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Made in au
The Dread Evil Lord Varlak





 Frazzled wrote:
He is somewaht more knowledgeable. Frazzled is also right. If your budget is increasing, not decreasing, and your budget is monstrously bloated now, then austerity be a thing not seen. I don't know about most of Europe's and again, not speaking about the EU. nor am I saying if we need to reduce the budget. I'm sayign the US budget is not in a period of austerity.


Sigh. 'Monstrously bloated' is not in fact a technical term. It is, instead, just another round the watercooler bs term used by people who are just making up stuff as they go. It's relevance to actual economic discussion is exactly zero.

Austerity is the idea that budget deficits hurt overall demand in periods of recession, because they reduce investor confidence, and drive up interest rates and inflation. All those predictions were wrong, because none of them accounted for what happens when interest rates hit the zero lower bound.

As such austerity is a response, a movement in the overall position, a reduction in govt deficit or an increase in govt surplus - it doesn't matter if govt deficit meets the technical definition 'monstrously bloated' or not. And the nominal figures certainly don't matter - what matters is government in relation to the total economy. Whether government is a large or small portion of the economy, the question is whether they become a smaller part, as per austerity, or a larger part, as per Keynesian stimulus.

As such, with the US, it can be said that where the situation clearly called for stimulus, the US at first opted for stimulus that was probably about 2/3 of what it needed to be, and thereafter for reasons of politics and stupidity it has backed away from further attempts at stimulus, and instead attempted a very minor reduction in overall government spending.

This is in contrast to Europe, where much slighter attempts at stimulus were made, and then only in the core nations, after which policy has switched dramatically to straight up austerity in the belief that it would lead to economic recovery.

Now that that's cleared up maybe we can go back to discussing the actual realities of economic policy and what the best fit for the current economic climate is.


But, of course, that isn't going to happen. Because its your political team that's been arguing for austerity. And because that positions is plainly and obviously completely indefensible, you've instead tried to drag the conversation over into nonsense. Hence your disruptive, nonsense claims about measuring US govt spending in nominal dollars, and wanting to talk about the US position alone and pretending there is no argument for austerity in the US.

It's worked of course, as it almost always does. We've all been dragged in to explaining to you why judging government spending in nominal dollars is stupid, and why 'monstrously bloated' is just empty rhetoric. And we're doing that instead of actually hashing out the case in which austerity has utterly failed as economic model, and should be completely abandoned by anyone who was stupid enough to believe it, but honest enough to admit that it has failed.

This message was edited 1 time. Last update was at 2013/05/07 02:16:11


“We may observe that the government in a civilized country is much more expensive than in a barbarous one; and when we say that one government is more expensive than another, it is the same as if we said that that one country is farther advanced in improvement than another. To say that the government is expensive and the people not oppressed is to say that the people are rich.”

Adam Smith, who must have been some kind of leftie or something. 
   
Made in us
Battlefield Tourist




MN (Currently in WY)

Since the original studies fell apart, is there some new "work" that is being trumpeteed as the basis for the Austerity beliefs?

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The Dread Evil Lord Varlak





 Easy E wrote:
Since the original studies fell apart, is there some new "work" that is being trumpeteed as the basis for the Austerity beliefs?


I haven't seen any new paper brought forward as pure, absolute truth like the AA and RR papers were. Maybe the austerity mob learned that you actually have to read something and wait for peer review before you know if something is true or not. But all of that takes time, effort and some measure of intellectual honesty, so that isn't happening. And maybe that's understandable, given that so many other arguments were found so terribly wanting*, it's likely that they'd never actually find a decent paper that confirmed their pre-concevied notions anyway.

Instead they seem to have taken on a new two part strategy;

1) Just declare things that 'everyone knows' without bothering to substantiate them at all. I've seen a fair few instances recently of people saying 'everyone knows that high debt hurts growth', a finding in both the above papers (that subsequent work found was far more a case of reverse correlation - that in actual fact low growth led to high debt). And while no-one mentions the 90% figure anymore because they'd be inviting excel jokes, you still hear comments about everyone knowing that there's a drop off rate, a point of debt that suddenly crashes the economy (that there is no coherent mechanisms through which this might happen, and that many countries have posted debts well in excess of 100% of GDP without ever seeing a drop off).
2) When their errors are pointed out, they complain that the other person is mean.

