Austerity policies based on flawed research?

KyussBishop

There's actually a rather good article on the paper in the OP here, which I just spotted on a blog I read regularly, that echoes my thoughts/narrative on the topic very well (and in more clarity/detail):
http://www.nakedcapitalism.com/2013/04/linchpin-pro-austerity-paper-rife-with-errors-recomputed-results-show-no-growth-hit-from-high-government-debt.html

carpejugulum

20Cent wrote: »

Spot the stimulus US edition

If you pump money into an economy, it statistically grows in the short term. That's obvious.
If we could pump additional 100bn into the domestic economy, we would get unemployment to say 7% and have nice GDP growth. But it would just be another bubble that would last for a short while and would have even more disastrous consequences.
US is printing 85 billions every month to prop the economy. The Dow is now record high (=bubble) and junk bonds are more popular than ever.

Sand

Irish austerity isn't based on flawed research. Its based on having no money. An argument over the theoretical merits of austerity is only of interest to the bigger economies who can achieve benefits from their own stimulus spending - Ireland's best option in any case as a tiny, tiny, hugely open economy is to cut our cloth to measure ASAP and encourage everyone else to spend.

@20Cent

Spot the stimulus US edition

You're showing a sharp fall in GDP and production, which hits a nadir and then recovers (and declining again in the case of GDP). Imagine there was no stimulus package. What different trend do you imagine the charts would follow?

Cody Pomeray

Sand wrote: »

Irish austerity isn't based on flawed research. Its based on having no money.

Fiscal austerity and economic stimulus are not mutually exclusive.

After all, the US are doing it... or at least their version of it.

An argument over the theoretical merits of austerity is only of interest to the bigger economies who can achieve benefits from their own stimulus spending

Have people learned anything - anything - from EU membership?
Have people been asleep?
This country has benefitted massively from EU structural investments.

Sand

I did say we should be encouraging everyone else to spend.

And we can benefit from stimulus spending: other peoples stimulus spending.

Cody Pomeray

Sand wrote: »

And we can benefit from stimulus spending: other peoples stimulus spending.

sure who else is going to be instigating an Irish stimulus? the cat?

Sand

Our trading partners will instigate an Irish stimulus.

We are a tiny open economy. Tiny. Any Irish stimulus spending will vanish abroad as its spent on foreign holidays, foreign cars, foreign furniture, foreign electronics, foreign media, foreign food and drink and foreign clothes. Much like the foolish stimulus of the car scrappage scheme which only served as an Irish taxpayer subsidy of German car manufacturers.

KyussBishop

carpejugulum wrote: »

If you pump money into an economy, it statistically grows in the short term. That's obvious.
If we could pump additional 100bn into the domestic economy, we would get unemployment to say 7% and have nice GDP growth. But it would just be another bubble that would last for a short while and would have even more disastrous consequences.
US is printing 85 billions every month to prop the economy. The Dow is now record high (=bubble) and junk bonds are more popular than ever.

Bubbles are based on unsustainable economic activity, such as inflating the crap out of house prices, and significant over-construction of property that is not useful to the real economy, and is based on private debt that must keep on expanding/returning-a-profit, or it will collapse.

Bubbles are primarily caused by misallocated private lending/debt; public spending through debt, is inherently sustainable so long as the public debt vs GDP remains sustainable, and so long as the real economy underpinning taxation is based on sustainable activity.
This means that so long as the public spending goes into something useful to the real economy (like necessary infrastructure), and so long as private lending is properly policed to prevent dangerous misallocation of resources/economic-activity, then there is nothing unsustainable about such public spending through public debt (within sustainable debt limits).

Misallocation of private spending/lending, into unsustainable areas that part of the tax base becomes dependent on, is a far greater threat to public financing, than sustainable utilization of public debt to achieve recovery.

schnitzelEater

War is the best stimulus package out there, look what WW2 did for the US.

Let's declare war on the country we are most likely to beat - France is a good candidate...

Cody Pomeray

Sand wrote: »

Our trading partners will instigate an Irish stimulus.

We are a tiny open economy. Tiny. Any Irish stimulus spending will vanish abroad as its spent on foreign holidays, foreign cars, foreign furniture, foreign electronics, foreign media, foreign food and drink and foreign clothes. Much like the foolish stimulus of the car scrappage scheme which only served as an Irish taxpayer subsidy of German car manufacturers.

