $3.8T, I believe, this year alone. Last year, according to the CBO it was $3.5T. If I read this right, it looks like $42+T.

Thanks ... I was too lazy to look it up.

Ray Jay wrote:Thanks ... I was too lazy to look it up.

What's a few trillion between friends? Speaking of friends, Obama's buddy, Warren Buffet (whose appeal as an authority may have taken a hit when Berkshire-Hathaway was downgraded to a "negative" outlook last Friday) says the US can always print more money. Great idea.

In 1922, the highest denomination was 50,000 Mark. By 1923, the highest denomination was 100,000,000,000,000 Mark. In December 1923 the exchange rate was 4,200,000,000,000 Marks to 1 US dollar.[22] In 1923, the rate of inflation hit 3.25 × 106 percent per month (prices double every two days).

Let those printing presses roll!

We tend to have these debates without looking at the numbers, but if you look at the numbers that Steve posted, you really do get a sense of the magnitude of the problem. You can see that there is a huge expected increase in government spending over the next 10 years. These are increases relative to the last couple of years.

If you move further down to Table 3-2, you can see that the 2009 spending is 22% higher than 2008, and that federal spending increased by an average of 6.8% per annum in the years 1999 to 2008. In other words, we've been conducting Keynesian type stimulus for at least 11 years, and maybe longer. The current base line has a 3.2% annual increase from 2012 to 2020. A 3.2% increase over a $3.6 trillion budget is $100 billion. So, the trumpeted $900 billion of savings is really just a decrease in spending increases. I know that's just math, but it is staggering math

The notion that we can just continue to do this based on the experience of the great depression and WWII is quite a risk.

By the way, I think S&P is being quite generous in its ratings.

Ray Jay wrote:So, the trumpeted $900 billion of savings is really just a decrease in spending increases. I know that's just math, but it is staggering math

This is why I am sick of the demagoguery. We can argue about whether certain programs are effective are not, whether this or that military adventure is/was a good idea, etc. What we cannot afford is "Republicans want to do away with Medicare," "Republicans want to cut your Social Security checks," "Tea Party Republicans held a gun to our head."

We have a spending problem and one side of the aisle refuses, in large measure, to acknowledge it.

By the way, I think S&P is being quite generous in its ratings.

I don't, but that's because I think two things may happen: 1) there may be a tax reform package that passes as a result of the downgrade (although it's no sure thing); 2) I think it is very likely Obama will not get elected.

If I am wrong on both of those, then you are right--we are headed for the financial dustbin of history.

The artlcle notes that federal spending has averaged 20.7 of GDP over the past 40 years. How about instead of spending cuts we just freeze spending levels for all programs and get rid of the Bush Tax cuts until spending comes down to 20.7 of GDP? That way we avoid cutting things too quickly but eventually get a handle on the debt problem

I still think it would be a good idea for a massive government spending for a brief period (say two years), but that would seem to be impossible given the credit downgrade.

freeman
I

still think it would be a good idea for a massive government spending for a brief period (say two years), but that would seem to be impossible given the credit downgrade.

Is the credit downgrade being taken seriously? US treasuries have been inundated with investors since the downgrade.The yeild actually decreased.
Ratings agencies have a bit of a credibility problem of their own. It was S&P who gace Lehman Bros. a AAA 2 months before its collapse after all.

I think that grossly understates spending

I would draw your attention to the truly meaningful part of the forecast you link to, and thats the expression of spending versus the GDP. It actually goes down over time.
Now, I don't know all the factors included in the forecast, but I'll assume that the economy is forecast to grow. (Reagan was particularly artful at presenting "rosy" economic scenarios that had little liklihood of turning out. I'll bet Obama is slightly optimistic right now too.)
If the economy doesn't grow as anticipated, then the forecasts of spending as % of GDP are low. If it grows faster, then the forecasts are too high..
But thats the connumdrum . If govenrment spending is curtailed too quickly then the economy will tank. However, taxation back to the levels of 2000 of people or corporations that are clearly "sitting their welath on the sidelines" at the moment ...will reduce the deficits and have little effect on overall economic activity.
Its why most economists are looking for a balanced approach to the debt solution. Including S&P...