The Austerity Con

[Barbirollians]

A most interesting article here in the London Review of Books . My old A level economics knowledge was always revolting against austerity but I struggled to articulate entirely why . Here is the answer .

http://www.lrb.co.uk/v37/n04/simon-wren-lewis/the-austerity-con

[ahinton]

A most interesting article here in the London Review of Books . My old A level economics knowledge was always revolting against austerity but I struggled to articulate entirely why . Here is the answer .

http://www.lrb.co.uk/v37/n04/simon-w...-austerity-con

This does indeed make interesting reading. The worst possible consequence of at least some of the cutting that occurs during a period of austerity as a direct consequence of a government's enactment of its austerity policy is that some of its victims will never recover from its effects and that can only furher damage an already parlous economy; the writer of this article and many others seem well to understand and appreciate that as part of the problem, whereas government seems not only not to do so but also not even to want to do so.

[aka Calum Da Jazbo]

it is an excellent argument; one despairs of any left/centre politician making the case so clearly ..... it is case that really must be made ...

Mediamacro’ is the term I use to describe macroeconomics as it is portrayed in the majority of the media. Mediamacro has a number of general features. It puts much more emphasis than conventional macroeconomics does on the financial markets, and on the views of participants in those markets. It prefers simple stories to more complex analysis. As part of this, it is fond of analogies between governments and individuals, even when those analogies are generally seen to be false by macroeconomists. So after the 2010 election (and to some extent before it) mediamacro had bought with barely a murmur the view that reducing the government deficit was the top priority.

from Wren Lewis's blog

The difficulty here is that ‘Labour crashed the economy’ is not complete fiction. If the accusation was that Labour crashed the economy through fiscal profligacy (which it sometimes is), that is a straightforward falsehood, and it is easy to show it is a lie. The economy crashed because of the global financial crisis. But if fiscal profligacy is not mentioned, the claim cannot be dismissed as completely wrong. This is because the Labour government, like their Conservative predecessors, brought about or tolerated a regulation regime and a financial sector that allowed the global financial crisis to have a particularly damaging effect on the UK economy.

[Tevot]

Hello there,

Also worth considering is how this situation was set up and then allowed to happen.

https://www.youtube.com/watch?v=SrpA46YS7P0

The Shock Doctrine - based on Naomi Klein's book... (It is controversial - because she disowned the documentary)

But pace a previous post I made on the UK elections, I ask myself - unintended consequences. Did the Chicago School neoliberals see beyond their ideal of rolling back the State?

Individual Freedom? But at what cost ... to others ?

Best Wishes,

Tevot

[Barbirollians]

I found the mediamacro point especially compelling and the worst offender sadly was Stephanie Flanders.

[P. G. Tipps]

Well, er yes, all this fantasy economics sounds so attractive to everyone but one does wonder if continuing to avoid 'austerity' is such an obvious solution why doesn't either realistic governing party in the UK actually advocate it? After all it would be a huge, huge vote-winner! So what exactly is the problem when it comes to doing so?

I'll rather go along with Charlie D. who certainly knew a thing or two about debt ...

“Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.”

Simple really, but don't expect any old highfalutin university-educated economic 'expert' to have the basic intelligence to be able to grasp it!

[Serial_Apologist]

Well, er yes, all this fantasy economics sounds so attractive to everyone but one does wonder if continuing to avoid 'austerity' is such an obvious solution why doesn't either realistic governing party in the UK actually advocate it? After all it would be a huge, huge vote-winner! So what exactly is the problem when it comes to doing so?

The answer that comes most immediately to mind is "class" - the elephant in the room that all these economic models can't countenance seeing for the sake of self-preservation.

I'm sure there is a logical substantiation for anti-austerity as propounded by the SNP, Greens and Plaid Cymru. What unfortunately stands in the way is the ruling class protecting its interests by being in a spending position to acquire durables capable of outlasting the vagaries of up and downturn, to which ordinary folks' purchasing requirements and patterns are subject; not to mention having the covert wing of the state apparatus on side, spying, and infiltrating agent provocateurs into organisations promulgating alternative economic and/or political systems, as comes out years later when the damage has long been done and culprits have long gone to ground or "retired". Panorama then makes an expose documentary! Wren-Lewis's otherwise articulately argued alternative speaks of a right wing macromedia in hock to the Tories, but where does he think they come from and what motivates them? To understand that question requires a class analysis.

[ahinton]

Well, er yes, all this fantasy economics sounds so attractive to everyone but one does wonder if continuing to avoid 'austerity' is such an obvious solution why doesn't either realistic governing party in the UK actually advocate it?