Obviously that's the thing to avoid, nobody wants more imports here, or to deteriorate trade.

Investment would have to be focused on the export economy and manufacturing in the bailout countries and those threatening to join us.

KyussBishop

schnitzelEater wrote: »

War is the best stimulus package out there, look what WW2 did for the US.

Let's declare war on the country we are most likely to beat - France is a good candidate...

You say it flippantly, but while war is not the solution, economically you're not really far off the mark; just channel the resources into useful infrastructure and business, instead of building bombs/weapons and general military equipment.

Economically, war is just massive industrial activity/production (pushing an economy close to full employment), used for the purpose of physically destroying another country; doing the same thing, but putting resources to constructive rather than destructive use, is even more massively economically benefical, and is pretty much the solution.

If a country goes to war at a time of economic trouble, they're hardly going to say "we don't have the money to fight this war, we have to give up", they are going to find a way to squeeze 100% productivity out of their economy to advance the war, and that will basically mean 100% employment (or close to it), and massive industrial activity; if that's possible in the wake of the last Great Depression, there's no reason it can't be possible now either, but put to constructive use instead.

carpejugulum

Cody Pomeray wrote: »

Have people learned anything - anything - from EU membership?
Have people been asleep?
This country has benefitted massively from EU structural investments.

Yes, but it's much easier to grow from donkeys to cars.

KyussBishop wrote: »

Bubbles are based on unsustainable economic activity, such as inflating the crap out of house prices, and significant over-construction of property that is not useful to the real economy, and is based on private debt that must keep on expanding/returning-a-profit, or it will collapse.

Bubbles are primarily caused by misallocated private lending/debt; public spending through debt, is inherently sustainable so long as the public debt vs GDP remains sustainable, and so long as the real economy underpinning taxation is based on sustainable activity.
This means that so long as the public spending goes into something useful to the real economy (like necessary infrastructure), and so long as private lending is properly policed to prevent dangerous misallocation of resources/economic-activity, then there is nothing unsustainable about such public spending through public debt (within sustainable debt limits).

Misallocation of private spending/lending, into unsustainable areas that part of the tax base becomes dependent on, is a far greater threat to public financing, than sustainable utilization of public debt to achieve recovery.

Private sector is much more efficient than the public sector. Widespread property and financial speculation is the result of government policies.

Suryavarman

20Cent wrote: »

Spot the stimulus US edition

To quote this Wall Street Journal article by Robert J. Barro:

For the U.S., my view is that the large fiscal deficits had a moderately positive effect on GDP growth in 2009, but this effect faded quickly and most likely became negative for 2011 and 2012. Yet many Keynesian economists look at the weak U.S. recovery and conclude that the problem was that the government lacked sufficient commitment to fiscal expansion; it should have been even larger and pursued over an extended period.

And from an earlier article by the same economist:

How attractive this short-run deal looks depends on how much one values the added governmental activity. If it's considered useful public investment—such as building a needed highway or, more modestly, fixing potholes—it might look good. If it's wasteful spending in a hastily constructed and highly political stimulus package, it looks bad.

The projected effect on other parts of GDP (consumer expenditure, private investment, net exports) is minus 180, minus 120, +60, minus 330, minus 330, which adds up to minus 900. Thus, viewed over five years, the fiscal stimulus package is a way to get an extra $600 billion of public spending at the cost of $900 billion in private expenditure. This is a bad deal.

The fiscal stimulus package of 2009 was a mistake. It follows that an additional stimulus package in 2010 would be another mistake.

To sum up, a stimulus package can increase GDP now but will cause slower growth in the future as taxes are raised to pay down the debt and service higher interest payments. Which in the end can result in a net negative to the economy.

Then beside that, even if, in the long run, the stimulus package is a net positive to the economy that doesn't mean it is worth doing. If the stimulus isn't used on valuable projects then the additional growth shouldn't be viewed as good. If a lot of it is spent on bridges to nowhere or loans to failed businesses that can hardly be viewed as a positive.

Cody Pomeray

carpejugulum wrote: »

Yes, but it's much easier to grow from donkeys to cars.

Is the donkey a metaphor for building sites?
Is the car a metaphor for factories?
That could work.

