The Austerity Debacle

SiriuslyWrong held up England as an example of a country making the right economic choices. Oops.

http://www.nytimes.com/2012/01/30/op...=2&ref=opinion
OP-ED COLUMNIST
The Austerity Debacle
By PAUL KRUGMAN
Published: January 29, 2012

Last week the National Institute of Economic and Social Research, a British think tank, released a startling chart comparing the current slump with past recessions and recoveries. It turns out that by one important measure — changes in real G.D.P. since the recession began — Britain is doing worse this time than it did during the Great Depression. Four years into the Depression, British G.D.P. had regained its previous peak; four years after the Great Recession began, Britain is nowhere close to regaining its lost ground.

Nor is Britain unique. Italy is also doing worse than it did in the 1930s — and with Spain clearly headed for a double-dip recession, that makes three of Europe’s big five economies members of the worse-than club. Yes, there are some caveats and complications. But this nonetheless represents a stunning failure of policy.

And it’s a failure, in particular, of the austerity doctrine that has dominated elite policy discussion both in Europe and, to a large extent, in the United States for the past two years.

"Britain, in particular, was supposed to be a showcase for “expansionary austerity,” the notion that instead of increasing government spending to fight recessions, you should slash spending instead — and that this would lead to faster economic growth. “Those who argue that dealing with our deficit and promoting growth are somehow alternatives are wrong,” declared David Cameron, Britain’s prime minister. “You cannot put off the first in order to promote the second.”"

Perhaps if Nation's wouldn't have run up such extreme debt for their entitlements, there would be less hesitation for their government to spend their way out of a recession?? Secondly, I love how Krugman always cites austerity as bad, and spending as good, but always fails to mention where the money will come from?? I know where the money will come from.

Please explain how Englands "solutions" which you praised have not worked out so well. You have a very persistent habit of not answering questions. I have asked you repeatedly to explain why your
and Mr. peter Schiff's economic and stock market predictions were so wrong.

I think you should check out the book. "Six myths that hold back America"

Quote:

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Originally Posted by Havakasha

Please explain how Englands "solutions" which you praised have not worked out so well. You have a very persistent habit of not answering questions. I have asked you repeatedly to explain why your
and Mr. peter Schiff's economic and stock market predictions were so wrong.

I think you should check out the book. "Six myths that hold back America"

---

You were going to show me where I praised England's austerity program??

I question spending what you don't have. I question how you can finance the spending on the open market when you may very well be a bad risk and having to offer very high interest rates to attract buyers of your debt. That doesn't sound like a viable solution to me. You? Please explain how governments with so much debt can finance expansionary policy. We all want to know.

I know.

I need to look it up when i have a chance. I disntinctly remember
these discussions we had on England, debt, inflation etc. Its very
time consuming and difficult to find some of this old stuff.

Can you tell me in the meantime if you ever praised Englands economic solutions as opposed to Krugmans suggestions for stimulating our economy?
In other words do you believe in England's choices from the past
2 years to tackle their economic problems?

I have asked you repeatedly to explain why you
and Mr. peter Schiff's economic and stock market predictions were so wrong.

Its clear we have a debt problem. Its just a question of when we tackle it and how.
In basic terms:
Quite a few economists both Republicans and Democrats believe the correct thing to do
know is to borrow when interest rates are so low and to spend that money on inrfrastructure
etc which is more likely to lead us to a robust economy in the near future.
This growth will not only allow us to bring down the debt but allow us to avoid
the catastrophic results of an austerity program which would bring us a double dip recession.
I wish more than anything we were able to have a side by side demonstration of what
President Obama and a President McCain policies would have wrought.
I believe a 2nd best demonstration would be to compare England and the U.S. (though
the Republican Party is preventing President Obama from doing the things he
would like to help the economy while he also tries to bring down the debt.

Its not always a bad thing to be in debt. Lots of successful businesses and individuals
use debt as part of their investment strategy.
Isnt it a fact that Sirius Satellite radio's goal is
to maintain a 3:1 debt ratio.

Quote:

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Originally Posted by SiriuslyLong

You were going to show me where I praised England's austerity program??

I question spending what you don't have. I question how you can finance the spending on the open market when you may very well be a bad risk and having to offer very high interest rates to attract buyers of your debt. That doesn't sound like a viable solution to me. You? Please explain how governments with so much debt can finance expansionary policy. We all want to know.

I know.

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Starting to drill down to it SiriuslyWrong. I think i might have some evidence now. What do you think?


\
This is your post from march 25, 2011:

Austerity Britain may not be austere enough, says top think tank

http://www.citywire.co.uk/money/aust...test-news-list

British Debt Best as Cameron U.K. Austerity Makes BOE Pause

http://www.businessweek.com/news/201...boe-pause.html

Austerity justified by Portugal's plight

http://www.dailymail.co.uk/debate/ar...cial-hand.html

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Who to believe? Krugman wants Portugal to keep on spending which means they'd have to keep on borrowing, and at extremely high rates. That doesn't sound like a good idea to me. Are there enough "rich" in Portugal to tax?

Austerity v Stimulus
Robert Skidelsky
The Northern Ireland Economic Conference, Belfast | Wednesday, September 29, 2010

How much do people mind the deficit? Do they lie awake at night worrying about it? Do they have nightmares about it?

I tended to dismiss such thoughts as fanciful. Households and businesses, I thought, naturally worried about their own budgets, but not about the government’s budget.

I therefore tended to assume that the government had enough freedom over its own budget to do what it thought best for the country, without coming under undue popular pressure to ‘balance its books’.