Those two things seem to more or less have kept austerity trucking along for now.



*My personal favourite was Olli Rehn claiming that Keynes wouldn't have argued for more government spending if he was dealing with the massive levels of government debt we have now. Except UK debt in the 1930s was higher than it is in the UK today.

This message was edited 1 time. Last update was at 2013/05/09 04:31:28


“We may observe that the government in a civilized country is much more expensive than in a barbarous one; and when we say that one government is more expensive than another, it is the same as if we said that that one country is farther advanced in improvement than another. To say that the government is expensive and the people not oppressed is to say that the people are rich.”

Adam Smith, who must have been some kind of leftie or something. 
   
Made in us
Hallowed Canoness





The Void

Interestingly what Keynes did argue originally was that the entire theory of Keynesian economics was a short term plan. "Do this for just four years and NEVER do it again"

I beg of you sarge let me lead the charge when the battle lines are drawn
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Made in au
The Dread Evil Lord Varlak





 KalashnikovMarine wrote:
Interestingly what Keynes did argue originally was that the entire theory of Keynesian economics was a short term plan. "Do this for just four years and NEVER do it again"


Sort of but not really. I mean, yeah, government stimulous is absolutely a short term thing, but there's nothing there about it being a once only plan. It should be done every time that interest rates can fall no further and so there remains a gap between savings and investment.

In fact, one of the rare things Keynes actually got entirely wrong is his prediction that such liquidity traps would become more and more common (he predicted a future in which the rate of innovation would decline, harming the need for and return on investment) leading to a kind of semi-permanent liquidity trap. Far from thinking we should never do this again, he was actually predicting a new economic pattern in which such action would be required fairly often.

In this Keynes was wrong, and a second liquidity trap didn't occur for more than 60 years. But in how to fix it when it happens, he was completely right.




Automatically Appended Next Post:
And in other news, the CBO has just released their new figures on the deficit for the YTD 2013, and the position is $231 billion better than last year, for a YTD deficit of $489 billion. That $231 billion improvement on the same time last year was driven by $220 billion more in revenue, and $11 billion less in spending.

http://www.cbo.gov/publication/44144

This is interesting for a few reasons;

1) I look forward to the nonsense fraz invents to pretend it isn't true and that government is still spending more year on year in real dollars. I mean, now he's wrong even given his own nonsense requirement for a fall in real dollar spending. I suspect he'll either just not post again, or start talking about some new requirement, like the need to be in surplus or something else that makes no sense right now.
2) We're a tick over two years since Simpson and Bowles claimed that the US deficit would cause a massive economic crisis in the US. It didn't happen, and nothing that did happen looked even slightly like what the deficit driven meltdown they were predicting. And yet their profile in these debates hasn't diminished one bit, because for some reason the people who shout 'deficit deficit yaargh it's all falling down' don't seem to have to be right about anything. I guess they're a bit like goldbugs in that regard, who've been shouting 'fiat currency fiat currency yaargh its all falling down hyperinflation' for decades, and the simple fact their predictions have utterly failed throughout that time just doesn't seem to matter.

This message was edited 4 times. Last update was at 2013/05/09 08:51:05


“We may observe that the government in a civilized country is much more expensive than in a barbarous one; and when we say that one government is more expensive than another, it is the same as if we said that that one country is farther advanced in improvement than another. To say that the government is expensive and the people not oppressed is to say that the people are rich.”

Adam Smith, who must have been some kind of leftie or something. 
   
