A threadbare set of ideas
May 1, 2013 1:40 AM Subscribe

The Austerity Delusion: Why a Bad Idea Won Over the West. "Austerity is a seductive idea because of the simplicity of its core claim -- that you can’t cure debt with more debt. This is true as far as it goes, but it does not go far enough. Three less obvious factors undermine the simple argument that countries in the red need to stop spending. The first factor is distributional, since the effects of austerity are felt differently across different levels of society. The second factor is compositional; everybody cannot cut their way to growth at the same time. The third factor is logical; the notion that slashing government spending boosts investor confidence does not stand up to scrutiny."
posted by spamandkimchi (153 comments total) 36 users marked this as a favorite

Austerity is a moral proposition, not an economically sound one.

And it's a shitty moral proposition (fuck the poor) at that.
posted by bardic at 1:59 AM on May 1, 2013 [31 favorites]

Austerity is a label that was applied by the Right as a shorthand for reducing deficits that's been grabbed and co-opted by the Left for political means.

"Austerity is a seductive idea because of the simplicity of its core claim -- that you can’t cure debt with more debt. This is true as far as it goes..."

As with a lot austerity arguments, this seems to fall into the "we need to cut debt, but it's not as simple as that, and here's a bunch of complicated sounding but quite simple reasons why debt cutting hurts some in society."

It's handwavium at its core, and I'm more prone to believe "This is going to hurt but we have to do it" than the more fashionable "It doesn't have to hurt, they're only hurting you because they hate you".

I wish there were more *provable* ways of cutting government spending that didn't hurt the neediest in society, but this focus on the word "austerity" has made it nothing more than a political slogan to be waved in front of non-economists so they feel angry at whomever is making the cuts.
posted by zoo at 2:20 AM on May 1, 2013 [5 favorites]

Anyone making the 'country-as-a-household' argument is an idiot.

Countries don't die (excluding wars). As long as their economies can keep growing, it's fine. Hell the UK only finished paying off WWII debt a few years ago and we still have some debts that go back to the Napoleonic era.

Often the debt is owned internally. i.e. the government debt is held by pension funds of the people who live in the country.

In the case of the America it's debt is denominated in dollars and it can set the value of those dollars to whatever it wants, by printing more dollars. It's reserve currency of the world for pete's sake.

I'm in the UK and I can tell you austerity ain't working.
posted by gwildar at 2:23 AM on May 1, 2013 [3 favorites]

When the rich and powerful are willing to hurt themselves too, I'll listen to the suggestion that hurt is necessary.
posted by Drinky Die at 2:28 AM on May 1, 2013 [32 favorites]

Zoo, you can believe whatever you want, but it's been tried before. It was called the Depression.
posted by Hello, I'm David McGahan at 2:29 AM on May 1, 2013 [12 favorites]

Meanwhile, some good news for once: "How The Media Broke Up With Austerity"

Preview: We've been trying austerity since 2009 and it doesn't work. Period.
posted by bardic at 2:36 AM on May 1, 2013 [5 favorites]

You can have austerity, but only if those burdened by unaffordable debts get to default.

Austerity without default and a clean slate? That's a guaranteed recipe for economic depression.
posted by pharm at 3:00 AM on May 1, 2013 [2 favorites]

"Austerity" has nothing to do with cutting debt. It's just 'cutting taxes on the wealthy', 'cutting services for the poor'. It's still Keynesian economics, but for the benefit of a tiny, tiny percentage of the population. It's working perfectly well for the people that own the political system.

It'll take the complete collapse of the economic system for it to really turn around, unfortunately.
posted by empath at 3:11 AM on May 1, 2013 [9 favorites]

I wish there were more *provable* ways of cutting government spending that didn't hurt the neediest in society

2008 : Iceland goes bankrupt

2010: Iceland arresting, suing top bankers

2010 : Voters in Iceland Reject Repayment Plan

2012 : Iceland told the banks to pound sand. And Iceland’s economy is doing much better than virtually all of the countries which have let the banks push them around.
posted by Podkayne of Pasadena at 3:28 AM on May 1, 2013 [61 favorites]

It's not the Keynesian spending that kills growth, it's the perception that it will.

I am one of the ones that believes austerity is warranted so that government debt does not get too high; whatever too high is. I might be wrong about the positive impact from austerity, but that is not what what matters. The prophecy that excessive spending is bad is self fulfilling. As a consumer and investor, I make decisions based on my beliefs about excessive spending, and those decisions have a braking effect on whatever positive outcomes are supposed to be derived from government spending. I believe excessive debt levels will lead to higher rates of inflation, so I am hedging my inflation risk. The more the government spends, the more I hedge.

If I was the only one with these opinions, it would not matter. However, plenty of other people do, maybe even a majority. That is why the price of gold is up 300% in the past 10 years. The increase in the price of gold is not a good thing, it does not signal growth it signals fear. Most importantly, gold is a useless investment as far as the world economy is concerned. It sits in a vault and is not lent out to small businesses to buy new equipment. The gold does not produce jobs like an IPO might. "Investing" in gold is just one way us Keynesian "haters" push back. We might all be wrong, but any positive effect from government spending is going to be muted, or eliminated by the changes in spending and investing habits of those who believe governments are not being austere enough.
posted by otto42 at 4:02 AM on May 1, 2013 [2 favorites]

The gold does not produce jobs like an IPO might. "Investing" in gold is just one way us Keynesian "haters" push back. We might all be wrong, but any positive effect from government spending is going to be muted, or eliminated by the changes in spending and investing habits of those who believe governments are not being austere enough.

Until gold price dips and everyone panics because it has no real inherent value and you guys realize you're basically just trading pokemon cards.
posted by empath at 4:07 AM on May 1, 2013 [6 favorites]

Until gold price dips and everyone panics because it has no real inherent value and you guys realize you're basically just trading pokemon cards.
posted by empath at 4:07 AM on May 1 [+] [!]

Which is pretty much what I just said, though I was a lot more long winded. Thank you for summarizing.
posted by otto42 at 4:14 AM on May 1, 2013 [1 favorite]

otto42: just for you:
Pimco’s Bill Gross blasts Europe’s focus on austerity
posted by the man of twists and turns at 4:15 AM on May 1, 2013 [2 favorites]

I might be wrong about the positive impact from austerity, but that is not what what matters. The prophecy that excessive spending is bad is self fulfilling. As a consumer and investor, I make decisions based on my beliefs about excessive spending, and those decisions have a braking effect on whatever positive outcomes are supposed to be derived from government spending. I believe excessive debt levels will lead to higher rates of inflation, so I am hedging my inflation risk. The more the government spends, the more I hedge.

The short version of this is "I don't understand economics, and I vote!"

You are wrong, your economics were disproven 80 years ago, and you and those like you are why we're in the horrible shit we're in.
posted by Pope Guilty at 4:16 AM on May 1, 2013 [24 favorites]

At least now austerity supporters are finally admitting that (a) they don't know what works, (b) they don't care, and (c) they're being retaliatory against the poor to benefit the rich (often themselves).
posted by zombieflanders at 4:19 AM on May 1, 2013 [4 favorites]

There is nothing political or retaliatory here, these are just my beliefs as to how an economy works. As I said, I might even be wrong. I believe many people react the same way to a set of decisions and conditions at anyone time. I adjust my decisions based on my belief as to how others will react. Why make this about politics and the rich and poor?
posted by otto42 at 4:29 AM on May 1, 2013

Why make how people respond economically to the government's actions, when that particular response tends to enrich the wealthy at the expense of the poor, about politics and the rich and poor? Really?
posted by Pope Guilty at 4:30 AM on May 1, 2013 [7 favorites]

There is nothing political or retaliatory here, these are just my beliefs as to how an economy works.

Great. Faith-based budget policy.
posted by Slap*Happy at 4:35 AM on May 1, 2013 [17 favorites]

OK then, if it's not retaliatory then I presume you don't support cuts to social safety net programs and believe in more tax revenue from top earners?
posted by zombieflanders at 4:37 AM on May 1, 2013

If I was the only one with these opinions, it would not matter. However, plenty of other people do, maybe even a majority.

Nope. If there were a significant number of people like you, then the rising debt of the US would have resulted in rapidly increasing interest rates. They have not. The overall market is saying you are wrong. Likewise, if there were really a lot of you, then the Eurozone would have better economic performance than the US during this recession. But, to put it mildly, it has not.

The price of gold is up because there's always something to suck up the get-rich-quick dreams of the ignorant and desperate. Sometimes it's beanie babies, sometimes it's flipping houses in Vegas, and sometimes it's gold.
posted by ROU_Xenophobe at 4:50 AM on May 1, 2013 [6 favorites]

Who is cutting taxes on the rich? The revenue policy response to the financial crisis has been overwhelmingly to raise taxes, and (at least in the US) to focus those increases on those with high incomes from work (the mis-definition of "rich" which the rentier division of the left has cleverly instilled as gospel among the government dependent division of the left).

Not really. Case in point: the expiration of the payroll tax cut, where the low- and mid-earners had a larger cut in pay than high-earners (2.3 and 2.5 vs 1.8).

It's difficult for Americans to appreciate the appeal of austerity even among the left-wing establishment in Europe, to say the least of centrists. They perceive very acutely a contrast between Asian dynamism and local sclerosis, in which welfare, subsidy and regulation are deeply implicated.

Except, of course, for the fact that the European left--the actual left, not centrists like Labour--always thought it was a bad idea and loudly complained. In any event, Europe's economic community has been publicly turning against austerity in the last couple months because they say it didn't work the way they though it did. Same thing in Japan, where they just implemented open-ended quantitative easing.

Around the world, politicians are either turning their backs on austerity or being voted out by their citizens in favor of those who will. It's already happened in places like Japan and the UK and is starting to gain steam throughout Europe and ever so slowly in the US.
posted by zombieflanders at 4:54 AM on May 1, 2013 [2 favorites]

I look at it this way: national and global economics and extremely complex and no one really understands how they work, in the sense that when things go bad there are many different ideologies on how to proceed and there is no clear cut path to follow. In the past countries chose a path to follow, right or wrong, and because there were several different approaches at different times there were winners and losers. The "winner" countries were then able to grow their economies and then eventually help out partner nations that had been on a "losing" path.

However, now central bankers are acting in concert so that every country enacts exactly the same economic policies at the same time. The is great if they are right, however if they are wrong it is no longer just a few countries that will suffer, but rather most of the developped world. If you want to talk about risk, then this right here is exactly the kind of risk I wouldn't want to be taking, because the consequences may be terrible and extreme.
posted by Vindaloo at 4:57 AM on May 1, 2013 [1 favorite]

Hasn't the gold bubble already started to burst?
posted by graphnerd at 5:01 AM on May 1, 2013 [1 favorite]

Who is cutting taxes on the rich? The revenue policy response to the financial crisis has been overwhelmingly to raise taxes...

