Part II - 2001 Nobel Winner Akerlof's 2003 Interview
Continuing from Part 1
SPIEGEL ONLINE: If so (Bush administration is lying and looting), why's the President still popular?
Akerlof: For some reason the American people does not yet recognize the dire consequences of our government budgets. It's my hope that voters are going to see how irresponsible this policy is...
SPIEGEL ONLINE: What if that doesn't happen?
Akerlof: Future generations and even people in ten years are going to face massive public deficits and huge government debt. Then we have a choice. We can be like a very poor country with problems of threatening bankruptcy.
Or we're going to have to cut back seriously on Medicare and Social Security. So the money that is going overwhelmingly to the wealthy is going to be paid by cutting services for the elderly...
SPIEGEL ONLINE: Is there a possibility that the government, because of the scope of current deficits, will be more reluctant to embark on a new war?
Akerlof: ....You begin the war and ask for the money later. A more likely effect of the deficits is this: If there's another recession, we won't be able to engage in stimulatory fiscal spending to maintain full employment.
Until now, there's been a great deal of trust in the American government. Markets knew that, if there is a current deficit, it will be repaid. The government has wasted that resource.
SPIEGEL ONLINE: Which, in addition, might drive up interest rates quite significantly?
Akerlof: The deficit is not going to have significant effects on short-term interest rates. Rates are pretty low, and the Fed will manage to keep them that way.... When rates rise, the massive debt is going to bite much more.
SPIEGEL ONLINE: Why is it that the Bush family seems to specialize in running huge deficits? The second-largest federal deficit in absolute terms, $290 billion, occurred in 1991, during the presidency of George W. Bush's father.
Akerlof: That may be, but Bush's father committed a great act of courage by actually raising taxes. He wasn't always courageous, but this was his best public service.
SPIEGEL ONLINE: It seems that the current administration has politicized you in an unprecedented way. During the course of this year, you have, with other academics, signed two public declarations of protest - one against the tax cuts, the other against waging unilateral preventive war on Iraq.
Akerlof: I think this is the worst government the US has ever had in its more than 200 years of history. It has engaged in extraordinarily irresponsible policies not only in foreign and economic but also in social and environmental policy. This is not normal government policy.
The Nattering One muses.... As opposed to the unrealistic 10 yr estimate of a $1T surplus, Akerlof called for a cumulative 10 yr deficit of $6T.
Unfortunately, Akerlof's estimate of the future damages caused by the Bush administrations unrealistic policies, was conservative.
In retrospect: In 2002, outstanding debt $6.2T. In 2012, $16T. An increase of $9.8T over the 10 year period in question...
of which $5.9T was incurred subsequently from 2009 - 2012 in a effort to mitigate the damages directly caused by the Bush administrations irresponsible policies.
In regards to Bush Jr's administration being characterized by not telling the truth, looting, unrealistic claims, irresponsible war actions, indefensible economic policies which...
have mortgaged this country's future with very negative long term consequences, and being the worst government in the 200 year history of the union...
IMO Akerlof was absolutely spot on... we are already witnessing some of the dire consequences that Akerlof predicted, but only time will tell. Is there some hope for the future?
FYI, click here for bio/photo of Professor Akerlof's wife, a Professor Emerita at the University of California, Berkeley's Haas School of Business.
Spiegel's conversation with Akerlof as published July 29th, 2003.
More to come in The Fallout of Bad Choices.
SPIEGEL ONLINE: If so (Bush administration is lying and looting), why's the President still popular?
Akerlof: For some reason the American people does not yet recognize the dire consequences of our government budgets. It's my hope that voters are going to see how irresponsible this policy is...
SPIEGEL ONLINE: What if that doesn't happen?
Akerlof: Future generations and even people in ten years are going to face massive public deficits and huge government debt. Then we have a choice. We can be like a very poor country with problems of threatening bankruptcy.
Or we're going to have to cut back seriously on Medicare and Social Security. So the money that is going overwhelmingly to the wealthy is going to be paid by cutting services for the elderly...
SPIEGEL ONLINE: Is there a possibility that the government, because of the scope of current deficits, will be more reluctant to embark on a new war?
Akerlof: ....You begin the war and ask for the money later. A more likely effect of the deficits is this: If there's another recession, we won't be able to engage in stimulatory fiscal spending to maintain full employment.
Until now, there's been a great deal of trust in the American government. Markets knew that, if there is a current deficit, it will be repaid. The government has wasted that resource.
SPIEGEL ONLINE: Which, in addition, might drive up interest rates quite significantly?
Akerlof: The deficit is not going to have significant effects on short-term interest rates. Rates are pretty low, and the Fed will manage to keep them that way.... When rates rise, the massive debt is going to bite much more.
SPIEGEL ONLINE: Why is it that the Bush family seems to specialize in running huge deficits? The second-largest federal deficit in absolute terms, $290 billion, occurred in 1991, during the presidency of George W. Bush's father.
Akerlof: That may be, but Bush's father committed a great act of courage by actually raising taxes. He wasn't always courageous, but this was his best public service.
SPIEGEL ONLINE: It seems that the current administration has politicized you in an unprecedented way. During the course of this year, you have, with other academics, signed two public declarations of protest - one against the tax cuts, the other against waging unilateral preventive war on Iraq.
Akerlof: I think this is the worst government the US has ever had in its more than 200 years of history. It has engaged in extraordinarily irresponsible policies not only in foreign and economic but also in social and environmental policy. This is not normal government policy.
The Nattering One muses.... As opposed to the unrealistic 10 yr estimate of a $1T surplus, Akerlof called for a cumulative 10 yr deficit of $6T.
Unfortunately, Akerlof's estimate of the future damages caused by the Bush administrations unrealistic policies, was conservative.
In retrospect: In 2002, outstanding debt $6.2T. In 2012, $16T. An increase of $9.8T over the 10 year period in question...
of which $5.9T was incurred subsequently from 2009 - 2012 in a effort to mitigate the damages directly caused by the Bush administrations irresponsible policies.
In regards to Bush Jr's administration being characterized by not telling the truth, looting, unrealistic claims, irresponsible war actions, indefensible economic policies which...
have mortgaged this country's future with very negative long term consequences, and being the worst government in the 200 year history of the union...
IMO Akerlof was absolutely spot on... we are already witnessing some of the dire consequences that Akerlof predicted, but only time will tell. Is there some hope for the future?
FYI, click here for bio/photo of Professor Akerlof's wife, a Professor Emerita at the University of California, Berkeley's Haas School of Business.
Spiegel's conversation with Akerlof as published July 29th, 2003.
More to come in The Fallout of Bad Choices.
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