Of course there were the ‘markets’. But it didn’t seem to me the markets were putting pressure on our government to ‘balance the books’. After all they have been lending to Treasury long-term at 3% This is historically very low. It does not suggest any great fear of default or inflation. The markets can certainly make their displeasure felt, as Greece, Portugal, Ireland, and Spain have discovered. But it did not seem to me that a British government, of whatever stripe, faced this particular problem.

But I was brought up short by Alastair Darling in his speech of 27th September at the Labour party conference. The Evening Standard’s headline was: ‘Failure to cut debt would be electoral disaster, says Darling’. He is reported as saying:

‘Whatever our message, it’s got to strike a chord with millions of ordinary people as being realistic and credible. People know there is a deficit. They know it needs to come down. If we deny that, frankly people will not listen to you’.

So, it seems, people do worry about the deficit, perhaps even have nightmares about it. The Coalition, Darling implied, has struck the right cord.

Darling comes across as a solid citizen, in tune with ordinary people. So I ask myself: what is it that ordinary people fear or dislike about the deficit? I have come up with two answers.

First, people think of the government’s finances very much as they think of their own household’s finances.

Every household knows that it has to balance its books. If it is spending more than it’s earning, it either has to earn more or spend less. Spending less means saving more. Yes it can borrow, but borrowing is for emergencies, and has to be repaid. It is better to stay out of debt. True enough, households went on a huge spending spree. Now is the day of reckoning: the wages of sin have to be paid. Households also know that a lot of their spending is ‘wasteful’ –things they can do without. And they assume the same is true of governments.

Ordinary people, I suspect, think of the government as a huge household, which is currently spending much more than it is earning. Its collateral –the national economy – has shrunk in value. So it has to increase its earnings –raise taxes –or reduce its spending, or some mixture of both, and make provision for repaying its debt out of its surplus, just like the millions of smaller households in the land.

I believe that an analogy like this underlines much of the popular feeling that it’s time for the government to start balancing its books.

But the analogy is not, perhaps, enough to create the demand. People also think of the impact of the national debt on their own finances.When they think of the government ‘paying back’ the national debt, they understand that it is they –the taxpaying citizens –who will be doing the paying. So they want to stop the growth of the National Debt, and that means reducing the deficit as quickly as possible. It’s the debt not the deficit which looms largest in people’s minds. Unless the books are balanced now, the burden on present and future tax payers will skyrocket. In fact it already portends a new age of austerity.

So the demand for retrenchment comes both from the analogy between households and governments and from the implied financial link between the two.

These are instinctual responses. But they are inflamed by politicians. David David Cameron has said that ‘the government deficit is just like credit card debt’. George Osborne has repeatedly pointed out that borrowing is simply deferred taxation.

However, these are not the only instinctual responses. There is also, I would say, a strong instinctual understanding that cutting the deficit is likely to cost jobs. This is the trade union position. It was the great fault of the Labour Party leadership that it failed to develop a persuasive narrative capable of giving this instinct voice.

One should not underestimate the effect of language. Politicians use language to create a particular kind of narrative. The phrase ‘deficit denial’ is a conscious echo of the phrase ‘Holocaust denial. A ‘denier’ is someone who refuses to acknowledge the existence of a disagreeable fact. A deficit denier is someone who minimises the deficit problem, and therefore the need to take urgent action. The cutting narrative can also be seen in the emphasis of the cutters on the ‘structural deficit’. By some alchemical process which is far from clear the pre-recession deficit of 2.5% of GDP has been transmuted into a ‘structural deficit’ of 7.4%. This, the cutters say, is the real legacy of the last government – of its wastefulness and extravagance. ‘Deficit deniers’ are those weak sisters who blame most of the deficit on the collapse of the economy rather than on thirteen years of Labour government and say that most of it will shrink naturally as the economy recovers.


And the rest:

http://www.skidelskyr.com/site/artic...ty-v-stimulus/

Pain Without Gain
By PAUL KRUGMAN
Published: February 19, 2012



Last week the European Commission confirmed what everyone suspected: the economies it surveys are shrinking, not growing. It’s not an official recession yet, but the only real question is how deep the downturn will be.


And this downturn is hitting nations that have never recovered from the last recession. For all America’s troubles, its gross domestic product has finally surpassed its pre-crisis peak; Europe’s has not. And some nations are suffering Great Depression-level pain: Greece and Ireland have had double-digit declines in output, Spain has 23 percent unemployment, Britain’s slump has now gone on longer than its slump in the 1930s.

Worse yet, European leaders — and quite a few influential players here — are still wedded to the economic doctrine responsible for this disaster.

For things didn’t have to be this bad. Greece would have been in deep trouble no matter what policy decisions were taken, and the same is true, to a lesser extent, of other nations around Europe’s periphery. But matters were made far worse than necessary by the way Europe’s leaders, and more broadly its policy elite, substituted moralizing for analysis, fantasies for the lessons of history.

Specifically, in early 2010 austerity economics — the insistence that governments should slash spending even in the face of high unemployment — became all the rage in European capitals. The doctrine asserted that the direct negative effects of spending cuts on employment would be offset by changes in “confidence,” that savage spending cuts would lead to a surge in consumer and business spending, while nations failing to make such cuts would see capital flight and soaring interest rates. If this sounds to you like something Herbert Hoover might have said, you’re right: It does and he did.

Now the results are in — and they’re exactly what three generations’ worth of economic analysis and all the lessons of history should have told you would happen. The confidence fairy has failed to show up: none of the countries slashing spending have seen the predicted private-sector surge. Instead, the depressing effects of fiscal austerity have been reinforced by falling private spending.

http://www.nytimes.com/2012/02/20/op...ef=global-home