Everyone. The entire Republican platform during last year's Presidential election was to cut taxes on the rich, on investments, on corporatations, and since then they've been dragging there feet proclaiming any attempt at raising revenue to be "taxmageddon". Sure, the temporary payroll tax cut was allowed to expire along with some of the Bush tax cuts for really high incomes, but I'd hardly say that the response to the financial crisis has "overwhelmingly" been to raise taxes.

...the mis-definition of "rich" which the rentier division of the left has cleverly instilled as gospel among the government dependent division of the left

I agree. Investment income should be taxed more like work income, but that's a whole 'nother class struggle that's not really going to get much sympathy at the moment.
posted by RonButNotStupid at 5:11 AM on May 1, 2013 [2 favorites]

Businesses frequently borrow to invest and generate growth, and would a lot more if they could borrow at 0-2%.

And yet, these loans are expected to be paid back at some point. One part of a Keynesian model is the borrowed money is paid back.

But to come back to a nation:

This "invest and grow" model - what business model is being 'grown' or 'invested' in when a Nation buys drones?

What if the Nation is not a Democracy or a Republic but a plutocracy or classic-fascist (blending of corporate and government power) model? How does the borrowing not translate into government force being used to take from the many to give to the well connected few?
posted by rough ashlar at 5:21 AM on May 1, 2013 [2 favorites]

The name "corporatism" for fascism doesn't mean corporations in the modern sense, it means that all of society- business, labor, culture- unites under the leadership of the government. It masks the fact that fascist states are brutally awful for labor, of course.
posted by Pope Guilty at 5:24 AM on May 1, 2013 [2 favorites]

Who is cutting taxes on the rich?

Aside from the things noted above, the UK cut top income tax rates.
posted by jaduncan at 5:37 AM on May 1, 2013 [2 favorites]

And yet, these loans are expected to be paid back at some point. One part of a Keynesian model is the borrowed money is paid back.

Yes, exactly. Cutting services at a time of recession shrinks the economy, making debt rise as a percentage of GDP. Look at Greece's recent death spiral for this effect.
posted by jaduncan at 5:39 AM on May 1, 2013 [2 favorites]

Until gold price dips and everyone panics because it has no real inherent value

Other than as contacts in electronics or as stuff to wear as chains if you are Mr. T.

I wish there were more *provable* ways of cutting government spending that didn't hurt the neediest in society

Yes. The needy NEED tomahawk missiles. And because of wise government actions, it was seen that the 15kg of Silver in each one was spread all over the sands of Lybia, where there was more need than to say take a sword and beat the $4 an oz Silver out to sell it for $35 an oz.

If there was only some way to prove spending waste. Like finding the missing 2.1 trillion over at the Pentagon. Or perhaps find a missing 3.1 billion in terror related funding.
posted by rough ashlar at 5:44 AM on May 1, 2013 [1 favorite]

OK then, if it's not retaliatory then I presume you don't support cuts to social safety net programs and believe in more tax revenue from top earners?

Maybe, just maybe, you could try not putting your own moral spin on other people's actions?

I'm sure it's no surprise that I believe in what you're calling "austerity." And I do believe in cuts to government spending overall, which, yes, does include cuts to social safety nets. I do not believe in more tax revenue from anyone, top earners or no. But it has nothing to do with "retaliatory" nature.

Quite frankly, I believe we are currently living in an unsustainable bubble with the level of government spending that we do, and it must be ended. I think that we are encouraging people to become dependent on the state for their sustenance - which, aside from being a bad idea, also has the negative effect of making them ready to support truly egregious things as long as their benefits aren't cut. Like invading foreign countries, drone strikes, loss of privacy, torture, secret prisons, and a hundred other things you would think that we would protest against more severely than we do.

Austrian economics does state that the process of transitioning to a more healthy system will be painful. It is no secret. But it's not like anyone is delighting in the pain it will cause. More, it's viewed in the nature of an innoculation - a short pain and uncomfortable period in order to ensure that the worst does not come to pass.

You can argue with the ideas - and please do so. But when you make strawmen, like that everyone who believes in this is twirling their mustaches and cackling about how much they can hurt the poor, you do everyone a disservice.

To quote Stephan Molyneux,

"Do libertarians care about the poor? Well, we're not ladening them down with debt, we're not sending them off to goddamned wars, we're not creating a permanent underclass, we’re not trapping them in shitty schools where they graduate unable to read. We do care about the poor, and that’s why we want the State out of their way!”

posted by corb at 5:45 AM on May 1, 2013 [3 favorites]

It masks the fact that fascist states are brutally awful for labor, of course.

Say, how's that air traffic controllers Union doing these days now that their membership is under sequestration?

And how's the local union doing at Wal-Mart? I keep looking for a sympathy strike to defend the air traffic controllers union, but never see such with Wal-Mart workers.
posted by rough ashlar at 5:49 AM on May 1, 2013

Austrian economics

Explicitly dismisses the idea of arriving at economic conclusions via examination of reality, so I don't know why libertarians keep bringing it up. Literally any mention of Austrian economics is a derail. Austrian economics is never, ever on-topic unless the topic is "what stupid, crazy shit do some people believe in?"
posted by Pope Guilty at 5:49 AM on May 1, 2013 [18 favorites]

Say, how's that air traffic controllers Union doing these days now that their membership is under sequestration?

And how's the local union doing at Wal-Mart? I keep looking for a sympathy strike to defend the air traffic controllers union, but never see such with Wal-Mart workers.

This is a complete nonsequiter. Both fascist states and neoliberal states are brutal for laborers.

Also, literally zero Wal-Mart employees are unionized. Why you'd bring up Wal-Mart employees in an effort to shit on unions is beyond me.
posted by Pope Guilty at 5:50 AM on May 1, 2013 [7 favorites]

The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again. - John Maynard Keynes, A Tract on Monetary Reform (1923) Ch. 3
posted by ersatz at 5:51 AM on May 1, 2013 [2 favorites]

There can be 100 studies proving austerity wrong and it won't make a difference. We still believe that supply-side economics works, we still believe that laissez-faire capitalism works, we still believe that neoliberal economics works. We believe this, or at least pretend to, because they do work, just not for most people, same as high unemployment is awesome, just not for most people. America has a political system that now pretty much guarantees that only millionaires can get elected and yet we're surprised that our policies seem to only favor millionaires.
posted by Legomancer at 5:56 AM on May 1, 2013 [18 favorites]

Well, we're not ladening them down with debt

How do you expect people to pay for their education start up costs?

we're not creating a permanent underclass

Why wouldn't poorer areas have more poorly resourced schools that produce worse results?

we’re not trapping them in shitty schools where they graduate unable to read.

How would this not occur?
posted by jaduncan at 5:56 AM on May 1, 2013 [8 favorites]

The correct response is some combination of tax cuts and spending increases depending on where tax rates are today. Marginal rates are low enough in the US that spending is almost surely the more expansionary measure. In some parts of Europe where rates are high there is probably a real value to tax cuts and increasing labor flexibility for full time permanent jobs.

But no scenario should involve tax increases. I'm even against reduced military spending in the US only because that spending reduction ends up as savings, not spent on other more stimulating programs.

In a sense the current crisis shouldn't be seen as the time to correct the lack of progressivity in US taxes- but politically it might be the best time.

The best critique of classic Keynesian policy isn't economic but rather political. Politicians are never willing to put forward contractionary policy during periods of fast expansion.
posted by JPD at 5:56 AM on May 1, 2013 [2 favorites]

Also, literally zero Wal-Mart employees are unionized.

Don't tell me we can't afford sarcasm! This will not stand!
posted by sneebler at 5:57 AM on May 1, 2013 [1 favorite]

In this economy? Sorry, all we can afford are "NOT!" jokes.
posted by Drinky Die at 6:02 AM on May 1, 2013 [1 favorite]

I'm sure it's no surprise that I believe in what you're calling "austerity." And I do believe in cuts to government spending overall, which, yes, does include cuts to social safety nets. I do not believe in more tax revenue from anyone, top earners or no. But it has nothing to do with "retaliatory" nature.

It's only a class war when the poor start shooting back. Right.

Austrian economics

Is woo even by the shaky standards of most economics, explicitely rejecting real world observations. In short it's complete nonsense.

To quote Stephan Molyneux,
"Do libertarians care about the poor? Well, we're not ladening them down with debt, we're not sending them off to goddamned wars, we're not creating a permanent underclass, we’re not trapping them in shitty schools where they graduate unable to read. We do care about the poor, and that’s why we want the State out of their way!”

Which tells me all I need to know about how little Stephan Molyneux knows about the actual world. Even the American school system is light years ahead of the lack of one getting the state out of education has produced every time it has been tried. It is precisely libertarian ideals like deregulation that create permanent underclasses; if you want high socail mobility look at a western socialist country (not Communist) like Sweden. America's social mobility sucks (and so does Britain's) and it is precisely because of those libertarian ideals that it sucks.
posted by Francis at 6:09 AM on May 1, 2013 [28 favorites]

I think that we are encouraging people to become dependent on the state for their sustenance

Not current legislation, but in the past this claim was made - Senate bill on homegrown food equals homegrown tyranny.

Why you'd bring up Wal-Mart employees in an effort to shit on unions is beyond me.

Well Ma'am, there was a mention of labor doing poorly in fascist states. So I was asking about how unions were doing in 2 cases in a Nation that is supposed to function as a Republic, that many mislabel a Democracy while actually functioning as something else. Now lets say Wal-Mart is spending a whole lotta money in New Your to weaken labor laws, that is just a Right to Redress grievances as the Republic intends and not any 'shitting on unions' like what happens in neoliberal States .... right?

If one is going to talk and discuss economic models and a Nation - know how the Nation is actually functioning is an important starting point. The economic and Nation models are working just fine for some. As an example - the STOCK ACT and the willingness of the President to repeal the insider trading parts. If you are angry about the model, its just sour grapes that you are not working hard enough to be a part of the success! class* and are stuck in the loser class*.

*America is a Nation without class. Anyone can make it to the top, unlike them nasty class based Nations, right?
posted by rough ashlar at 6:15 AM on May 1, 2013

I've made my argument for why austerity is a house of cards before.

To restate the most important point, austerity has NOTHING to do with reducing government debt. There are any number of ways to reduce a deficit. Austerity just happens to be the one that harms those in power the least.

Oh, and as for the government-as-a-household trope, forget how lazy the analogy is...Households carry debt ALL THE TIME. Hello, Mortgage?!?
posted by dry white toast at 6:17 AM on May 1, 2013 [5 favorites]

jaduncan: "Who is cutting taxes on the rich?