"Realistic governing party"? Which one or more might that be, then?

After all it would be a huge, huge vote-winner! So what exactly is the problem when it comes to doing so?

Nothing's likely to be such when there are at least seven parties clamouring, of which none is really a "realistic governing" one.

I'll rather go along with Charlie D. who certainly knew a thing or two about debt ...

“Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.”

Simple really, but don't expect any old highfalutin university-educated economic 'expert' to have the basic intelligence to be able to grasp it!

You're still not grasping the fundamental differences between national debt and national deficit or between personal debt and national debt. Ah, well - never mind! You seem - unless I've somehow misunderstood you - to be labouring under the impression that no individual or nation should ever borrow and, as I've implied above, if neither were ever to do so, we'd all be well on the way to Hell in a failed economic handcart.

To reinterpret Dickens - who was not, as you obviously know, a 21st century author with a close grasp of 21st century economic problems - rather than "Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery." it might be "Annual income twenty pounds, annual expenditure nineteen six, result sickening worry. Annual income twenty pounds, annual expenditure twenty pound ought and six, result sickening worry."

[P. G. Tipps]

You're still not grasping the fundamental differences between national debt and national deficit or between personal debt and national debt.

Really? Can you give a specific example of this peculiar personal failure to 'grasp the difference' between the two (or four)? You keep coming up with these bizarre statements in presumably the vain hope that this will somehow give your argument an apparent aura of credibility!

Nevertheless, there is a direct correlation between the debt and deficit ... the slower the deficit is reduced the more the national debt increases short of cutting public spending further and/or increasing non-borrowed income (tax), 'austerity' if you like.

As for your insistence that national debt is somehow something quite different from personal debt, the solution to rectifying both is largely the same. Simply put, cutting spending or increasing income (if possible) or more normally a mixture of both. Yes, sadly most of us do get poorer as a result. That's life. (pace, Mr GG!)

I suspect most of us can just about 'grasp' that, whether we prefer to face or ignore these very simple laws of arithmetic. The real argument surely is how we try and ensure the rich pay the greatest share of the debt/deficit burden and that the very poor are protected as far as possible.

I'm certainly all for achieving that!

[ahinton]

Really? Can you give a specific example of this peculiar personal failure to 'grasp the difference' between the two (or four)? You keep coming up with these bizarre statements in presumably the vain hope that this will somehow give your argument an apparent aura of credibility!

The aura of credibility is lacking and the bizzarerie is present in your own statements in which you seem to perceive no problem in referring to the UK national deficit in the context of your own personal finances (or vice versa); this, quite simply put, is neither tenable nor credible.

Nevertheless, there is a direct correlation between the debt and deficit ... the slower the deficit is reduced the more the national debt increases short of cutting public spending further and/or increasing non-borrowed income (tax), 'austerity' if you like.

The more that public and private spending is cut, the more that tax revenues decrease; how does that help to eliminate either the national debt or the national deficit?

As for your insistence that national debt is somehow something quite different from personal debt, the solution to rectifying both is largely the same. Simply put, cutting spending or increasing income (if possible) or more normally a mixture of both. Yes, sadly most of us do get poorer as a result. That's life. (pace, Mr GG!)

What you consistently omit to mention is your views on borrowing. Nothing gets done in business, housing, health or anything else without it, whether in the public or private sector. Unless I miunderstand you, the impression that you appear to give is that, as long as there remains a national deficit and as long as the nation remains indebted (which ones don't, by the way?), borrowing should be curtailed. Where I do agree that there is a correlation between national, corporate and individual borrowing is in the need for it across the board; it's not just about public services, it's about all kinds of business activity and much other activity tht presumes the need for financial transactions. Companies employ people by borrowing to be able to do it. Individuals borrow the cost of getting to and from work, borrow for their housing, borrow for just about everything; someone once smugly told me that he's never borrowed any funds whatsoever and I argued that, as his employer is paying him from borrowed funds, he's a borrower just like almost everyone else.

I suspect most of us can just about 'grasp' that, whether we prefer to face or ignore these very simple laws of arithmetic. The real argument surely is how we try and ensure the rich pay the greatest share of the debt/deficit burden and that the very poor are protected as far as possible.

I'm certainly all for achieving that!

But by what means? The "non-dom" arguments, for example, are being re-aired at the moment and they rest mainly upon people who benefit from living in a country being expected to pay appropriate amounts of tax to it, which is fine in principle insofar as it goes, but in today's world many people can benefit from a country and from having interests in it without actually living there and, in any case, the more pressure that's put on such people, the more that many of them will be encouraged to split their domiciliary arrangements so that they never spend more than half of any year in any one country and are then obliged to choose to which country they do pay tax. As to protecting the poorest, yes, of course we all agree on that, but how's that to be done without borrowing?