Seriously, we have one of the lowest corporation taxes in the EU (is it now the lowest?). This place is crying out for industrial investment, but austerity alone is only diminishing it. Don't take my word for that, take the EU Commission's word for it. Their recent report on innovation singled us out as the highest performers for economic effects, and for being strong on human resources in knowledge intensive industries, whereas they noted problems... guess where? In finance and firm investments.

http://ec.europa.eu/enterprise/policies/innovation/files/ius-2013_en.pdf

http://imageshack.us/photo/my-images/585/screenshot20130417at213.png/

Our economy is crying out for an economic stimulus that would benefit our research and innovation marketplace.

ardmacha

Widespread property and financial speculation is the result of government policies.

Complete tosh. Government policies may have a role in mitigating the damage, but property and financial speculation is the result of greed by private individuals and the private sector. You might as well claim that crime is the result of government policies.

Tipp Man

Some simple facts that you don't need to be a Nobel winning economist, work for the IMF, or think you are some kind of keyboard economic genius to understand

1: The Irish government is in debt up to its neck, so much debt that for a while nobody would lend us any more money (thankfully)

2: For a good few years now the irish government has been spending way beyond its means - it's budget deficit is completly unsustainable


Now people (at the risk of getting a warning i am going to call them idiots) who think that we have any other option other than to dramatically cut government expenditure AND take action to stop the increase in government debt (hopefully start to reduce it a bit) are living in cloud cuckoo land

WE HAVE NO OPTION BUT TO REDUCE GOVERNMENT SPENDING AND STOP BLOODY BORROWING MORE AND MORE

Are people really in that much denial that they are completly unwilling to accept the complete and utter mess the public finances are in??

Wake up for god's sake

Rightwing

Austerity doesn't work if:

you want someone else to pay the bills while you eat the cake.

Austerity works if:

you want to see deficits coming down.

Now, a well run country like Norway won't need austerity.

Cody Pomeray

Tipp Man wrote: »

1: The Irish government is in debt up to its neck, so much debt that for a while nobody would lend us any more money (thankfully)

So what, we pay off the national debt, is it?

Tipp Man

Rightwing wrote: »

Austerity doesn't work if:

you want someone else to pay the bills while you eat the cake.

Austerity works if:

you want to see deficits coming down.

Now, a well run country like Norway won't need austerity.

Irish people don't want a well run country

They just want to keep government spending and spending and spending - they aren't really bothered where it comes from

carpejugulum

ardmacha wrote: »

Complete tosh. Government policies may have a role in mitigating the damage, but property and financial speculation is the result of greed by private individuals and the private sector.

Too big to fail is not a free market concept and neither are huge tax cuts and other government favours to one selected sector.

ardmacha wrote: »

You might as well claim that crime is the result of government policies.

A lot of crime clearly is.

KyussBishop

carpejugulum wrote: »

Private sector is much more efficient than the public sector. Widespread property and financial speculation is the result of government policies.

That's trying to shift all blame away from banks/finance; it was the private banking industry that pumped all that credit into a housing/property boom, and it is finance that engages in speculation.

Trying to build an argument, on the premise of banks/finance being squeaky-clean and free from fault, is not going to gain a lot of credibility with most people outside of banking/finance.

Tipp Man

Cody Pomeray wrote: »

So what, we pay off the national debt, is it?

What?? How on earth could we ever hope to pay off this national debt?? Certainly not in the next 20-30 years

I'm talking about not adding any more to it - it's already on the very edge of what is sustainable - in fact we are probably over it if we were honest with ourselves

Rightwing

Tipp Man wrote: »

Irish people don't want a well run country

They just want to keep government spending and spending and spending - they aren't really bothered where it comes from

And we are not alone, almost the entire western world wants the same. Hence, they are nearly all bankrupt.

Cody Pomeray

Tipp Man wrote: »

Irish people don't want a well run country

They just want to keep government spending and spending and spending - they aren't really bothered where it comes from

Rightwing wrote: »

Austerity doesn't work if:

you want someone else to pay the bills while you eat the cake.

Austerity works if:

you want to see deficits coming down.

Now, a well run country like Norway won't need austerity.

This is descending into slogans.

are you not interested in engaging with the economic arguments being put forward about structural investment and production capacity at all.