Aside from the things noted above, the UK cut top income tax rates"

Not to mention that the UK, Estonia and the PIIGS - the main austerity countries in Europe - have pretty much all instituted VAT rises in the last few years, a measure which is generally considered to be regressive.
posted by Jakey at 6:22 AM on May 1, 2013

graphnerd: "Hasn't the gold bubble already started to burst?"

Didn't you get the memo? This is a buying opportunity!

/not goldbugist
posted by chavenet at 6:24 AM on May 1, 2013

How do you expect people to pay for their education start up costs?

Education is not expensive. Getting a diploma from a college is often expensive - because they have state-enforced monopolies on them - but I can't understand how you can claim that education is expensive when we have public lending libraries and used books - even on weighty subjects - cost less than a pack of cigarettes. And before we had public lending libraries, we had private lending libraries, like Franklin's Library Company of Philadelphia. (Not to mention the enormous interest of capitalist Andrew Carnegie)

Why wouldn't poorer areas have more poorly resourced schools that produce worse results?

Well, even the idea that people from poorer areas need to stay in their areas to use the schools is a totally state-provided idea, and one that comes about because of the property-tax rules. But if you gave people back their own tax money, for example, more people would be able to adequately pay for a private or at least parochial school. Right now, people are paying about a third of their income in taxes. Even if they only had a tenth of their income clear, that would enable people to pay for a lot more education from their children than is currently provided - without any focus on What The State Says You Must Learn. If your children would be better served by apprenticing or interning at a job, you could do that. If you want to send them to read all day, or see cultural sights, you can do that too.
posted by corb at 6:29 AM on May 1, 2013

OK then, if it's not retaliatory then I presume you don't support cuts to social safety net programs and believe in more tax revenue from top earners?

That is correct. I support austerity, which to me means cuts to non-vital programs, and I also support taxing the rich more. "Austerity" and "taxing the rich" are not mutually exclusive propositions. I'll grant you that some conservatives have seized on austerity as an pretext to reduce their tax burden, but this is absolutely not a part of austerity theory - it's a bastardization of the concept that has been unnaturally grafted on for self-serving reasons.

So if you're arguing against austerity because it supports the rich, you need to clarify whether you're arguing against the theory or the implementation. If you're arguing theory, then you're completely wrong and you should probably go read the definition of austerity again, because I don't know how much farther from the mark you could be. If you're arguing about implementation, then I think you're absolutely correct. Of course, the same thing could be said for Keynesian economics, which works well in theory but has generally been implemented in a horrible way.
posted by wolfdreams01 at 6:32 AM on May 1, 2013

The majority of households, in the US as elsewhere, make purchasing decisions based on need, and then secondarily based on emotional factors related to advertising and comparison with other households in an aspirational peer group, not based on the interaction between their beliefs about economics and current government policy.
posted by eviemath at 6:33 AM on May 1, 2013 [2 favorites]

This is why people don't like arguing with libertarians. We can't move the discussion forward until we hash out if public education should exist or not so we will just drift ever further away from anything having to do with our actual crisis. Maybe we could just proceed with proposing solutions that presume that a political party that can't even elect a Congressman is probably not going to be in position to overturn the basic foundations on which our modern society is built and remake them from the ground up any time soon.
posted by Drinky Die at 6:35 AM on May 1, 2013 [28 favorites]

the idea that people from poorer areas need to stay in their areas to use the schools is a totally state-provided idea

I think people tend to stick in the same area because of family and community, not because of the government.
posted by deticxe at 6:35 AM on May 1, 2013 [5 favorites]

Well, and because it costs a lot of money to move and making a 4-10 year old child commute 3 hours a day is both wasting their time and quite unsafe.
posted by jaduncan at 6:36 AM on May 1, 2013 [12 favorites]

What does it say about American society and politics when Bank of America is "too big to fail" but 89 million American workers “not in the labor force” (gov figures) aren't ?
posted by Podkayne of Pasadena at 6:43 AM on May 1, 2013 [10 favorites]

That it's politically acceptable to spend money subsidising the rich but not the poor. Seriously.
posted by jaduncan at 6:45 AM on May 1, 2013 [5 favorites]

I believe excessive debt levels will lead to higher rates of inflation

If I was the only one with these opinions, it would not matter. However, plenty of other people do, maybe even a majority.

Maybe not a majority but a lot of people do believe this (though the numbers are going down as time goes on). And they're wrong. Or should I say, they are likely wrong. The money multiplier is a myth. Also, the Fed (and other central banks) is paying interest on excess reserves and they can continue to do so as long as they want. It's tempting to think that QE must always = inflation but that's not how the monetary system necessarily works.

It's fine if people want to believe this on their own but that so many people believe this means that policy generally follows, which leads to these austerity policies all over the world, which we know are very damaging. Yet people continue to cling to it and we have idiotic people in the media pushing the household-debt-is-like-government-debt idea.

Discussions about national debt/spending/taxiation are important and necessary conversations that we need to have. But making draconian cuts in the middle of a recession or when global economic recovery is shaky at best is irresponsible and dangerous.
posted by triggerfinger at 6:48 AM on May 1, 2013 [1 favorite]

A number of people (JBD, Wolfdreams) are saying that Keynesianism is swell and all, except it's impossible to cut spending in boom times. So I read the article and saw this:

During the 1990s, various studies appeared to show that the fiscal consolidations that had taken place in the previous decade in Australia, Canada, Denmark, and Ireland had given the local economies a boost. All these countries cut their budgets, devalued their currencies, and controlled wage inflation, and their later growth rates were impressive.

...in each of these cases, a small state was cutting its public spending at the peak of a period of growth and when much larger trading partners were expanding. They were also discrete events, happening one country at a time, rather than simultaneous contractions.

Emphasis mine. Wolfdreams may also recall the Clinton example that has been brought to his attention in the two prior threads on this topic. I'm no expert on this topic--it's entirely possible I'm misunderstanding these events--but it doesn't sound like Keynesian cuts are the mythological creature they're made out to be.
posted by daveliepmann at 6:49 AM on May 1, 2013 [3 favorites]

However, now central bankers are acting in concert so that every country enacts exactly the same economic policies at the same time.

Hey we can all say crazy things without a smidge of evidence, but yeah, that's not what is happening.
posted by Hello, I'm David McGahan at 6:50 AM on May 1, 2013

Davelipemann, at least for Australia a big problem was massive increases of wealth transfers to the upper middle class. We will be a generation fighting this until people don't expect elite private schools to get the same funding per student from the government that struggling state schools do. Then there's Tony's Baby bonus.....
posted by Hello, I'm David McGahan at 6:56 AM on May 1, 2013

For a modern economy to function, SOMEBODY has to be spending. The poor can't. The rich can only spend so much (how many fourteen0carat yachts can one family own?). That leaves it on the shoulders of the public sector.

Austerity is people trying to impose their own emotions on economics.
posted by The Underpants Monster at 7:05 AM on May 1, 2013 [7 favorites]

Why make this about politics and the rich and poor?

That you see this as an obvious and useful distinction indicates to me that you are not poor.

Education is not expensive. Getting a diploma from a college is often expensive - because they have state-enforced monopolies on them - but I can't understand how you can claim that education is expensive when we have public lending libraries and used books - even on weighty subjects - cost less than a pack of cigarettes.

Aside from the fact that it is a rare employer who will not immediately cull a resume based on not meeting the degree requirements of the job (especially when unemployment is high and thus applicants are many), you are ignoring the opportunity costs. A person of leisure may be able to afford to become an autodidact, but people who are already struggling to keep afloat are going to be focused on activities that generate immediate income.
posted by solotoro at 7:16 AM on May 1, 2013 [8 favorites]

People keep making the facile argument that a country is like a household and shouldn't borrow more than they make, but a country generates wealth and is more like a business. Businesses frequently borrow to invest and generate growth, and would a lot more if they could borrow at 0-2%.

It's not so much that the "household finance" analogy is wrong, just misused. I had hit a dead end in my career in 2007 (stagnant economy) so I left (recession, though self-imposed) so I could go back to school and earn a four-year degree (invest in infrastructure to that will increase long-term revenue streams). I stopped putting money into savings every month, took on some student loan debt since rates were pretty cheap, and increased my spending by a lot because of tuition (lowered taxes, used cheap debt, stimulus/deficit spending).

Now, I'm making a lot more money (recovery/growth economy) and I graduated so my spending has gone back down and my savings have gone way up so I'm paying off my student loans at a pretty high rate (raise taxes, lowered spending, use the surplus to pay down the debt).

The biggest difference is that when a lot of people lose their jobs, the demand for re-training goes WAY up and drives prices with it while when the economy takes a dump, infrastructure investments generally get cheaper.
posted by VTX at 7:20 AM on May 1, 2013 [5 favorites]

I think that we are encouraging people to become dependent on the state for their sustenance - which, aside from being a bad idea, also has the negative effect of making them ready to support truly egregious things as long as their benefits aren't cut. Like invading foreign countries, drone strikes, loss of privacy, torture, secret prisons, and a hundred other things you would think that we would protest against more severely than we do.

Because the US never invaded anywhere, and always showed deep respect for civil rights and liberties, and certainly never enslaved anyone, before Social Security and Medicare fucked up our psyches.

Right now, people are paying about a third of their income in taxes. Even if they only had a tenth of their income clear,

I'm not sure what you mean by this. I think you must mean either "If only ten percent of their income were free of taxation" or "If only they received back ten percent of their income back from the tax man."

At any rate, what you're talking about there for the lowest quintile is about $2K. So even if they are completely virtuous in this respect, poor families could not spend more than about $2K/year by this reckoning, or about $1k/student/year if they have two kids in school at the same time. Likewise, even if they were completely untaxed, poor families in the median state could not spend more than $4K/year with their returned money, or $2k/student/year. Right now they receive about $10k/student/year in k12 education.

So what you're talking about is reducing poor families' access to education by about 80%, which will make them better off somehow.

If your children would be better served by apprenticing or interning at a job, you could do that.

Well, yes, there's something that would obviously never be abused, given the untarnished history of child labor.
posted by ROU_Xenophobe at 7:24 AM on May 1, 2013 [12 favorites]

People keep making the facile argument that a country is like a household and shouldn't borrow more than they make

The really weird part of the simplistic conservative "the economy is just like your household budget, and no ordinary household would think of spending more than it earns" thing is that it has been considered a central pillar of the American Dream and what every right-thinking, godfearing, Republican-voting, solid pillar-of-the-community citizen should do to borrow a vast sum of money relative to their annual income in order to purchase a house. So not only is the comparison simple minded and stupid, but its basic premises are laughably false.

