The other side of austerity

One of the large and persistent arguments by people who want to reduce the deficit in the US is that we’re saddling the younger generations with huge debt. Paul Krugman points out the other side of this:

Everything we know says that this generation will never — never — recover from the terrible job market into which it has graduated. But hey, we can’t do anything about that; we must have austerity, for the sake of the next generation.

Here are two studies that have found that graduating while there is a recession leads to a lifetime of lower earnings and here’s the quick conclusion of the second one:

Taken as a whole, the results suggest that the labor market consequences of graduating from college in a bad economy are large, negative and persistent.

Kevin Drum says probably means half a million dollars over their career. I’m not sure where he’s getting that number, but I remember him posting about this earlier (I’ll add the link if I find it).

The job market for recent graduates really sucks right now (the report is here):

For this generation of young people, the future looks bleak. Only one in six is working full time. Three out of five live with their parents or other relatives. A large majority — 73 percent — think they need more education to find a successful career, but only half of those say they will definitely enroll in the next few years.

And what are we doing about it? Well (via KD since the article is behind a firewall, also look here):

Before now, I had never really understood how the 1930s could happen. Now I do. All one needs are fragile economies, a rigid monetary regime, intense debate over what must be done, widespread belief that suffering is good, myopic politicians, an inability to co-operate and failure to stay ahead of events. Perhaps the panic will vanish. But investors who are buying bonds at current rates are indicating a deep aversion to the downside risks. Policy makers must eliminate this panic, not stoke it.

And Romney?

Set Honest Goals: Cap Spending At 20 Percent Of GDP

Any turnaround must begin with clear and realistic goals. Optimistic projections cannot wish a problem away, they can only make it worse. As president, Mitt’s goal will be to bring federal spending below 20 percent of GDP by the end of his first term:

  • Reduced from 24.3 percent last year; in line with the historical trend between 18 and 20 percent
  • Close to the tax revenue generated by the economy when healthy
  • Requires spending cuts of approximately $500 billion per year in 2016 assuming robust economic recovery with 4% annual growth, and reversal of irresponsible Obama-era defense cuts

Take Immediate Action: Return Non-Security Discretionary Spending To Below 2008 Levels

Any turnaround must also stop the bleeding and reverse the most recent and dramatic damage:

  • Send Congress a bill on Day One that cuts non-security discretionary spending by 5 percent across the board
  • Pass the House Republican Budget proposal, rolling back President Obama’s government expansion by capping non-security discretionary spending below 2008 levels

This means massive cuts in spending on social issues (the poor), but even he has started to back away from talking about making huge cuts now given how badly austerity is doing in Europe. Otherwise, it’s all magical thinking. If you look at what Romney says, what you’ll see is this:

The plan would reduce the six current income tax rates by one-fifth, bringing the top rate down from 35 percent to 28 percent and the bottom rate from 10 percent to 8 percent. The accompanying repeal of the AMT would increase the tax savings from the rate cuts—without that repeal, the AMT would reclaim much of the tax savings.

The plan would recoup the revenue loss caused by those changes by reducing or eliminating unspecified tax breaks, thereby making more income subject to tax. Gov. Romney says that the reductions in tax breaks, in combination with moderately faster economic growth brought about by lower tax rates, will make the individual income tax changes revenue neutral compared with simply extending the 2001 and 2003 tax cuts. He also promises that low- and middle-income households will pay no larger shares of federal taxes than they do now.

At the corporate level, the Romney plan would make two major changes: 1) reduce the corporate income tax rate from 35 to 25 percent and 2) make the research and experimentation credit permanent, It would also extend for one year the full expensing of capital expenditures and allow a “tax holiday” for the repatriation of corporate profits held overseas. The plan does not specify, however, whether repatriated earnings would face any tax and, if so, at what rate. In the longer run, Gov. Romney would reduce the corporate rate further in conjunction with base broadening and simplification and would move the corporate tax to a territorial system.

Gov. Romney would also permanently repeal the 0.9 percent tax on wages and the 3.8 percent tax on investment income of high-income individual taxpayers that were imposed by the 2010 health reform legislation and are scheduled to take effect in 2013.

Yup, that’s some honest goals there.

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