Or the radio, or look at news on the Internet. The reason, of course, is the debt ceiling “negotiations.” I think Calculated Risk is correct that the debt ceiling will get raised on time, but I don't think it is inconceivable that the Tea Partiers in the House could screw things up.
I know Paul Krugman is right that negotiations are in la-la land where the negotiators are talking about cutting government spending when the economy needs more demand. How do I know this? Because elementary macroeconomics tells us so. It's the most basic equation in macroeconomics: Y = C + I + G + (X-M). In English, national income (gross domestic product) equals private consumption plus investment plus government spending plus net exports. If you reduce government spending, you reduce GDP, all other things equal. And right now, with companies sitting on trillions of dollars in cash, government spending is not crowding out private spending and investment, so cutting government spending really will reduce GDP.
The losers from those government spending cuts will be middle class and poor people. With Social Security, Medicare, and Medicaid all potentially on the chopping block, the cornerstones of middle class economic security are under assault (and it's a self-inflicted wound for Democratic negotiators, starting with the President, to allow this). Reduced GDP means that unemployment will go up even faster than it already is. It's a multidimensional defeat for the middle class unless, by some miracle, a clean debt ceiling increase passes.
Who wins? Perhaps the biggest group is what Paul Krugman calls the “rentiers,” individuals “who derive lots of income from assets, who lent large sums of money in the past, often unwisely, but are now being protected from loss at everyone else’s expense.” These finance types benefit from low inflation, which maximizes the value of the interest they receive and the assets they hold, so they fight any policy which might increase inflation enough to expand the economy and reduce middle class debt loads. I'll have more to say about who wins and who loses from moderate inflation in a future post.
I hurt my head every time the debt ceiling gets discussed, from banging it against the wall. I wonder if I can self-nominate for the Order of the Shrill.
Wake me up on August 3rd.