Of course, "laughably false" is kind of the signature scent of pretty much the whole stupid austerity argument, so I guess its no surprise that its peddlers don't notice this particular bit of nonsense.
posted by yoink at 7:27 AM on May 1, 2013 [8 favorites]

So if you're arguing against austerity because it supports the rich, you need to clarify whether you're arguing against the theory or the implementation. If you're arguing theory, then you're completely wrong and you should probably go read the definition of austerity again, because I don't know how much farther from the mark you could be. If you're arguing about implementation, then I think you're absolutely correct.

At this point, almost nobody is arguing about the theory, because the theory as it was first proposed doesn't really exist anymore. As in the last austerity thread, the problem was both the implementation and the justifications thereof.

Of course, the same thing could be said for Keynesian economics, which works well in theory but has generally been implemented in a horrible way.

Or not, as was repeatedly demonstrated in the previous austerity thread.
posted by zombieflanders at 7:43 AM on May 1, 2013 [1 favorite]

The Reinhart and Rogoff study which originated the idea of austerity for economic growth was based on a spreadsheet error.
posted by Apropos of Something at 7:43 AM on May 1, 2013 [1 favorite]

At any rate, what you're talking about there for the lowest quintile is about $2K.

...based on these inequitable minimum wage laws and social provisions.

Why, they'd be sure to come up with innovative market based solutions when nobody got social security, disability or food stamps.
posted by jaduncan at 7:44 AM on May 1, 2013

Many of the largest and most important investments made by the “stimulus” went to institutions and organizations that were essential to functioning communities. Abandoned homes did not become hot spots for crime because almost $2 billion went to acquiring, renovating or demolishing them.

Class sizes did not swell and police officers did not disappear from city streets because stimulus money was used to stabilize state budgets, improve underperforming schools and rehire officers for community-oriented policing.

The question is, what comes next, now that the stimulus is over? A historical perspective on urban policy reveals a cycle in which periods of major investment are followed by periods of neglect, disinvestment and decline. This pattern is in the process of repeating.

- The Urban Fire Next Time

It's not about money, it's about priorities.
posted by mrgrimm at 7:49 AM on May 1, 2013 [1 favorite]

However, now central bankers are acting in concert so that every country enacts exactly the same economic policies at the same time.

Hey we can all say crazy things without a smidge of evidence, but yeah, that's not what is happening.
posted by Hello, I'm David McGahan at 6:50 AM on May 1

Apologies for not posting evidence, but here are some nice places to start looking:

"The Monarchs of Money" - The world's central banks have printed unimaginable amounts of money in recent years. Neil Macdonald explores what this means for the global economy and for your financial well-being. Accompanying four-part article.

The era of austerity is over (for now) - Article by The Washington Post

Investors Beware of Central Banks Bearing Austerity - Investor advice column on The Daily Bell

And there are several other places you could look to find evidence that the world's central bankers are acting together, like the 6 o'clock news for instance...
posted by Vindaloo at 8:05 AM on May 1, 2013 [1 favorite]

libertarians/right-leaning people:

When has austerity worked? meaning it improved the economy?
posted by MisantropicPainforest at 8:06 AM on May 1, 2013

Getting a diploma from a college is often expensive - because they have state-enforced monopolies on them

That's not even wrong.

Even in states with really good public university systems, there are private schools all over the place. The University of California system has several world-class schools, and yet Stanford and USC thrive as large private schools, plus there are dozens of really good smaller universities. In Florida, the University of Miami comfortably coexists with UF and FSU. Texas has Baylor and Rice and SMU and TCU.
posted by Etrigan at 8:08 AM on May 1, 2013 [3 favorites]

Etrigan: I suspect corb was referring to accreditation.
posted by asterix at 8:14 AM on May 1, 2013

The Reinhart and Rogoff study which originated the idea of austerity for economic growth

"Originated"?
posted by yoink at 8:15 AM on May 1, 2013

I suspect corb was referring to accreditation.

Then corb is still wrong. Calling accreditation of higher-education institutions "state-enforced" lowers the bar for a "state-enforced monopoly" so low that every contract -- including the contract between you and Starbucks to purchase a latte -- clears it. The Council for Higher Educational Accreditation is a nongovernmental organization; the lower-tier regional and functional accreditation organizations are similarly nongovernmental. The Department of Education works with the CHEA, but is not by any reasonable definition "enforcing" accreditation.
posted by Etrigan at 8:23 AM on May 1, 2013 [4 favorites]

That's not even wrong.

No, corb is right here -- granting a degree commonly (but not always) requires a state license that's separate from accreditation, though my sense is that this is pretty much a formality for accredited schools.

Obviously that increases the cost of getting a-thing-held-out-as-a-degree, since without licensing requirements I could open my own "school" and grant a BA to everyone in the state of New York for free just because it's so pleasant and sunny today. Whether it increases the cost of getting a-thing-that-everyone-would-agree-is-a-meaningful-degree is an open question, but I would guess no/not much.
posted by ROU_Xenophobe at 8:27 AM on May 1, 2013 [1 favorite]

The comments on Rough Ashlars link (Senate bill on homegrown food equals homegrown tyranny) are amazing.
posted by marienbad at 8:37 AM on May 1, 2013

Apropos of Something: The Reinhart and Rogoff study which originated the idea of austerity for economic growth was based on a spreadsheet error.
Not based on, it was used as post-hoc justification for it. previously

MisanthropicPainforest: When has austerity worked? meaning it improved the economy?
Here's one argument: Message from Latin America: Austerity, then Growth

The principal lesson is clear: pounding austerity into a recession does not work. Such policies cost Latin America what is now known as the “Lost Decade,” and it was not until Latin American policymakers incorporated growth into the strategy that the region began its long trek towards recovery. In short, it is not austerity or growth but austerity then growth that is required. Europe—on pace to lose a decade itself—would do well to take notes.

posted by the man of twists and turns at 9:04 AM on May 1, 2013

People keep making the facile argument that a country is like a household and shouldn't borrow more than they make

The really weird part of the simplistic conservative "the economy is just like your household budget, and no ordinary household would think of spending more than it earns" thing is that it has been considered a central pillar of the American Dream and what every right-thinking, godfearing, Republican-voting, solid pillar-of-the-community citizen should do to borrow a vast sum of money relative to their annual income in order to purchase a house. So not only is the comparison simple minded and stupid, but its basic premises are laughably false.

I like to compare national economies to household economies sometimes, actually:P I mean, how many households do you know where economic decisions - decisions about distribution of shared resources (bathroom space and timing, noise issues, use of common areas, common goods such as (in many cases) toilet paper and dishes, often food) and division of labor (housework, often food preparation, resupplying common goods that get used up such as toilet paper or broken dishes) - are made in some manner mimicking a capitalist economic system, rather than through either a dictatorship with command economy or through a more libertarian communist let's all get together and talk about it to make the economic decisions sort of economic system? What does it say about capitalism that, in the local sphere where most adults have fairly complete control of how their local household economy should run, they choose other systems?

And if the household income drops significantly, who would consider the starvation of the least-influential member of the household as a mere short-term pain that must be suffered for the greater good? I don't use the example of starvation lightly, either. Those of you who support austerity: those of us who oppose it are emotionally invested because we know that that "short-term pain" means actual people starving; or dying for lack of appropriate medical care or from poverty-related illness; or being put at higher risk for mentally illness due to living in poverty; or being put at higher risk of violence (sexual and otherwise) due to homelessness; or families being split because there aren't local facilities to house homeless families, just men or just women and children separately; or families being split because a parent, or adult or mostly-adult children, have to move far, far away in order to find work.
posted by eviemath at 9:11 AM on May 1, 2013 [13 favorites]

Correct me if I am wrong, but that op-ed argues that growth, not austerity fixed the economies, and doesn't marshal any evidence that austerity helped.
posted by MisantropicPainforest at 9:22 AM on May 1, 2013 [1 favorite]

No, corb is right here -- granting a degree commonly (but not always) requires a state license that's separate from accreditation, though my sense is that this is pretty much a formality for accredited schools.

Then there's a "state-enforced monopoly" on restaurants, hair salons, driving, broadcasting... . Licensure requirements don't make meals or haircuts or cars or TVs more expensive, except in a microtransactional sense.
posted by Etrigan at 9:40 AM on May 1, 2013 [3 favorites]

That is correct. I support austerity, which to me means cuts to non-vital programs, and I also support taxing the rich more. "Austerity" and "taxing the rich" are not mutually exclusive propositions. I'll grant you that some conservatives have seized on austerity as an pretext to reduce their tax burden, but this is absolutely not a part of austerity theory - it's a bastardization of the concept that has been unnaturally grafted on for self-serving reasons.

So if you're arguing against austerity because it supports the rich, you need to clarify whether you're arguing against the theory or the implementation. If you're arguing theory, then you're completely wrong and you should probably go read the definition of austerity again, because I don't know how much farther from the mark you could be.

If you're arguing theory you need to take into account that the main surviving academic paper backing austerity was based on a spreadsheet error and belongs in almost every circle of scientific hell. (Self-link) The Alesina and Ardagna paper has been thoroughly discredited. Austrian economics openly reject empirical data.

The theory of austerity stinks to high heaven. It's made up by a mix of those openly ignoring reality, those making incredibly convenient spreadsheet errors, and those who accept the arguments by the two groups above.

If you're arguing about implementation, then I think you're absolutely correct. Of course, the same thing could be said for Keynesian economics, which works well in theory but has generally been implemented in a horrible way.

You mean that some countries don't actually lower the GDP to debt ratio in times of boom, although many do? And that some countries fuck up implementing Keynsian economics? Generally it's been implemented pretty well as opposed to austerity which has, as far as I know, never worked.
posted by Francis at 9:52 AM on May 1, 2013 [7 favorites]

FYI for folks who want moar facts. The article is adapted from Mark Blyth's new book Austerity: A History of a Dangerous Idea. He's a professor of international political economy at Brown University and really has done a bang-up job of tracing the genealogy of the austerity myth.

In the 1920s and 1930s, particularly in Austria and the United States, a growing number of economists sought to explain why real economies, in spite of their supposed tendencies toward self-equilibration, seemed to boom and bust and slump quite spectacularly. The answer given by this school of thought was that banks lent too much money, which led to the misallocation of capital to dubious investments. Eventually, and inevitably, the cheap money fueling these investments would dry up, interest rates would rise, and bankruptcies would follow. The upshot, as Andrew Mellon, U.S. treasury secretary under President Herbert Hoover, put it, is that this will “purge the rottenness out of the system. . . . People will . . . live a more moral life. . . . And enterprising people will pick up the wrecks from less competent people.”

posted by spamandkimchi at 10:00 AM on May 1, 2013 [1 favorite]

Quite frankly, I believe we are currently living in an unsustainable bubble with the level of government spending that we do, and it must be ended.