Made in us
Battlefield Tourist




MN (Currently in WY)

 sebster wrote:
1) Just declare things that 'everyone knows' without bothering to substantiate them at all. I've seen a fair few instances recently of people saying 'everyone knows that high debt hurts growth', a finding in both the above papers (that subsequent work found was far more a case of reverse correlation - that in actual fact low growth led to high debt). And while no-one mentions the 90% figure anymore because they'd be inviting excel jokes, you still hear comments about everyone knowing that there's a drop off rate, a point of debt that suddenly crashes the economy (that there is no coherent mechanisms through which this might happen, and that many countries have posted debts well in excess of 100% of GDP without ever seeing a drop off).

2) When their errors are pointed out, they complain that the other person is mean.



You forgot strategy 3.) Just repeat the falsehood over and over and over and over again until people just believe it because they have heard it repeated so many times and don't want to waste their time/energy bashing their head into a brick wall.

This message was edited 1 time. Last update was at 2013/05/09 13:15:03


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The Great State of Texas

 Easy E wrote:
 sebster wrote:
1) Just declare things that 'everyone knows' without bothering to substantiate them at all. I've seen a fair few instances recently of people saying 'everyone knows that high debt hurts growth', a finding in both the above papers (that subsequent work found was far more a case of reverse correlation - that in actual fact low growth led to high debt). And while no-one mentions the 90% figure anymore because they'd be inviting excel jokes, you still hear comments about everyone knowing that there's a drop off rate, a point of debt that suddenly crashes the economy (that there is no coherent mechanisms through which this might happen, and that many countries have posted debts well in excess of 100% of GDP without ever seeing a drop off).

2) When their errors are pointed out, they complain that the other person is mean.



You forgot strategy 3.) Just repeat the falsehood over and over and over and over again until people just believe it because they have heard it repeated so many times and don't want to waste their time/energy bashing their head into a brick wall.


Mmm...the Obama strategy. Yes indeedy.

-"Wait a minute.....who is that Frazz is talking to in the gallery? Hmmm something is going on here.....Oh.... it seems there is some dispute over video taping of some sort......Frazz is really upset now..........wait a minute......whats he go there.......is it? Can it be?....Frazz has just unleashed his hidden weiner dog from his mini bag, while quoting shakespeares "Let slip the dogs the war!!" GG
-"Don't mind Frazzled. He's just Dakka's crazy old dude locked in the attic. He's harmless. Mostly."
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MN (Currently in WY)

Hey, I won't lie. It is a strategy that works no matter what side of the argument you are on.

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Tea-Kettle of Blood




Increased deficit spending only helps in the short term and has absolutely horrific long term consequences.

That kind of thinking has increased our national debt from around 70% GDP to 120% GDP in a period of 6 years with negligible (around 1%), economic growth to show for it and was the single biggest factor in our need to ask for a rescue package from the FMI and the CEB.
   
Made in us
5th God of Chaos! (Yea'rly!)




The Great State of Texas

 Easy E wrote:
Hey, I won't lie. It is a strategy that works no matter what side of the argument you are on.


We can both agree on that.

-"Wait a minute.....who is that Frazz is talking to in the gallery? Hmmm something is going on here.....Oh.... it seems there is some dispute over video taping of some sort......Frazz is really upset now..........wait a minute......whats he go there.......is it? Can it be?....Frazz has just unleashed his hidden weiner dog from his mini bag, while quoting shakespeares "Let slip the dogs the war!!" GG
-"Don't mind Frazzled. He's just Dakka's crazy old dude locked in the attic. He's harmless. Mostly."
-TBone the Magnificent 1999-2014, Long Live the King!
 
   
Made in au
The Dread Evil Lord Varlak





 Easy E wrote:
You forgot strategy 3.) Just repeat the falsehood over and over and over and over again until people just believe it because they have heard it repeated so many times and don't want to waste their time/energy bashing their head into a brick wall.


Yeah, definitely. That's what I meant by repeating things 'everybody knows' - just repeat the falsehood again and again, only this time asserting it as common knowledge, instead of propping it up with dodgy studies as was previously attempted.