[P. G. Tipps]

The aura of credibility is lacking and the bizzarerie is present in your own statements in which you seem to perceive no problem in referring to the UK national deficit in the context of your own personal finances (or vice versa); this, quite simply put, is neither tenable nor credible.

I've never once mentioned my own personal finances!

The more that public and private spending is cut, the more that tax revenues decrease; how does that help to eliminate either the national debt or the national deficit?.

Yes but 'cuts' (which are really a euphemism for job losses) are likely to be a far bigger saving than anything lost in tax-revenues and, in any case, 'cuts' are generally accompanied by tax increases for the rest of us as indicated earlier! So that will certainly reduce or eliminate the deficit if not, alas, the debt. Of course there will be an adverse affect on growth and any sensible government would make growing the economy the ultimate goal in the long run without over-borrowing again which was the problem in the first place.

What you consistently omit to mention is your views on borrowing. Nothing gets done in business, housing, health or anything else without it, whether in the public or private sector. Unless I miunderstand you, the impression that you appear to give is that, as long as there remains a national deficit and as long as the nation remains indebted (which ones don't, by the way?), borrowing should be curtailed. Where I do agree that there is a correlation between national, corporate and individual borrowing is in the need for it across the board; it's not just about public services, it's about all kinds of business activity and much other activity tht presumes the need for financial transactions. Companies employ people by borrowing to be able to do it. Individuals borrow the cost of getting to and from work, borrow for their housing, borrow for just about everything; someone once smugly told me that he's never borrowed any funds whatsoever and I argued that, as his employer is paying him from borrowed funds, he's a borrower just like almost everyone else.

Yes, I've come across folk like that as well, and I tend to agree with you!

I'm certainly not anti-borrowing, and borrowing to buy a house was one of my very rare, smarter life-moves . But then again it was much easier to be smart when just about everyone else was doing the same, boasting about their success, and enquiring why I was so stupid that I hadn't (then) done the same as them!

Sensible borrowing (which still carries risk) is, imho, a good thing. Irresponsible borrowing is very likely to end in disaster for the borrower and often sometimes for the lender even when 'secured', and is therefore, imho, a thoroughly bad thing.

[ahinton]

Yes but 'cuts' (which are really a euphemism for job losses) are likely to be a far bigger saving than anything lost in tax-revenues and, in any case, 'cuts' are generally accompanied by tax increases for the rest of us as indicated earlier!

Cuts are not such a euphemism in all instances; welfare cuts, including those to child benefit or to the disabled are not, for starters. What you foret here, however, is that it'#s not just the tax revenue that's lost when cuts put people out of work, it's also the benefits that are then paid out to those people, not to mention the fact that, if those people's services are no loner provided, the economy is worse of as a direct result.

So that will certainly reduce or eliminate the deficit if not, alas, the debt. Of course there will be an adverse affect on growth and any sensible government would make growing the economy the ultimate goal in the long run without over-borrowing again which was the problem in the first place.

"Any sensible government"?! How long are you prepaed to wait for one of those?!

"Over-borrowing" is another very loose term. When anyone, any business or any government borrows, it/they cannot predict how well they'll be able to service the loan at any time; interest rates could rise, profits could fall and all manner of other unforeseen (and indeed unforeseeable) circumstances could affect that. In the case of an individual, he/she might take out a mortgage whose servicing's affordable at the time but then be made redundant or the victim of "cuts"; what then? One could almost say that, in such cases, sensible borrowing suddenly becomes irresponsible borrowing.

[Barbirollians]

PG Tipps did you read the article ? Your responses suggest you didn't .

[jean]

...'cuts' (which are really a euphemism for job losses)...

What an extraordinary statement.

'Cuts' aren't a euphemism for anything.

[P. G. Tipps]

PG Tipps did you read the article ? Your responses suggest you didn't .

a) Yes
b) Maybe what you really mean is that you agree with the writer and cannot even contemplate the possibility that he might conceivably be wrong?

The article is an economist's opinion, that's all ... you can find plenty of other economists who beg to differ!

Basically I'm sympathetic to a pragmatic, Keynesian approach by governments but even Keynes might have argued that continuous public borrowing must have its limits?

A day of reckoning for too much borrowing will assuredly come even if it eventually falls on future generations to have to pay for previous profligacy ... that's a widely-held view and not just confined to myself!