You are wrong about this and have persisted in being wrong for months despite mounds of available evidence to the contrary.
posted by Aizkolari at 10:06 AM on May 1, 2013 [5 favorites]

Francis, I was unaware of the fact that the Austrian school openly rejected empiricism in favor of a stunning reliance on a priori reasoning. I think it's worth quoting your link:

Austrian economists reject empirical statistical methods as tools applicable to economics, saying that while it is appropriate in the natural sciences where causal factors can be isolated in laboratory conditions, the actions of human beings are far too complex for this "numerical" treatment as passive non-adaptive subjects. Instead one should isolate the logical processes of human action. Mises called this discipline "praxeology" – a term he adapted from Alfred Espinas (but which had been in use by others).

Mises also argued against the use of empirically derived probability modelling in economics, which became prevalent in finance and other areas of economics in the late 20th century. Instead, the Austrian praxeological method is based on the heavy use of deductive arguments from undeniable, self-evident axioms or from irrefutable facts about human existence. According to Austrians, deductive economic thought experiment, if performed correctly, can yield conclusions that follow irrefutably from the underlying assumptions and could not be discovered by empirical observation or statistical inference.

I don't think I would've agreed with this position back in the early 1900s, but I certainly wouldn't today. We have reams of data on actual behavior of banks and people and states, and an enormous wealth of computing power to analyze it with. We shouldn't plead ignorance with regards to examining actual economic events.

That word he uses, though: "irrefutably". It doesn't mean what they think it means, but it sure explains a lot about how these discussions go.
posted by daveliepmann at 10:12 AM on May 1, 2013 [8 favorites]

TIL that Austrian economists are bizarro world Marxist materialists.
posted by jaduncan at 10:13 AM on May 1, 2013

Praxeology is hugely popular among libertarians because it's basically doing economics in the same way Ayn Rand did philosophy.
posted by Pope Guilty at 10:21 AM on May 1, 2013 [7 favorites]

daveliepmann, thanks for pulling that out. To quote Jayne Cobb: "I'm smellin' a lotta 'if' comin' off this plan."

I once sat in on a briefing at which a Colonel of Marines slammed his hands on the table halfway through and snapped "Don't tell me what you believe! Tell me what you can prove!" That's about how I feel in these threads.
posted by the man of twists and turns at 10:43 AM on May 1, 2013 [2 favorites]

At any rate, what you're talking about there for the lowest quintile is about $2K. So even if they are completely virtuous in this respect, poor families could not spend more than about $2K/year by this reckoning, or about $1k/student/year if they have two kids in school at the same time. Likewise, even if they were completely untaxed, poor families in the median state could not spend more than $4K/year with their returned money, or $2k/student/year. Right now they receive about $10k/student/year in k12 education.

This is true - but also misses a few things. First of all, parochial school tuition is often under 4K a year, and generally reputed to be fairly high quality. Secondly - and this relates to what I said about monopolies and licensing - if there was able to be competition, then you could easily hire someone to teach your children who had less than the current educational requirements. So you could hire someone who was self-educated, with no degree, who thus doesn't have to pay back student loans or make back the value of the tuition. You could have personalized instruction at more convenient times. Public school education does cost a lot - but that includes the price of hiring degree-holding teachers, the price of building maintenance, janitors, liability, etc.

Then there's a "state-enforced monopoly" on restaurants, hair salons, driving, broadcasting... . Licensure requirements don't make meals or haircuts or cars or TVs more expensive, except in a microtransactional sense.

Absolutely, I agree, and it also bothers me. It makes it more difficult for competition to flourish and also for people who want to accept the dangers of less regulation in exchange for a lower price point. Meals are more expensive in cities where regulations are more stringent - they have to pay to be able to comply with all of the rules, operate in a city-approved space, etc. The same with cars. Having to pay for driving school is a cost that raises the cost of using a car - as is insurance.
posted by corb at 12:17 PM on May 1, 2013

Yeah, we're missing all the advantages of filthy restaurants and untrained drivers.
posted by Pope Guilty at 12:21 PM on May 1, 2013 [9 favorites]

It makes it more difficult for competition to flourish and also for people who want to accept the dangers of less regulation in exchange for a lower price point.

Not everyone -- not even every adult -- gets to choose where they live. "Accepting" the dangers of lesser regulation is not as optional as you seem to think it is.
posted by Etrigan at 12:22 PM on May 1, 2013 [5 favorites]

What does it say about American society and politics when Bank of America is "too big to fail" but 89 million American workers “not in the labor force” (gov figures) aren't ?

Matt Taibbi: Too-Big-to-Fail Takes Another Body Blow
posted by homunculus at 12:28 PM on May 1, 2013 [4 favorites]

otto42 : There is nothing political or retaliatory here, these are just my beliefs as to how an economy works. As I said, I might even be wrong. I believe many people react the same way to a set of decisions and conditions at anyone time. I adjust my decisions based on my belief as to how others will react. Why make this about politics and the rich and poor?

If you don't realize that politics, and the rich and poor, are inexorably tied up in the economy, there's no point in talking.
posted by IAmBroom at 12:30 PM on May 1, 2013 [1 favorite]

the man of twists and turns: I once sat in on a briefing at which a Colonel of Marines slammed his hands on the table halfway through and snapped "Don't tell me what you believe! Tell me what you can prove!" T

If you ever run into him again, would you salute him for me?
posted by IAmBroom at 12:31 PM on May 1, 2013

First of all, parochial school tuition is often under 4K a year, and generally reputed to be fairly high quality. Secondly - and this relates to what I said about monopolies and licensing - if there was able to be competition, then you could easily hire someone to teach your children who had less than the current educational requirements. So you could hire someone who was self-educated, with no degree, who thus doesn't have to pay back student loans or make back the value of the tuition. You could have personalized instruction at more convenient times. Public school education does cost a lot - but that includes the price of hiring degree-holding teachers, the price of building maintenance, janitors, liability, etc.

Welfare for the rich? Private school tax credit programs expanding

In some places they are structured to get around state constitutional prohibitions against using public dollars for religious schools. And in many instances, the schools that qualify to accept vouchers aren’t regulated and teach things we know aren’t true, such the creationist notion that humans co-existed with dinosaurs. Many also are not required to administer standardized tests that public schools are required to give for accountability purposes. And in Georgia, as this New York Times story reported, a popular tax credit program is allowing the use of public money to be used for tuition at more than 100 private schools that refuse to enroll gay, lesbian or bisexual students.
[...]
Wealthy businesses and individuals are the folks who get the tax credits for putting up the cash to pay the tuition. Furthermore, the amount of money for tuition made available for tuition by private scholarship organizations often does not actually cover the full cost of attending a private school. Poor families can’t make up the difference. Guess who can.

posted by zombieflanders at 12:31 PM on May 1, 2013

Yeah, we're missing all the advantages of filthy restaurants and untrained drivers.

Mm-mm, that good old tubercular beef!
posted by en forme de poire at 12:41 PM on May 1, 2013

Looking at that link, zombieflanders, the slant is misleading. It talks about "using public money for private school," but in fact is about "lowering the tax burden for people with kids in private school or who want to donate scholarships to private schools." At least on the corporate level, this is no different than other charitable deductions, and I'm really, really not sure why people have a problem with it. If people can get tax credit for donating to anti-porn organizations, they should damn well be able to get tax credit for giving scholarships to kids.
posted by corb at 12:59 PM on May 1, 2013

I just want to go back to the days when a man could fall into a vat of future foodstuffs and the company wouldn't be obligated to fish him out! Is that so much to ask for?!
posted by Pope Guilty at 12:59 PM on May 1, 2013 [2 favorites]

It makes it more difficult for competition to flourish and also for people who want to accept the dangers of less regulation in exchange for a lower price point. Meals are more expensive in cities where regulations are more stringent - they have to pay to be able to comply with all of the rules, operate in a city-approved space, etc. The same with cars. Having to pay for driving school is a cost that raises the cost of using a car - as is insurance.

Wow. How to respond to such a...position? Somalia is that way. More seriously, regulation exists as a thing in the world because the costs to society for not having regulation are deleterious compared to the costs of not having that regulation. We had a world without regulation (or regulation as we know and understand it today, anyway) at one point. We no longer do, in any industrialized, modern nation. That should tell you something.
posted by Steely-eyed Missile Man at 1:09 PM on May 1, 2013 [7 favorites]

If people can get tax credit for donating to anti-porn organizations, they should damn well be able to get tax credit for giving scholarships to kids.

What you are saying is false. Do you know the difference between a tax credit and a tax deduction? A charitable donation is tax deductible. These tuition tax credits are much more valuable, particularly to high income people.

Further, you are talking about wealthy parents who are essentially awarding scholarships earmarked for their own children. That is not a charitable donation. That is simply self-serving.
posted by JackFlash at 1:17 PM on May 1, 2013 [2 favorites]

SEMM, what happens is that libertarians point out how ridiculous it is to have strict licensing for barbers, or how ridiculous it is to ban raw milk direct from the farmer even if the consumer understands the risks, or how harmful the war on drugs is, and then they extrapolate from there to the view that all regulation is unnecessary.

Some licensing should be repealed. Some regulations are not needed. Some laws are silly or contradictory or harmful. But to throw out the whole idea of licensing is even more ridiculous than the licensing schemes that don't work.
posted by daveliepmann at 1:18 PM on May 1, 2013 [1 favorite]

corb: Looking at that link, zombieflanders, the slant is misleading. It talks about "using public money for private school," but in fact is about "lowering the tax burden for people with kids in private school or who want to donate scholarships to private schools."

In my state, public money would have/will be going directly to these (usually religious) private schools, with no tax deduction/credit smoke and mirrors. I believe we also already have such a tax credit scheme, as well.
posted by Corinth at 1:29 PM on May 1, 2013

regulation exists as a thing in the world because the costs to society for not having regulation are deleterious compared to the costs of not having that regulation

Oops, of course I meant to say that the costs of not having regulation are deleterious compared to the costs of having it.
posted by Steely-eyed Missile Man at 1:48 PM on May 1, 2013

If you're arguing theory you need to take into account that the main surviving academic paper backing austerity was based on a spreadsheet error and belongs in almost every circle of scientific hell. (Self-link) The Alesina and Ardagna paper has been thoroughly discredited. Austrian economics openly reject empirical data.

Absolutely true about the spreadsheet error, but that's somewhat irrelevant. Most economists evaluate the success or failure of their theories based on how much it will improve GDP, which is a really dumb way to measure economic health. However, since everybody seems to buy into this "GDP" nonsense, the most efficient way to get austerity passed wasn't by educating the stupid public about the perils of GDP but simply by making up some numbers that they bought into unquestioningly. I can totally see the appeal - it's almost always easier to get dumb people to do what you want by lying to them in a way that supports their worldview rather than educating them about how their worldview is wrong. Honestly, I think it's even sort of hilarious that the public bought into it for so long without anybody ever fact-checking the numbers.