And given the inherent appeal of austerity to many people (because lots of people love the idea of the tightening of the belt, especially when it's someone else's belt that's actually getting tightened) this austerity rhetoric just keeps on keeping on, despite being completely and utterly wrong.

“We may observe that the government in a civilized country is much more expensive than in a barbarous one; and when we say that one government is more expensive than another, it is the same as if we said that that one country is farther advanced in improvement than another. To say that the government is expensive and the people not oppressed is to say that the people are rich.”

Adam Smith, who must have been some kind of leftie or something. 
   
Made in gb
[SWAP SHOP MOD]
Killer Klaivex







I'm not convinced that the concept of bringing in more than you spend, or an equivalent amount is a bad thing for a country.


 
   
Made in au
The Dread Evil Lord Varlak





PhantomViper wrote:
Increased deficit spending only helps in the short term and has absolutely horrific long term consequences.


Oh for feth's sake. That the nonsense you just posted is completely fething wrong is exactly what this thread is about.

The claims that high debt had strong long term negative affects of growth have been completely and utterly disproven. If you'd fething read this thread you'd have known that. But you haven't, so I'll give the cheat notes version - the 'horrific consequences' of a short period of stimulus spending are close to zero.

And the point is to help out in the short term. Government spending to offset the shortfall in private demand for four or five years prevents unemployment that needn't be, and prevents the collapse of many businesses that would otherwise be useful and productive parts of the economy in normal economic circumstances... which greatly hurts the speed of the recovery and the return to normal economic circumstances.

And it is a complete, crazypants nonsense to say 'oh we only saw 1% growth despite having a really big deficit'. The point is stimulus or not you've got a GFC and subsequent recession, and so the question becomes 'without stimulus what would our deficit be?' and 'without stimulus what would our unemployment be?' I mean, your claim is like saying 'well despite sending in the rescue helicopters 3 people died, so what was the point of sending in the helicopters?'... well if you hadn't sent in helicopters 140 people would have died.

And aren't you in Portugal? What in the blue blazes has your countries actions got to do with stimulus? You had a structural deficit made far worse by the GFC, and the response to that, in order to receive bail out funds to continue operating, was a scale back on government spending - otherwise known as austerity.

And, finally, there are good and bad times to bring down the debt. The great myth of this anti-Keynesian nonsense is the unstated assumption that scaling hurts the same amount no matter when you do it... when the simple reality is that basic understanding of aggregate demand will tell you otherwise, and there are quite possibly hundreds of research papers that verify it. Simply put, when you have deficits in full employment, you are dragging jobs away from industry and in to government jobs, and you are crowding out investment (dragging savings in to funding the deficit instead of funding new industry projects), and cutting the deficit is very likely to drive up economic growth.

But when you are in a liquidity trap, those things don't work. Because there is a massive oversupply of savings compared to investment, which means money borrowed to fund government schemes doesn't make that money unavailable for private investment - they weren't using it anyway. And when you have unemployment above the structural rate new government jobs aren't taking labour from the private sector, they're employing people who'd otherwise be unemployed.

All that means, roughly speaking and dependant on country & specific point in time, in good economic times a dollar improvement to the government's bottom line is likely to save it somewhere between $1.10 and $1.50 and possibly improve the rate of economic growth... but when you're in a liquidity trap a dollar improvement to the government's bottom line will only actually save it about $0.40, and reduce overall aggregate demand by anywhere between $1.50 and $2.50.

If, five or so years from now when we've more or less recovered back to good economic conditions... then you'll find me once again talking about the need to bring down deficits. But right now the only policy that makes sense is running deficits to stimulate demand.


Automatically Appended Next Post:
 Ketara wrote:
I'm not convinced that the concept of bringing in more than you spend, or an equivalent amount is a bad thing for a country.


So did Hoover, and in normal economic conditions it is solid policy.

But in specific economic circumstances, it's a disastrous policy. As Hoover and the US as a whole learned when his policies made everything lots, lots worse. And as Olli Rehn is also finding in Europe, and David Cameron to a lesser extent is finding in the UK right now.

