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Austerity alternatives

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  • 18-04-2014 2:55am
    #1
    KyussBishop
    Closed Accounts Posts: 5,797 ✭✭✭


    If it's ok, I'm just branching off a post from another topic on After Hours, to mention some austerity alternatives, without derailing the AH thread - don't really plan to describe in detail all of the alternatives I list (though I might post the odd article, describing interesting alternative policies I've not encountered before, which don't fit other threads):
    AdamD wrote: »
    Just out of interest, as you seem to enjoy this graphic of yours: Given that Ireland has faced and still does face an enormous budget deficit, along with high debt levels, how exactly do you solve those issues without 'austerity'? If the deficit isn't cut the national debt levels would reach even more unsustainable levels.

    Off topic I know but as you're talking about fallacy, how about you address the lack of an alternative to the 'austerity doesn't work' answer, specifically looking at the Irish situation. Don't quote some article referring to Austerity in general where its not implemented in a situation where the country has enormous debt.
    The table/graphic AdamD mentions, that I've been posting (common recurring arguments in that thread), is on the Fallacy of Composition - which is a really informative concept all economists aught to know way better:
    Fallacy of Composition|Reality
    "JobBridge reduces unemployment"|JobBridge helps some unemployed workers, compete against the rest of the unemployed, for the same number of jobs (with exceptions for skill-shortage roles - with no stats to quantify JobBridge's contribution here). This does not rule out non-Job-Bridge changes to job/unemployment numbers.
    "Removing minimum wage boosts employment"|This can reduce wages/aggregate-demand/business-profits and then reduce employment.
    "Slashes wages can boost employment"|For the same reasons as above, can reduce employment.
    "People can get a job, they just need to put more effort in and try harder, to retrain into skilled roles that are in demand"|There are not enough jobs available, not everybody will be employed, no matter how hard they all try or how much effort they collectively put in.
    "In a worldwide economic downturn, people can get a job, they just need to emigrate"|In a worldwide downturn, similar to above, there are not enough jobs available, not everybody will be employed, no matter how many emigrate.
    "Competing on exports (e.g. by slashing wages) can bring recovery"|If all of the world tries to import less and export more all at once (which a great many of our trading partners are, due to the economic crisis), they will all fail, and it will be a race-to-the-bottom in wages/living-standards.
    "Cutting government spending and increasing taxes (austerity) can bring recovery"|Cutting government spending and increasing taxes, reduces aggregate demand, which harms employment and economic activity.
    "A government budget surplus is good"    |A budget surplus, without adequate exports to offset the money this removes from the private sector, can drain the private sector of money and cause an over-reliance on credit/debt (which can create an unsustainable debt bubble).

    Austerity just slashes aggregate demand, doing a ton of damage to economic-activity/GDP (worsening debt-to-GDP, i.e. making public debt more unsustainable, and worsening debt-to-income, making private debt more unsustainable), before bottoming out - hitting such a low that the only way forward is up.

    Saying austerity leads to economic recovery, is like saying throttling your neck leads to recovery when feeling faint, and that the harder you squeeze the better you'll feel.


    I've read up on many different alternatives to austerity for the last couple of years, and some require action at an EU level (very unlikely to happen), but others can be done locally within Ireland, even while still in Europe (but the scope is limited - it's no panacea, but would give us some breathing space). For countries with control over their own currency (not Ireland - but the UK or potentially Europe as a whole), there is also direct use of money creation by government - something that looks like it will be getting more interest from more mainstream economists.

    A version of the latter I support, is Modern Monetary Theory, and there is a very good intro here; this economic framework has a descriptive side, being useful as an economic description relevant to all economies - and a different/more-controversial proscriptive side, which advocates government use of money creation for fiscal policy.


    There are many more alternatives besides those as well, which tackle the problem in many different ways (such as by reducing the cost of public debt, or providing public rather than private banking, and using the profits to help fund government) - not many encompass quite as large an amount of potential as the first two options (Modest Proposal and TAN's) though.