You mean that some countries don't actually lower the GDP to debt ratio in times of boom, although many do? And that some countries fuck up implementing Keynsian economics? Generally it's been implemented pretty well as opposed to austerity which has, as far as I know, never worked.

Again, you're bringing up GDP to justify an economic strategy. Any theorem that evaluates economic success based on GDP is pointless and not worth considering, since the only thing that GDP basically evaluates is how many times money changes hands. $1m spent on a better school system might net $1m in added GDP, but $1m spent in Vegas could net $30m in added GDP, since the money circulates so much. Natural disasters also raise GDP since they require money to be spent on clean-up. In other words, if economists really think maximizing GDP is the best measurement of success, then we should be terrified of them, because the most effective way to maximize GDP is to turn their country into a blighted wasteland of casinos and environmental catastrophes. I think we can agree that this isn't desirable, so if you want to measure the success of an economic theorem, you first need to find some other metric that better measures economic prosperity, and then use that metric as your guide to determine whether your theory is successful.
posted by wolfdreams01 at 2:05 PM on May 1, 2013

Did you ever produce your preferred metric? I can't even remember now.
posted by Steely-eyed Missile Man at 2:07 PM on May 1, 2013 [1 favorite]

wolfdreams01, you seem to have successfully infiltrated Congress: GOP Census Bill Would Eliminate America's Economic Indicators.
posted by Corinth at 2:10 PM on May 1, 2013

Did you ever produce your preferred metric? I can't even remember now.

Personally I think that the preferred metric should be debt to surplus. The reason why I feel that way is because eventually any loan we take out will have to be paid back. If we pay it back via printing out more money, that causes inflation, which is effectively a regressive tax designed to hurt anybody who saves money rather than spending it. If we pay it back via higher taxes, then that hurts people's pockets more equally, but it's still going to cause the same amount of financial pain. There is no way to avoid the pain of paying back a loan.

But whether you accept my personal preferred metric or not is irrelevant compared to whether you believe in this nonsensical "GDP idolization". If you personally think it would make more sense to measure success based on GDI, that's fine too. Almost any metric makes more sense than GDP, and we're not going to have sane economic theory until we accept that.
posted by wolfdreams01 at 2:16 PM on May 1, 2013

Gotta nitpick:
If we pay it back via printing out more money, that causes inflation...

Modern Money Theory would seem to make that argument invalid, as we no longer have a currency pegged to a hard commodity, and have Fiat Money. And we have since the 1970's. Another reason Austrian School of Economics completely fails to account for the actual performance of any modern economy is mainly due to this, which would also be why so many Austrians also seem to want to return to the Gold Standard, which, really, just kinda sucked. An economic monetary system based upon scarcity will always collapse, and can too easily be gamed by economic actors hoarding said scarcity.

You cannot argue in good faith about economics if you don't understand the fundamentals of the system. I have yet you see an Austrian theory account for the axiom of fiat currency without simply substituting it as a commodity function, and since currency is not a commodity, but a means of exchange, the whole theory kind of falls apart in tatters.
posted by daq at 2:30 PM on May 1, 2013

wolfdreams01: "Personally I think that the preferred metric should be debt to surplus.

How does this even make sense as a useful measure of an economy, rather than an evaluation of government?

>> The reason why I feel that way is because eventually any loan we take out will have to be paid back.

Only in a really, really loose sense of "pay back." In practice we just roll debt over.

>> If we pay it back via printing out more money, that causes inflation,

After three rounds of QE, inflation is still extremely low.

>> which is effectively a regressive tax designed to hurt anybody who saves money rather than spending it.

Which is obviously more progressive than regressive. Poor people spend all of their money.

>> If we pay it back via higher taxes, then that hurts people's pockets more equally,

I don't know what you mean by "equally," but it's fairly hard to tax people "equally" in general, whether you mean a flat tax or percent of income or whatever.

>> but it's still going to cause the same amount of financial pain.

We have a lot of discretion over who we tax and how much, so financial pain in the sense you mean doesn't really seem to apply, unless you mean it in a sense that gets back around to GDP. (Putting money into the economy / taking it out.)

>> There is no way to avoid the pain of paying back a loan.

There is when you're a government, but this is also true for individuals who can declare bankruptcy.

>> But whether you accept my personal preferred metric or not is irrelevant compared to whether you believe in this nonsensical "GDP idolization". If you personally think it would make more sense to measure success based on GDI, that's fine too. Almost any metric makes more sense than GDP, and we're not going to have sane economic theory until we accept that."

I'm not sure that "GDP idolization" is an actual thing, and your implication is that we don't currently have "sane" economic theories. We're by no means perfect at economics, but history implies that we're at least in the sane ballpark.
posted by Corinth at 2:34 PM on May 1, 2013 [4 favorites]

Also I want to point out that MMT, linked above, is fairly controversial even among Keynesians, so unfortunately it's probably not going to get us anywhere in a conversation with fiscal conservatives.
posted by Corinth at 2:36 PM on May 1, 2013

Personally I think that the preferred metric should be debt to surplus

This is the "household" analogy, rephrased so as to sound less obviously stupid. While you've pretty well grasped the "broken windows" fallacy with both hands, in a closed economic system, spending is income.

The Anti-Keynesisn Two-Step

Fourth, the conservative accuses Keynesians of wanting to break windows or believing that window-breaking increases wealth. But nobody ever said that! The point is that we have very good reasons to think smashing windows would be a bad idea

The "conservative" in this process is usually a proponent of the Mises school.
posted by the man of twists and turns at 2:38 PM on May 1, 2013 [2 favorites]

Corinth:
I understand the controversy, but it is the best model to understand how a central banking system that issues it's own sovereign currency, not backed by a scarce commodity functions compared to older commodity standards based currencies. And since the Fed and the U.S. Treasury pretty much function based on said theory, you kind of have to accept that it is one of the better models to use, rather than ignoring that fiat currency behaves significantly different that commodity based currency.
posted by daq at 2:40 PM on May 1, 2013

daq: Yeah, but it's kind of a silver bullet answer to all fiscal conservative concerns. Most of them can be addressed using conventional methods.
posted by Corinth at 2:43 PM on May 1, 2013

Did you ever produce your preferred metric? I can't even remember now.

Personally I think that the preferred metric should be debt to surplus.

"The economy" is a tool. It is a system for allocating resources, distributing goods and services, coordinating labor. It's a very complex tool. But it's just a tool. We can change out which tool we're using - that is, which process we use to make large-scale decisions about these sort of economic matters.

So if we want to talk about a metric to measure how well our tool is working, then we have to talk about what it is that we are trying to do with the tool. What's the whole point of having an economy? What are our goals, in using a given economic system?

I agree that GDP is a poor metric. It's an average measure that doesn't capture distribution, for one thing. And, personally, I think that ensuring that everyone has a certain base standard of living and opportunity for personal fulfilment and advancement in life should be one of our goals in applying our economy-tool. A country can completely fail at this and still have a decent GDP. So GDP is, to me, a bad metric.

But so is debt to surplus ratio. Proposing a metric that is completely internal to the economy-tool, that doesn't take into account our broader goals, and then, further, making policy decisions based on that metric, is like making car maintenance decisions based on what's best for the mechanic's wrenches. Sure, you probably wouldn't take your car to a mechanic who paid no regard to the maintenance of their own tools, who had cracked and rusty wrenches strewn about their shop willy nilly. But you can't tell how good a mechanic a person is merely by the shape their tools are in. GDP, debt to surplus ratio, these are both measures internal to the tool. How about looking at how actual people are affected by economic policy decisions? What are your values in that respect?
posted by eviemath at 2:51 PM on May 1, 2013 [3 favorites]

The Gini coefficient is one effort to measure inequality and wealth distribution.
posted by Corinth at 2:56 PM on May 1, 2013 [1 favorite]

If we pay it back via printing out more money, that causes inflation, which is effectively a regressive tax designed to hurt anybody who saves money rather than spending it.

It's like you haven't even read any of the comments in this thread. Have you actually read any of the comments in this thread?

People in here talking about MMT might also be interested in reading about Monetary Realism. Here are the differences between the two.
posted by triggerfinger at 3:05 PM on May 1, 2013

Krugman: American Austerity, An Update - "But the truth is that federal stimulus is years behind us, while state and local governments have cut back, so the overall story is one of fiscal contraction that’s smaller than in Europe, but not by that much."

There's been a small kerfluffle about a Clive Crook column that a few sites I follow have absolutely eviscerated. Probably off-topic...
posted by the man of twists and turns at 3:22 PM on May 1, 2013

triggerfinger: OMG THANKYOU!
No, seriously, I've been hoping for a better explanation to help people understand that most pre-1970 economic theory completely ignores the central banking and fiat currency situations of modern economies.
posted by daq at 4:14 PM on May 1, 2013

I really enjoy when economists (or those interested in economics) play pretend and offer "convincing" and "factual" evidence and rebuttals. Economics is to science what christian science is to religion.

To say that America's debt burden will not be a problem ever because it isn't a problem now is absurd (look! yay, no inflation yet after QEIII, EU's triple dip vs our double dip, etc). This is undoubtedly uncharted waters and any attempt to "model" or understand our situation is laughable. You can't point to Iceland, or Argentina, or Russia, or the EU, or 1920's America as an example. The only examples in history that offer any fair comparison are global hegemonies, of which I can think of none but us.

Honest question, how does growth work in a mature society? Are there examples? To elaborate, I can see how China can enjoy double digit growth rates when they are taking a 19th century level agrarian society and selling them cell phones, cars, and apartments for the first time. I can see how America enjoyed rapid growth with the move from a largely agrarian society to the invention of home ownership, the auto industry, radio/tv, and mass produced items. But how can America experience growth NOW without massive immigration? (And of course that's not really growth). Other than everyone buying the iPhone 6 for xmas, or a 3rd vacation home, where will the growth come from? There are pockets of underdeveloped America (West Virginia, for example), but for the most part they all have fridges, TV's, cars, and cell phones already. To answer my own question preemptively, natural gas will help and emerging markets will help, but that type of growth has it's limits, too.

It's like a forest and CO2. A mature forest is carbon neutral (the US). A field turning into a forest is a big carbon sink (China). What we need is creative destruction, a forest fire. I think any hope for economic growth at a rate fast enough to justify debt spending (especially at our levels) is magical thinking.

Countries don't die (excluding wars). As long as their economies can keep growing, it's fine. Hell the UK only finished paying off WWII debt a few years ago and we still have some debts that go back to the Napoleonic era.

How's that "sun never sets on the British Empire" thing working out? Isn't that the point? What happens if economies can't keep growing? They don't die, but they do retreat to the shadows and lick their wounds (for many decades) until they are ready to reemerge. England only exists in any globally meaningful way because it is essentially a wealthy financial city-state burdened with a very large suburb.