Thing is, right now, according to the Fed, the interest rate needed to bring equilibrium between savings and investment is about -5%. That means to have savings equal to investment, savers would have to be paying 5% of their money just for the privilege of having a bank hold it, and investors would have to be getting paid 5% for taking that money.

Now, obviously, banking can't work like that, and the lowest rates can go to is 0% before they just stop. That is called the zero lower bound. The inability for interest rates to go any lower is called a liquidity trap, and it means that there is a massive oversupply of savings compared to investment*. This means loads of money that just isn't being spent through the economy, producing very low or negative growth rates, and high unemployment.

The one organisation with the capacity and basic motivation to actually do something about this is government. The tool at its disposal is its own fiscal budget, and what it can do for a brief period of time is to run large deficits budgets, make up the shortfall in private demand with projects of its own.

In the long term, when the position has corrected itself, then returning to moderate budget surpluses both to pay off the debt accrued and to build a surplus to account for future problems is absolutely the right course of action. But during that liquidity trap it is complete, utter lunacy.



*When interest rates are too high you get more savings than investment. When rates are too low you get too much investment. Normally an oversupply of one will force the interest rate to respond, self-correcting the problem. But when you hit the zero lower bound the position can't correct itself any more.

This message was edited 3 times. Last update was at 2013/05/10 02:10:28


“We may observe that the government in a civilized country is much more expensive than in a barbarous one; and when we say that one government is more expensive than another, it is the same as if we said that that one country is farther advanced in improvement than another. To say that the government is expensive and the people not oppressed is to say that the people are rich.”

Adam Smith, who must have been some kind of leftie or something. 
   
Made in au
The Dread Evil Lord Varlak





Paul Krugman's summary of the austerity mess posted here, http://www.nybooks.com/articles/archives/2013/jun/06/how-case-austerity-has-crumbled/, is pretty much the complete summary of the whole austerity debacle.

You can basically sum up what happened with this graph;


The more austerity that was imposed, the more GDP decline. Contrary to what the austerity people claimed, there is no confidence fairy, and no bond vigilantes that will cause austerity to cause economies to grow. Simple, generations old Keynes was completely right, and the only way to maintain GDP is for government to step in.


It also sums up perfectly why people were tempted to believe something so stupid... because;

"Everyone loves a morality play. “For the wages of sin is death” is a much more satisfying message than “gak happens.” We all want events to have meaning."

Ultimately, there's a perception that the GFC was the product of excessive consumption, and therefore, instinctively, the answer must be the opposite of that - we must have savings and sacrifice, we must have austerity.

This message was edited 1 time. Last update was at 2013/05/15 03:19:25


“We may observe that the government in a civilized country is much more expensive than in a barbarous one; and when we say that one government is more expensive than another, it is the same as if we said that that one country is farther advanced in improvement than another. To say that the government is expensive and the people not oppressed is to say that the people are rich.”

Adam Smith, who must have been some kind of leftie or something. 
   
Made in us
Battlefield Tourist




MN (Currently in WY)

That's Krugman.... the right can immediately dismiss it as not real and partisan.

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 Easy E wrote:
That's Krugman.... the right can immediately dismiss it as not real and partisan.


At which point the correct response is "why does that make the data faulty? Where's the flaw?".

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I agree that austerity doesn't work, however, that data doesn't prove it.

The majority of the restaurants on kitchen nightmares end up closing. This is not because Gordon Ramsay is hurting them, but because only restaurants that are already failing go on the show.

Austerity is being applied most forcefully on the euro nations which are in the worst situations. While it seems likely to me that austerity made greece worse, the data presented does not actually prove anything like that, since it's also likely that greece was doomed either way.
   
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Rented Tritium wrote:I agree that austerity doesn't work, however, that data doesn't prove it.

The majority of the restaurants on kitchen nightmares end up closing. This is not because Gordon Ramsay is hurting them, but because only restaurants that are already failing go on the show.