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    #2
    Wompa1
    Registered Users Posts: 8,167 ✭✭✭Wompa1


    KyussBishop wrote: »
    If it's ok, I'm just branching off a post from another topic on After Hours, to mention some austerity alternatives, without derailing the AH thread - don't really plan to describe in detail all of the alternatives I list (though I might post the odd article, describing interesting alternative policies I've not encountered before, which don't fit other threads):

    The table/graphic AdamD mentions, that I've been posting (common recurring arguments in that thread), is on the Fallacy of Composition - which is a really informative concept all economists aught to know way better:
    Fallacy of Composition|Reality
    "JobBridge reduces unemployment"|JobBridge helps some unemployed workers, compete against the rest of the unemployed, for the same number of jobs (with exceptions for skill-shortage roles - with no stats to quantify JobBridge's contribution here). This does not rule out non-Job-Bridge changes to job/unemployment numbers.
    "Removing minimum wage boosts employment"|This can reduce wages/aggregate-demand/business-profits and then reduce employment.
    "Slashes wages can boost employment"|For the same reasons as above, can reduce employment.
    "People can get a job, they just need to put more effort in and try harder, to retrain into skilled roles that are in demand"|There are not enough jobs available, not everybody will be employed, no matter how hard they all try or how much effort they collectively put in.
    "In a worldwide economic downturn, people can get a job, they just need to emigrate"|In a worldwide downturn, similar to above, there are not enough jobs available, not everybody will be employed, no matter how many emigrate.
    "Competing on exports (e.g. by slashing wages) can bring recovery"|If all of the world tries to import less and export more all at once (which a great many of our trading partners are, due to the economic crisis), they will all fail, and it will be a race-to-the-bottom in wages/living-standards.
    "Cutting government spending and increasing taxes (austerity) can bring recovery"|Cutting government spending and increasing taxes, reduces aggregate demand, which harms employment and economic activity.
    "A government budget surplus is good"    |A budget surplus, without adequate exports to offset the money this removes from the private sector, can drain the private sector of money and cause an over-reliance on credit/debt (which can create an unsustainable debt bubble).

    Austerity just slashes aggregate demand, doing a ton of damage to economic-activity/GDP (worsening debt-to-GDP, i.e. making public debt more unsustainable, and worsening debt-to-income, making private debt more unsustainable), before bottoming out - hitting such a low that the only way forward is up.

    Saying austerity leads to economic recovery, is like saying throttling your neck leads to recovery when feeling faint, and that the harder you squeeze the better you'll feel.


    I've read up on many different alternatives to austerity for the last couple of years, and some require action at an EU level (very unlikely to happen), but others can be done locally within Ireland, even while still in Europe (but the scope is limited - it's no panacea, but would give us some breathing space). For countries with control over their own currency (not Ireland - but the UK or potentially Europe as a whole), there is also direct use of money creation by government - something that looks like it will be getting more interest from more mainstream economists.

    A version of the latter I support, is Modern Monetary Theory, and there is a very good intro here; this economic framework has a descriptive side, being useful as an economic description relevant to all economies - and a different/more-controversial proscriptive side, which advocates government use of money creation for fiscal policy.


    There are many more alternatives besides those as well, which tackle the problem in many different ways (such as by reducing the cost of public debt, or providing public rather than private banking, and using the profits to help fund government) - not many encompass quite as large an amount of potential as the first two options (Modest Proposal and TAN's) though.

    Interesting, so if that is used in conjunction with austerity measures we should be back in no time


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    #3
    andrew
    Moderators, Science, Health & Environment Moderators, Society & Culture Moderators Posts: 3,368 Mod ✭✭✭✭andrew


    if this is going to be a thread mostly about MMT, then I'll move it to the MMT thread...


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    #4
    KyussBishop
    Closed Accounts Posts: 5,797 ✭✭✭KyussBishop


    KyussBishop wrote: »
    ...
    A version of the latter I support, is Modern Monetary Theory, and there is a very good intro here; this economic framework has a descriptive side, being useful as an economic description relevant to all economies - and a different/more-controversial proscriptive side, which advocates government use of money creation for fiscal policy.
    ...
    Only this line is MMT - the rest of it are a wide ranging number of alternative policies, that don't depend on MMT.

    Out of curiosity, what do you class as MMT? I get the impression it sometimes is applied as a label, to a lot of things it doesn't apply to.


