Hi Jim,
I am noting Rubin’s reasoning in order to clarify Obama’s position. As Brad DeLong reports, Obama is getting the opposite of what he sought which was debt reduction over the medium and long term without a sacrifice of stimulus in the short term. I don’t understand yet why that’ll be the effect of the deal. It is possible that due to that apparent failure the US will still lose the AAA rating; and even if it’s only a downgrade to a double A rating and the downgrade has no direct economic effect, it’s a symbolic loss, and should spell the end of his chances of re-election. As for your separate points: 1. I don’t see the grounds for betting on a strong growth rate. 2. Commodity inflation can affect both final prices and costs. 3. The stimulus did not have the pump priming effects that Obama hoped it would have; if it had then state budgets would not be in such bad shape. 4 I don’t see why we should assume that all countries are in position to expand their money supply in the way the US is. In fact Joseph Stiglitz has raised the specter of competitive devaluation and global backlash against the US; the trade wars would not be triggered by dominant fraction of US capital. 5 The question is whether low yields on US Treasuries reflect confidence that US will not monetize its debt away,and should not be taken as a sign that a big second stimulus would be relatively costless. This is the conclusion that DeLong, Krugman, Reich, Tyson, Thoma and others are drawing. Rubin obviously thinks the low yields show how global confidence was bolstered in the US dollar exactly because the first stimulus was only moderate in size and the US must do more to keep that trust. I don’t think Rubin is obviously incorrect in laying out the costs of the alternatives possible within the system. He himself is promising no rose garden from his shared long-term austerity plan, and he is worried enough about the consequences of long term debt to call for new revenues financed by estate taxes and higher marginal tax rates.
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