People keep making the facile argument that a country is like a household and shouldn't borrow more than they make, but a country generates wealth and is more like a business. Businesses frequently borrow to invest and generate growth, and would a lot more if they could borrow at 0-2%.

Ok, we don't like the household debt argument. If the business metaphor is better, then how long would Tesla have been allowed to operate without a profit? Forever? Or Amazon? Or Goldman? Eventually we need to turn a "profit" to pay off our borrowing, or else we will fail. When will we "return to profitability" again for the first time? We aren't a startup, we are GM.

We've been trying austerity since 2009 and it doesn't work. Period.

What?!? Austerity? Who?!? America? Certainly not.

When has austerity worked? meaning it improved the economy?

What's your timeframe? The year after? Never. 2 decades later? Always. (Ok well not always, but close enough for rhetorical purposes). If the Great Depression was a "failed" example of austerity, then the 50's were proof of it's "success". The problem with the austerity vs spending debate is one of timeframe, not objective success or failure. I've always been curious about the IMF/World Bank requirements for lending. It's so obvious from the outside to see how to fix something. My entire life, one country after another, I've heard countries grumble about the forced austerity they needed to enact to receive loans. How are things in Russia, Argentina, Iceland nowadays?

If you're arguing theory you need to take into account that the main surviving academic paper backing austerity was based on a spreadsheet error and belongs in almost every circle of scientific hell.

It's like the spendaholics have their own Climategate now. This has been repeated so endlessly in the last couple of weeks. Austeritygate isn't the death blow you might hope it is.

You are wrong about this and have persisted in being wrong for months despite mounds of available evidence to the contrary.

Again with this quaint notion of "evidence". It's such a fanciful conceit to think of economics as offering evidence.

I'm hardly a right leaning conservative. I've followed this thread all day today and have bit my tongue up to now. The thread is almost surely dead, but I wanted to throw in my 2 cents.
posted by karst at 4:50 PM on May 1, 2013 [2 favorites]

Though, upon further reading (only half-way through, so far), I think the author of the second link is trying a little too hard to argue against something not quite the same as what MMT purports to be as a theory or model of existing monetary realities. Also, the arguments against MMT seem to be a little ham-handed in the use of phrases and arguments that just scream dog-whistling libertarian with a heavy dose of "I'm not a liberal, I swear".
posted by daq at 4:52 PM on May 1, 2013 [1 favorite]

It's like the spendaholics have their own Climategate now.

You understand that Climategate was a make-believe scandal, right?
posted by Pope Guilty at 5:06 PM on May 1, 2013 [6 favorites]

If the Great Depression was a "failed" example of austerity, then the 50's were proof of it's "success".

Um, what? Government spending was flat or increasing before and during the Great Depression even before the New Deal and saw a number of tax increases throughout; the 50s had 90%+ top marginal tax rates, one of if not the largest expansions of Social Security, and some of the largest spending projects outside the New Deal.
posted by zombieflanders at 5:26 PM on May 1, 2013 [3 favorites]

daq, I am still reading up on it so I'm by no means an expert but your (and other people's) thoughts on it are of real interest to me.

Re: economic theories from the 70s, I recently read a paper which had an interesting (I thought) comment:

The current banking system in the United States and worldwide no longer resembles the traditional textbook model of fractional reserve banking. Historically, the quantity of reserves supplied by a central bank determines the amount of bank loans. Through the money multiplier, banks expand loans to equal the amount of reserves divided by the reserve requirement. However, in many countries, reserve requirements have been reduced either to zero, or to such small levels that they are no longer binding*.

*Bennett and Peristiani (2002) show that reserve requirements have been largely avoided in the United States since the 1980s by sweep accounts, and that the remaining reserve requirements are largely met by vault cash that banks hold at branches and ATMs. Required reserves were $71 billion, just 0.6 percent of total bank assets. Vault cash satisfied $43 billion of these requirements.
posted by triggerfinger at 5:36 PM on May 1, 2013 [1 favorite]

If the Great Depression was a "failed" example of austerity, then the 50's were proof of it's "success".

The 50's? You mean the decade that occurred right after one of the most massive periods of government expenditure in human history and which had a frankly confiscatory top marginal income tax rate?
posted by Pope Guilty at 6:02 PM on May 1, 2013 [3 favorites]

Austeritygate isn't the death blow you might hope it is.

Of course not. Austerity mongers are immune to facts.
posted by Jonathan Livengood at 6:06 PM on May 1, 2013 [3 favorites]

What?!? Austerity? Who?!? America? Certainly not.

No, you're right. America has not been fully implementing austerity measures. And guess what, its economy is doing a great deal better than those countries that have chosen to implement austerity measures more rigorously. It would be doing better still, mind you had it been able to implement larger and more persistent stimulus efforts than it, in fact, did. It would also be doing better if the Republican majority in the House and permanent filibuster in the Senate weren't hell-bent on sabotaging any attempts to help.

And, of course, it would be doing better still if the austerity ideologues had not so thoroughly captured the political discourse in Europe, and especially in Germany.
posted by yoink at 6:18 PM on May 1, 2013 [2 favorites]

Austerity mongers are immune to facts.

To be fair, of course, economic ideologues of all stripes are immune to facts because the real-world complexities of any economic system are such that one can ALWAYS point to some particular circumstance to explain why this time your foolproof plan failed.
posted by yoink at 6:19 PM on May 1, 2013 [2 favorites]

Austerity favors the wealthy not by making them richer (they actually get less in absolute terms than they would from the prosperity generated by Keynesian stimulation) but by making the gaps between them and everyone else wider, which has the effect of reducing their experience of what Fred Hirsch (long-time editor of The Economist and author of Social Limits to Growth) calls positional competition from the less wealthy-- a high tide may lift all boats, but it's a lot more fun to sail around on your yacht when hardly anyone else can afford to be out on the water.
posted by jamjam at 8:09 PM on May 1, 2013 [1 favorite]

"Austrian economics"

mega-lulz
posted by bardic at 8:38 PM on May 1, 2013

wolfdreams01: "I think we can agree that this isn't desirable, so if you want to measure the success of an economic theorem, you first need to find some other metric that better measures economic prosperity, and then use that metric as your guide to determine whether your theory is successful."

Actually, the burden of proof is on the person making the claim that goes against the consensus view of an entire field of study, and, like it or not, as the saying goes, "We're all Keynesians now." It's possible that a majority of modern economic thought is wrong, but that's your case to make, and you can't make it simply by calling the value of GDP into question.

GDP is of course an imperfect measure of the economy, but you'll notice that it's also the one that Reinhart and Rogoff used (debt > 90% of GDP) to "prove" their case for austerity (and we know what happened to that). It's nearly universal in the field of economics to use GDP as the best available metric, knowing full well that it doesn't capture everything.

Your argument reminds me of when people complain about using Sabermetric baseball statistics to measure the relative value of players because the stats don't capture everything that happens in a game. Of course that's true, but those flawed metrics has proven more valuable than other metrics, and certainly more valuable than simple subjective evaluation of players. Likewise, those advocating austerity have talked for years and years about the horrible things that will happen as debt grows (all the while completely ignoring the downside risk of idle resources and unused capacity that comes from leaving people unemployed) and none of these things have actually happened.

The bond markets don't think you're right, and the field trials of austerity in Greece, the UK, and many other places have failed. But for several threads running, you've been talking like you've dealt some critical blow to Keynesianism by noting that the people who have been right might have not used the perfect metric to arrive at the right conclusion. That's... not how it works.
posted by tonycpsu at 9:50 PM on May 1, 2013 [11 favorites]

The UK hasn't really implemented Austerity measures. As people are fond of pointing out, the UK deficit hasn't been reduced in the last two years. That's not paying off debt, it's simply redistributing how the money is spent.

I started at the top with the assertion that Austerity is just a buzzword used by the left, and there was a bunch of stuff about "WHY AUSTERITY DOES NOT WORK", but little about why it isn't a buzzword.

I'm not talking about Greece or Spain here. Austerity is definitely in effect in these countries and it's not working. But in the UK, we've seen none of the huge cutting back that people are saying are there. I'm not deeply entrenched in economic theory, so I'll leave that to wiser minds than mine (above). But, the "This Austerity Drive Is Killing Us"has been burbling along with the left wing from about three months after the Tories came into power. So even before anything had been done or any taxes had been changed people were complaining about how much Austerity *was* hurting the poorer off.

This is why I'm suspicious of even the most erudite opposers of Austerity. It's not that you're not smarter than me, or you understand the nuances of Keynsian Economics. It's because you were playing this record before the dance had even started.

On Iceland: It's interesting that Iceland is used as a country that obviously didn't implement austerity measures and is succeeding because of it, because Iceland most definitely *did* implement austerity measures. Services were cut, houses were lost and taxes were also raised. They've still got that magical growth everyone seems obsessed with. In Iceland they're not happy with it. I believe there's an election coming along and the party that purportedly saved Iceland's ass is on it's way out.

Let's not forget that the people suffering because of the failed Icelandic banks are more likely to be Spanish or British than they are Icelandic. How's the policy on allowing the Icelandic banks to fail working in those countries?

You should know after reading this, that I'm hampered by a pretty strong conviction that Current Economic Theory is pre-Copernican in it's nature. There's nobody understands it, and a desire to add complexity and the fact it breaks weirdly like it does seems to imply to me that you've got the economic equivalent of the sun and planets valiantly trying to dance around a centralised earth.
posted by zoo at 1:50 AM on May 2, 2013 [3 favorites]

"the UK deficit hasn't been reduced in the last two years"

Because you reduce debt when people have jobs in a growing economy, not by slashing public services in the middle of a recession.

Cf. the United States under Bill Clinton.

"They've still got that magical growth everyone seems obsessed with."

Iceland defaulted. They let the banks die. This is the opposite of what's happening in the Eurozone, with German banks basically holding southern Europe hostage. There was austerity in Iceland, but it wasn't a goal in and of itself.

"There's nobody understands it"

This is basically nihilism. Sure, economics isn't a hard science, but we do have decades of data that show austerity doesn't work. At least in the US, we know that when public spending and debt increases, the rate of inflation actually goes down. We know that it's basically free (almost zero-percent interest) for the US to borrow money. They should do so immediately and set up a jobs program.
posted by bardic at 2:08 AM on May 2, 2013 [2 favorites]

There was austerity in Iceland, but it wasn't a goal in and of itself.
So austerity is only bad when it's a goal in and of itself? This kind of feeds into my assertion that it's the idea of austerity that causes the most anguish.

Because you reduce debt when people have jobs
I never mentioned reducing debt. Like many before you, you're conflating deficit and debt. Given that you say "we" when you mention economists, I should either be very, very worried or I should put that down to a cynical manipulation.