Austerity is being applied most forcefully on the euro nations which are in the worst situations. While it seems likely to me that austerity made greece worse, the data presented does not actually prove anything like that, since it's also likely that greece was doomed either way.

I think you are erroneously conflating "austerity makes the country fail" with "austerity does not help the country". While the data might not necessary prove that austerity is the causal factor for the country's economy going down the drain, the data in the correlation most definitely suggests that austerity does not help the country.
   
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 azazel the cat wrote:
Rented Tritium wrote:I agree that austerity doesn't work, however, that data doesn't prove it.

The majority of the restaurants on kitchen nightmares end up closing. This is not because Gordon Ramsay is hurting them, but because only restaurants that are already failing go on the show.

Austerity is being applied most forcefully on the euro nations which are in the worst situations. While it seems likely to me that austerity made greece worse, the data presented does not actually prove anything like that, since it's also likely that greece was doomed either way.

I think you are erroneously conflating "austerity makes the country fail" with "austerity does not help the country". While the data might not necessary prove that austerity is the causal factor for the country's economy going down the drain, the data in the correlation most definitely suggests that austerity does not help the country.

Not any more than Kitchen Nightmares suggests that Ramsay does not help.

If only certain types of country try something to that extent, you are going to have a hard time getting your data to establish anything.
   
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What types of country would it work in, then? Or rather, what types of country would it not fail in?
   
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The Great State of Texas

 Easy E wrote:
That's Krugman.... the right can immediately dismiss it as not real and partisan.


Consider it done.

-"Wait a minute.....who is that Frazz is talking to in the gallery? Hmmm something is going on here.....Oh.... it seems there is some dispute over video taping of some sort......Frazz is really upset now..........wait a minute......whats he go there.......is it? Can it be?....Frazz has just unleashed his hidden weiner dog from his mini bag, while quoting shakespeares "Let slip the dogs the war!!" GG
-"Don't mind Frazzled. He's just Dakka's crazy old dude locked in the attic. He's harmless. Mostly."
-TBone the Magnificent 1999-2014, Long Live the King!
 
   
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 azazel the cat wrote:
What types of country would it work in, then? Or rather, what types of country would it not fail in?


I believe I already made it clear that I don't like austerity and don't think it works.
   
Made in au
The Dread Evil Lord Varlak





 Easy E wrote:
That's Krugman.... the right can immediately dismiss it as not real and partisan.


And that's the problem with the debate at present, people seem to think 'shut up with your facts and models with strong levels of predictive power, because you have a bias' is a reasonable response. And so they keep ignoring the people they don't want to hear, even though they're right on this issue, and keep listening to the people who's opinions they do like to hear, even when their predictive record is just pure fail.

What I just wrote might not sound particularly fair or kind, but with Fraz's response to your post, we can of course see the 'la la la I can't hear you, your facts have no impact on my opinion' isn't just a sad reality, it seems they're actually proud to work like that.


Automatically Appended Next Post:
 Rented Tritium wrote:
I agree that austerity doesn't work, however, that data doesn't prove it.

The majority of the restaurants on kitchen nightmares end up closing. This is not because Gordon Ramsay is hurting them, but because only restaurants that are already failing go on the show.

Austerity is being applied most forcefully on the euro nations which are in the worst situations. While it seems likely to me that austerity made greece worse, the data presented does not actually prove anything like that, since it's also likely that greece was doomed either way.


That's a reasonable point, there's definitely strong correlation between countries that were already tanking and the harshness of austerity.

This message was edited 1 time. Last update was at 2013/05/17 02:01:54


“We may observe that the government in a civilized country is much more expensive than in a barbarous one; and when we say that one government is more expensive than another, it is the same as if we said that that one country is farther advanced in improvement than another. To say that the government is expensive and the people not oppressed is to say that the people are rich.”

Adam Smith, who must have been some kind of leftie or something. 
   