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    #5
    Labarbapostiza
    Banned (with Prison Access) Posts: 963 ✭✭✭Labarbapostiza


    KyussBishop wrote: »

    Out of curiosity, what do you class as MMT? I get the impression it sometimes is applied as a label, to a lot of things it doesn't apply to.

    It's more or less, the work of Milton Friedman. MMT is managing an economy through managing the money supply. It's headache inducing the wrong headed ideas people have about it, but essentially it comes down to managing inflation. Reducing the money supply through CB interest rates to curb inflation, and then in a depression printing money via QE to stop deflation.

    When fully applied, it means poor people (that's most of us) pay for a depression through austerity, strangely this also means a massive transfer of wealth from the poor to the rich in bad times, because money is being printed. And when the good times come, the poor receive few to none of the benefits, because the interest rates are kranked up to keep them precariously on the edge of falling onto the dole queue.

    Most people who have an opinion of Milton Friedmann, believe he was evil, this includes the rich people who love him. I believe he was just an idiot.


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    #6
    KyussBishop
    Closed Accounts Posts: 5,797 ✭✭✭KyussBishop


    Labarbapostiza wrote: »
    It's more or less, the work of Milton Friedman. MMT is managing an economy through managing the money supply. It's headache inducing the wrong headed ideas people have about it, but essentially it comes down to managing inflation. Reducing the money supply through CB interest rates to curb inflation, and then in a depression printing money via QE to stop deflation.

    When fully applied, it means poor people (that's most of us) pay for a depression through austerity, strangely this also means a massive transfer of wealth from the poor to the rich in bad times, because money is being printed. And when the good times come, the poor receive few to none of the benefits, because the interest rates are kranked up to keep them precariously on the edge of falling onto the dole queue.

    Most people who have an opinion of Milton Friedmann, believe he was evil, this includes the rich people who love him. I believe he was just an idiot.
    Ah, that's Monetarism which you're thinking of there - and I largely agree with all your criticisms of it (and Friedman :)), MMT is pretty different; there's are some good overviews of MMT in the thread this post is in: (intro on this post is quite good)
    http://www.boards.ie/vbulletin/showpost.php?p=89987007&postcount=97


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    #7
    Labarbapostiza
    Banned (with Prison Access) Posts: 963 ✭✭✭Labarbapostiza


    KyussBishop wrote: »
    Ah, that's Monetarism which you're thinking of there - and I largely agree with all your criticisms of it (and Friedman :)), MMT is pretty different;

    No, lots of the new stuff being bandied about is in fact the old stuff; Friedman. Friedman could be quite contradictory. So, he could be for a basic income, in the form of a negative tax, but against a welfare payment from social security. His right-wing supporters tended to hear what they wanted to hear and tune out the rest.

    He was hypersensitive to criticism and would never admit to flaws or possible mistakes in his theory. After the 1973 coup in Chile, Pinochet asked for his assistance in putting together an economic program. Friedman helped, but later when it proved to have been an unmitigated disaster, Friedman distanced himself from it. The guy had issues.

    The fundamental problem with Friedman's ideas, is the can, and have, been used to make the rich richer, and everyone else poorer. But I have a strong feeling they could be rewired for both a reverse of inequality, austerity, and propel real economic growth.


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    #8
    KyussBishop
    Closed Accounts Posts: 5,797 ✭✭✭KyussBishop


    Labarbapostiza wrote: »
    No, lots of the new stuff being bandied about is in fact the old stuff; Friedman. Friedman could be quite contradictory. So, he could be for a basic income, in the form of a negative tax, but against a welfare payment from social security. His right-wing supporters tended to hear what they wanted to hear and tune out the rest.

    He was hypersensitive to criticism and would never admit to flaws or possible mistakes in his theory. After the 1973 coup in Chile, Pinochet asked for his assistance in putting together an economic program. Friedman helped, but later when it proved to have been an unmitigated disaster, Friedman distanced himself from it. The guy had issues.

    The fundamental problem with Friedman's ideas, is the can, and have, been used to make the rich richer, and everyone else poorer. But I have a strong feeling they could be rewired for both a reverse of inequality, austerity, and propel real economic growth.
    Replied to that here:
    http://www.boards.ie/vbulletin/showthread.php?p=90268207#post90268207


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