KyussBishop

Tipp Man wrote: »

Some simple facts that you don't need to be a Nobel winning economist, work for the IMF, or think you are some kind of keyboard economic genius to understand

1: The Irish government is in debt up to its neck, so much debt that for a while nobody would lend us any more money (thankfully)

2: For a good few years now the irish government has been spending way beyond its means - it's budget deficit is completly unsustainable


Now people (at the risk of getting a warning i am going to call them idiots) who think that we have any other option other than to dramatically cut government expenditure AND take action to stop the increase in government debt (hopefully start to reduce it a bit) are living in cloud cuckoo land

WE HAVE NO OPTION BUT TO REDUCE GOVERNMENT SPENDING AND STOP BLOODY BORROWING MORE AND MORE

Are people really in that much denial that they are completly unwilling to accept the complete and utter mess the public finances are in??

Wake up for god's sake

Read the thread. You won't find anyone denying Ireland's inability to engage in anything other than austerity, without the help of Europe; if you have already read the thread, then you must be ignoring what has been said, for the sake of spouting the usual austerity rhetoric, without care to fact that you're basing it on an issue which has already been acknowledged and addressed.

Tipp Man

Rightwing wrote: »

And we are not alone, almost the entire western world wants the same. Hence, they are nearly all bankrupt.

And that's why democracy is a fundamentally flawed concept.

How can a financially astute party be elected when their opposition is offering the moon and stars in the form of government spending and giveaways? People (mostly I believe anyway) are always going to vote for what makes them better off in the short term - that's all they care about

Cody Pomeray

Tipp Man wrote: »

And that's why democracy is a fundamentally flawed concept.

ah jesus here we go !

View

schnitzelEater wrote: »

War is the best stimulus package out there, look what WW2 did for the US.

Well, it meant that spending by the US Federal government soared from circa 10% of US GDP to just under 50% of US GDP just as WW1 increased it from less than 3% of GDP to over 24% of GDP.

While those figures did drop back in peacetime, overall it meant that the US Federal govenment spending increased from an average of 2% of US GDP in the 19th Century (a bit bigger than EU spending as a % of EU GDP today) to in excess of 20% of US GDP at the end of the 20th Century - a 10-fold increase which of course came with a corresponding increase in Federal taxation on US citizens.

Now, we could, of course, repeat that here in the EU - the EU budget is small in comparasion to that of the total budget spend of the member states' governments (even if larger than our own) - but be under no illusions that it will almost certainly lead to an EU that is MUCH larger (and centralised) than today's.

Do you really want that? And, if so, how far are you willing to go?

I'd personally suspect many of today's (European) Federalists would be strongly opposed to that idea, never mind the politicians at member state level who would have to take an increasing back-seat as such a transformation occurred.

Tipp Man

KyussBishop wrote: »

Read the thread. You won't find anyone denying Ireland's inability to engage in anything other than austerity, without the help of Europe; if you have already read the thread, then you must be ignoring what has been said, for the sake of spouting the usual austerity rhetoric, without care to fact that you're basing it on an issue which has already been acknowledged and addressed.

Are you actually for real???? That's what the whole bloody thread is about - it opened with the OP saying that austerity was based on flawed research and that stimulus was the answer

Here's 2 posts for starters

20Cent wrote: »

Both the US and UK stimulus packages were not considered enough, the US one worked well but was insufficient.

Anyway what about the op.
The research underpinning Europe's economic policy has been found to be false.

Isn't this a concern!

20Cent wrote: »

German Finance Minister Dr Wolfgang Schauble

http://www.wolfgang-schaeuble.de/index.php?id=24&textid=1554
A permanently stable European currency is an indispensable part of this European growth model. As we discussed in Tokyo, and on several other occasions again and again, our conviction is that an excessive level of sovereign debt poses a risk to sustainability. Therefore I strongly believe in the research of Rogoff and Reinhart, for example, that as soon as you have reached a certain limit of sovereign indebtedness, increasing the deficit and the debt will not create more growth but will actually harm growth. For this reason, we have to know that if we want to achieve sustainable growth, we have to reduce sovereign debt in nearly all advanced economies.


The research he strongly believes in is wrong!

Rightwing

Tipp Man wrote: »

And that's why democracy is a fundamentally flawed concept.

How can a financially astute party be elected when their opposition is offering the moon and stars in the form of government spending and giveaways? People (mostly I believe anyway) are always going to vote for what makes them better off in the short term - that's all they care about

Yes indeed, to quote a famous British PM, 'democracy is certainly flawed,,but the alternatives are far worse'.