Made in au
The Dread Evil Lord Varlak





And now the austerity folk have found their new argument, and their new champion. James Buchanan has stepped up to argue that the problem with Keynesian stimulus isn't that it doesn't work (so they seem to have conceded they were utterly wrong about that), it's that once stimulus is turned on, it never really gets turned off again. Politicians love giving people low taxes and lots of services, and so winding that back might never happen. Once again, like with the other points made by the austerity people... the problem is that it just isn't true. In both the Great Depression and just recently, at the first sign of recovery the stimulus was pulled in. The same true throughout Japan's lost decade, despite the misconception of one long stimulus, looking at the actual policies and numbers, what actually occurred was a very stop start affair, stimulus was tried, and then pulled back on at the first sign of recovery, allowing a decline back in to recession, leading to another effort at stimulus that was then reigned in too soon, and so on (those arguments were made by Paul Krugman so Fraz should now do his best to pretend he didn't read it).

This is because, as should be very fething obvious to anyone who's paying attention, in addition to wanting low taxes and good services, people also like it when governments give them a balanced budget. As all this noise in the US right now about the deficit should tell them people are in fact very concerned about that last issue. As a result, politicians that can give them a balanced budget can win a lot of votes out of it, and so they do it. Even when the people are worrying about balanced budgets when there are far greater economic issues at hand (such as when the economy is in a liquidity trap).

And for bonus points Buchanan even misquotes Keynes on the long run. I mean fething hell, the guy has won a Nobel prize for economics, you'd think he could understand the most famous quote from one of the most famous economists of all time, wouldn't you?

This message was edited 2 times. Last update was at 2013/05/22 03:08:16


“We may observe that the government in a civilized country is much more expensive than in a barbarous one; and when we say that one government is more expensive than another, it is the same as if we said that that one country is farther advanced in improvement than another. To say that the government is expensive and the people not oppressed is to say that the people are rich.”

Adam Smith, who must have been some kind of leftie or something. 
   
Made in au
Tough Tyrant Guard







Not being an economist, I've been following this thread with great interest. Thank-you for making it! My question is: I was listening to ABC NewsRadio the other day and heard the "a" word with reference to Australia. Should I be pre-emptively terrified?
   
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HiveFleetPlastic wrote:
Not being an economist, I've been following this thread with great interest. Thank-you for making it! My question is: I was listening to ABC NewsRadio the other day and heard the "a" word with reference to Australia. Should I be pre-emptively terrified?


The situation in Australia is very different, as our interest rates are above zero, and the economy is operating at somewhere around full capacity. If we were to raise taxes or cut spending, then there is still room for interest rates to fall to adjust for any drop in demand due to government action.

In fact, pulling back on the deficit in our situation might actually have the beneficial effect that the austerity nuts talked about (and so did Keynes, funnily enough). Right now Australia has a shortfall in domestic savings, requiring the importing of a lot of our capital from overseas (this is basically due to having a lot of industries that are very capital heavy, like mineral and gas extraction). If the government were to make changes to break even then there'd be less of a draw on domestic savings to pay for the government deficit, moving us a little closer to having parity in our capital account.

Now, whether the actual specific proposals put up by either side of politics to reach suprlus are any good.... well that's another issue entirely (though I was happy that the baby bonus got canned, that was some stupid policy).

“We may observe that the government in a civilized country is much more expensive than in a barbarous one; and when we say that one government is more expensive than another, it is the same as if we said that that one country is farther advanced in improvement than another. To say that the government is expensive and the people not oppressed is to say that the people are rich.”

Adam Smith, who must have been some kind of leftie or something. 
   
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 sebster wrote:

That's a reasonable point, there's definitely strong correlation between countries that were already tanking and the harshness of austerity.


I can't read the whole article but I'd like to know the strength of the correlation on the graph. The relationship seem to largely rely on Greece which is exceptional. All the other countries show a very general trend and are quite scattered in relation to each other. So while there's a correlation, I doubt the graph is predictive with accuracy.
   
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 Howard A Treesong wrote:
I can't read the whole article but I'd like to know the strength of the correlation on the graph. The relationship seem to largely rely on Greece which is exceptional. All the other countries show a very general trend and are quite scattered in relation to each other. So while there's a correlation, I doubt the graph is predictive with accuracy.