This is basically nihilism.
No it's not. I think we should use the tools we have. But I also think the tools we have are all predicated on an incorrect axiomatic model.
posted by zoo at 2:18 AM on May 2, 2013 [1 favorite]

As people are fond of pointing out, the UK deficit hasn't been reduced in the last two years. That's not paying off debt, it's simply redistributing how the money is spent.

Given that there's been a cut in the top rate of income tax, I might have to agree with you there. The current government is throwing people off benefits to a ridiculous degree, cutting the state, and making sure the rich are taxed less. Doing this has obvious and predictable bad effects on the economy in all the places you'd expect.

But in the UK, we've seen none of the huge cutting back that people are saying are there. I'm not deeply entrenched in economic theory, so I'll leave that to wiser minds than mine (above). But, the "This Austerity Drive Is Killing Us"has been burbling along with the left wing from about three months after the Tories came into power. So even before anything had been done or any taxes had been changed people were complaining about how much Austerity *was* hurting the poorer off.

And austerity was being preached by Osbourne (and everyone's favourite Excel incompetents were being cited) in February 2010 - months before the 2010 general election. Even before the election, Osborne was saying what he was going to do despite the consequees being obvious.

So can we be clear? Your argument that austerity is a figleaf used by the current government to justify redistribution of money to the rich while cutting benefits, and this isn't austerity because it's redistribution of money to the rich?

This is why I'm suspicious of even the most erudite opposers of Austerity. It's not that you're not smarter than me, or you understand the nuances of Keynsian Economics. It's because you were playing this record before the dance had even started.

You mean that austerity was being opposed after it was clear that it was what Osborne wanted - and was being opposed because the consequences were entirely predictable. Tell me, if someone announced their intention to drive towards a cliff would you object to any attempt to stop them until after they'd driven off it? Because that's the standard your logic would hold people to.
posted by Francis at 3:48 AM on May 2, 2013 [1 favorite]

No Francis. I mean people were feeling the "consequences" of Austerity before anything had even been changed.

And unless economics has a time travelling component built into it, then that would seem to be impossible.
posted by zoo at 7:02 AM on May 2, 2013 [1 favorite]

Also - When we're talking (in the UK) about the "Tax Cut for the Rich", we're talking about a special 50% Top Rate of Tax that Labour introduced when they knew that in a couple of months they'd be out of a job. For the majority of the time Labour were in power, the top rate of tax was what? 40%? (I may be wrong here).

The Tories cut that 50% down to 45%.
The rate applies to wages over £150,000

It (50%) was a nonsense cynical move by Labour, designed to make the next party look like they were "redistributing wealth from the poor to the rich", it's a move that the current opposition would never reimplement and it moves so little money into the coffers of the HMRC, I can't believe we're still talking about it.
posted by zoo at 7:14 AM on May 2, 2013

For the majority of the time that Labour was in power, the Government was running a pretty small deficit, and even the odd surplus. It could be argued that there was no need to raise the higher rate of taxation until after the meltdown.
posted by Jakey at 8:11 AM on May 2, 2013

I'm probably missing something, not being a resident of the UK. But looking at the UK public spending records in Table 4.1 of the 2012 Public Expenditure Analyses (pdf), it looks like the UK slightly reduced its public expenditures, both in real (as opposed to nominal) dollars and as a percentage of GDP from 2010-2011 to 2011-2012 and is projected to reduce spending more over the next two or three years.

From Table 4.1 (on page 65):

2008-2009 ... 603.5 Bn ... 39.7%
2009-2010 ... 634.2 Bn ... 42.5%
2010-2011 ... 646.4 Bn ... 42.7%
2011-2012 ... 645.7 Bn ... 42.3%
2012-2013 ... 647.1 Bn ... 42.2% *
2013-2014 ... 639.9 Bn ... 40.8% *
2014-2015 ... 636.1 Bn ... 39.4% *

Where * are planned years.

This may not look like much, but put into historical perspective, it represents a pretty sharp flattening of public expenditures, which you can see in this simple graph I drew up.

This looks like austerity to me.
posted by Jonathan Livengood at 8:43 AM on May 2, 2013

Ugh. That should be "real pounds" of course.
posted by Jonathan Livengood at 9:17 AM on May 2, 2013

Austerity isn't all that austere though either, mostly it's simply trickle down economics dressed up to pit the lower classes against one another. We spend $90 per citizen per year on the drug war only because it profits influential people, that money gets spent preventing other economic activity. We saw more chest thumping by influential people about the sequester than any previous moves towards austerity in the U.S. for precisely this reason.
posted by jeffburdges at 11:44 AM on May 2, 2013 [2 favorites]

This looks like Austerity to me

Do those figures take into account the sale of assets?
posted by zoo at 2:48 PM on May 2, 2013

I may be reading the tables incorrectly, but I think those numbers represent expenditures only. I would expect sale of assets to show up in revenues, which would bear on deficit and debt claims.

The reason I looked at expenditures is that austerity is about what the government spends.
posted by Jonathan Livengood at 4:32 PM on May 2, 2013 [1 favorite]

Charlie Munger:

"What Cyprus demonstrates is an old truth: You can't trust bankers to govern themselves," Munger told CNBC. "A banker who is allowed to borrow money at X and loan it out at X plus Y will just go crazy and do too much of it if the civilization doesn't have rules that prevent it."

Seeing parallels between Cyprus and Iceland, Munger called it "stark, raving mad" and added that "the bankers would have been doing even more if it hadn't blown up. I do not think you can trust bankers to control themselves. They are like heroin addicts."

posted by Golden Eternity at 9:51 AM on May 3, 2013 [1 favorite]

Paul Krugman: Not Enough Inflation

Thus, in 2009, the influential conservative monetary economist Allan Meltzer warned that we would soon become “inflation nation.” In 2010, the Paris-based Organization for Economic Cooperation and Development urged the Fed to raise interest rates to head off inflation risks (even though its own models showed no such risk). In 2011, Representative Paul Ryan, then the newly installed chairman of the House Budget Committee, raked Ben Bernanke, the Fed chairman, over the coals, warning of looming inflation and intoning solemnly that it was a terrible thing to “debase” the dollar.

And now, sure enough, the Fed really is worried about inflation. You see, it’s getting too low.

posted by Golden Eternity at 10:51 AM on May 3, 2013 [1 favorite]

Niall Ferguson Doesn’t Trust Gay Economists
posted by homunculus at 2:26 PM on May 4, 2013

Austerity never works: Deficit hawks are amoral — and wrong. The 1 percent and the financial class caused the Great Recession. So why do we keep allowing them to shape policy?
posted by homunculus at 12:51 AM on May 6, 2013 [2 favorites]

Being a 'Very Serious Person' on Austerity Means Never Having to Say You're Sorry
posted by homunculus at 5:39 PM on May 6, 2013 [1 favorite]

The Bite of Austerity

Hardly a day goes by when either government analysts or the macroeconomists and financial forecasters who advise investors and businesses do not report on the latest signs of economic growth — in housing, consumer spending, business investment. And then they add that things would be better but for the fiscal policy out of Washington. Tax increases and especially spending cuts, these critics say, take money from an economy that still needs some stimulus now, and is getting it only through the expansionary monetary policy of the Federal Reserve.
A meta-point that is a little underappreciated here is that private sector macroeconomists all use models that embed broadly "Keynesian" assumptions about the behavior of the economy. Government economists at the OMB and CBO do it too, but they're really just following the lead of what you would find at any bank or consultancy. Obviously that doesn't prove that these models are correct—in fact that record of forecasting accuracy isn't stellar—but I don't hear much from anti-Keynesian types about why their preferred models have failed the market test.

Bottom line, according to the main forecasting models: "The nation’s unemployment rate would probably be nearly a point lower, roughly 6.5 percent, and economic growth almost two points higher this year if Washington had not cut spending and raised taxes as it has since 2011, according to private-sector and government economists."

posted by zombieflanders at 7:18 AM on May 9, 2013 [1 favorite]

Sex, Economics, and Austerity - "The real meaning of Niall Ferguson’s John Maynard Keynes-was-gay jibe—and why Keynes is so threatening to conservative economists and moralists alike."
posted by the man of twists and turns at 12:45 PM on May 12, 2013

Students, teachers in Spain stage country-wide strike against austerity measures

In time of trans-Atlantic austerity, US expands military presence in Spain: With its already small defense budget hit hard by the economic crisis Spain is leasing several bases to the US in exchange for access to better technology, intelligence, and training.
posted by spamandkimchi at 2:40 PM on May 12, 2013

Nietzsche’s Marginal Children: On Friedrich Hayek "How did the conservative ideas of Friedrich Hayek and the Austrian school become our economic reality? By turning the market into the realm of great politics and morals."
posted by the man of twists and turns at 8:47 PM on May 14, 2013

Paul Krugman, in the New York Review Of Books: How The Case For Austerity Has Crumbled. Krugman reviews The Alchemists: Three Central Bankers and a World on Fire, by Neil Irwin; Austerity: The History of a Dangerous Idea, by Mark Blyth; and The Great Deformation: The Corruption of Capitalism in America, by David A. Stockman.
posted by the man of twists and turns at 10:08 PM on May 14, 2013

New report: no austerity for EU military spending

A new report by the Transnational Institute — ‘Guns, Debt and Corruption: Military Spending and the EU Crisis’ — looks at the ways in which excessive militarization directly fed into the unfolding European debt crisis, and continues to undermine efforts to resolve it.

posted by spamandkimchi at 10:47 AM on May 15, 2013 [1 favorite]

New Yorker: Why Is Europe So Messed Up?, which is a review of Mark Blyth's book Austerity: The History Of A Dangerous Idea

The central fact about Europe’s “debt crisis” is that it largely originated in the private sector rather than the public sector. In 2007, Blyth reminds us, the ratio of net public debt to G.D.P. was just twelve per cent in Ireland and twenty-six per cent in Spain. In some places, such as Greece and Italy, the ratios were considerably higher. Over all, though, the euro zone was modestly indebted. Then came the financial crisis and the fateful decision to rescue many of the continent’s creaking banks, which had lent heavily into property bubbles and other speculative schemes. In Ireland, Spain, and other countries, bad bank debts were shifted onto the public sector’s balance sheet, which suddenly looked a lot less robust. But rather than recognizing the looming sovereign-debt crisis for what it was—an artifact of the speculative boom and bust in the financial sector—policymakers and commentators put the blame on public-sector profligacy.

“The result of all this opportunistic rebranding was the greatest bait-and-switch operation in modern history,” Blyth writes. “What were essentially private-sector debt problems were rechristened as ‘the Debt’ generated by ‘out-of-control’ public spending.”

posted by the man of twists and turns at 9:55 PM on May 21, 2013

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