Even if Greece is removed, there's still a clear trend there. Just eyeballing it, you can see Ireland, Portugal, Italy and Spain with the harshest austerity and the worst growth, with Germany, Austria and Belgium with little austerity and modest levels of growth. The only real outlier is Finland, who didn't partake in austerity and still suffered negative growth.

The real issue is what Rented Tritium mentioned - the Kitchen Nightmares factor. The restaraunts desperate enough to have Gordon Ramsey in to help them are already pretty close to fethed, and the countries that undertook the most severe austerity were the ones with the most fethed economies.

So it can be argued, quite reasonably, that the graph doesn't prove that austerity hurt those economies, they might have suffered negative growth anyway. But it certainly shows that austerity didn't help, that there was no confidence fairy to drive up private investment in response to government spending cuts.

“We may observe that the government in a civilized country is much more expensive than in a barbarous one; and when we say that one government is more expensive than another, it is the same as if we said that that one country is farther advanced in improvement than another. To say that the government is expensive and the people not oppressed is to say that the people are rich.”

Adam Smith, who must have been some kind of leftie or something. 
   
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The IMF has released a fairly remarkable piece of self-criticism over their part in the austerity policies in Greece.
http://www.imf.org/external/pubs/ft/scr/2013/cr13156.pdf

"In the event, macro outcomes were far below the baseline and while some of this was due to exogenous factors, the baseline macro projections can also be criticized for being too optimistic."
"The economic downturn proved considerably more severe than projected. Data revisions complicate the comparison,4 but real GDP in 2012 was 17 percent lower than in 2009, compared to a 5½ percent decline projected in the SBA-supported program."

That might not sound like much, but it's economics speak for 'okay, yes, you were right and we were wrong'. And bear in mind this is the IMF here, these guys still haven't admitted the part they played completely fething up the transition of Russia from a socialist to capitalist model, and that was 20 years ago, so for them to admit their part in austerity mess so quickly is kind of a big deal.


What does this mean to political pundits who are still out there, telling bs everyday for the sake of austerity? Well, it doesn't mean anything. I mean, in the same week that the IMF approaches their own part in the austerity mess in an honest, self-criticising manner, the Heritage Foundation stands up and tells what can only be described as an obvious, ridiculous lie.
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/06/05/yes-europe-really-is-in-the-throes-of-austerity/

I mean, first up the Heritage people claim that only three countries in Europe underwent austerity, trying to make this point by listing the movement in debt as a percentage of GDP... completely ignoring the fact that in most of those countries GDP has dropped considerably, making the smaller overall debt look much bigger. But that's a claim that's more misleading than anything else. But then they follow it up with an absolute doozy, a claim that is completely and utterly, no bones about it absolute bs - the Heritage foundation claim that European austerity doesn't count because it was mostly higher taxes, with little spending cuts. Claiming the OECD as a source, they make the claim that only three countries in Europe enacted austerity, while the rest just raised taxes. But looking at the OECD figures, they state 15 countries in Europe undertook austerity, and of them only six had more tax raises than spending cuts, with only two having a ratio greater than 60:40 in favour of higher taxes, concluding the overall weighting across Europe was two thirds expenditure reductions.


So, in the wake of one of the great policy disasters, we see the basic difference between honest and dishonest policy discussion. The honest approach is to admit your errors and state your successes, as the IMF did this time, while the Heritage Foundation adopts a different approach, and just tells bigger lies.

This message was edited 1 time. Last update was at 2013/06/06 03:33:01


“We may observe that the government in a civilized country is much more expensive than in a barbarous one; and when we say that one government is more expensive than another, it is the same as if we said that that one country is farther advanced in improvement than another. To say that the government is expensive and the people not oppressed is to say that the people are rich.”

Adam Smith, who must have been some kind of leftie or something. 
   
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When your policy is not working, just double down on it. That's the way people are.

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