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Austerity policies based on flawed research?
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When did we exactly start "austerity", in 2011 when the deficit was €20.6bn or in 2012 when it was €15bn?0
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Again, most people intend "austerity" to mean a process of fiscal tightening, as opposed to a present budget being in balance or surplus.When did we exactly start "austerity", in 2011 when the deficit was €20.6bn or in 2012 when it was €15bn?
Also, the most up to date figures are -€21.3bn and -€12.5bn respectively. The lower figure is due to a higher than anticipated tax intake and lower than anticipated expenditure.0 -
Most people call crazy deficit spending a stimulus package.0
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Cody Pomeray wrote: »Well that would be really stupid.
A deficit is not synonymous with a stimulus, nor is there any necessity of a link between them.
It absolutely is a stimulous.
When the gov borrow 12 billion to distribute back as cash to workers and social welfare recipients who in turn spend in the domestic economy that is absolutely a stimulus.
We know it is because what would happen to retail and consumer spending if that 12 billion was eliminated overnight?0 -
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...lol? so why does the borrowing element make it a stimulus?spank_inferno wrote: »It absolutely is a stimulous.
When the gov borrow 12 billion to distribute back as cash to workers and social welfare recipients who in turn spend in the domestic economy that is absolutely a stimulus.
We know it is because what would happen to retail and consumer spending if that 12 billion was eliminated overnight?
If the Government budget is in balance or in surplus, and the government is extending cash transfers to social welfare recipients and public sector workers (which if abolished, would also have an adverse effect on the exchequer), are you saying that's a stimulus too?
If not, then why would raising it in official borrowing make it a stimulus, and raising it from the tax net not?
I think you need to re-examine your understanding of a stimulus.0 -
It's moronic to say that, upon a countries GDP being decimated by an economic crisis, they are suddenly undergoing a massive stimulus simply because they are deficit spending to meet previous spending levels.
It's precisely this kind of silly nitpicking and pedantry over semantics, which is deliberately used to try and prevent meaningful debate on the topic; whenever anyone mentions "we need stimulus to achieve recovery" i.e. that we need a boost in public spending, then you get people totally ignoring the obvious intention behind that statement, to try and derail discussion with the trite nitpicking of "oh but we are undergoing stimulus (by my definition, which is the only one that counts and thus everyone else is wrong)".
When you get that kind of silly wrangling over semantics in discussions, you know the people you're debating with aren't interested in actual discussion, only in trying to frustrate and derail discussion by deliberately insisting upon using a warped dictionary, so they can force an argument over semantics, not over substance.
It's one of the key things a lot of conservative economic posters use, as a cheap rhetorical point-scoring tool, even when they know full well what a poster meant.0 -
But it's not even technically correct.
A technical definition of a stimulus would have to incorporate increased spending (not simply spending as an increased proportion of the economy as a direct result of a falling denominator) and a deliberate attempt to boost as opposed to maintain.
Unless we're calling every government expenditure a stimulus.
Which would be ridiculous.0 -
Oh I agree, it's not even technically correct, and it's one of the semantic redefinitions (particular to economic conservatives) which nobody else uses (except other conservative economists), and thus is pretty expressly for the purpose of derailing/muddying debate.0
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...so what happens then? Would spending cuts be justified in such a scenario?KyussBishop wrote: »If this (the EU-wide debt funded spending) hits debt-limits before full employment, then yes, that would limit it against full employment...
In terms of long-term benefit, that really depends on where that employment is created. For example, as I’ve said before on other threads, providing employment in construction for all of Ireland’s unemployed construction workers, purely for the purpose of generating full employment, really doesn’t strike me as a wise investment.KyussBishop wrote: »...you still get the benefit of the increased economic activity regardless, which speeds the recovery.0 -
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Punishing those who saved in favour of those who ran up debts is "fair"?hatrickpatrick wrote: »Given that those struggling with debt seem to vastly outnumber those with massive savings, would it not be fairer to pursue policies which favour the former?0 -
If there were an absence of alternatives (as in the case of Ireland without EU help, because of having a fixed-exchange currency), then yes, but there is always the availability of money that is non-debt-based, which would obsolete that problem entirely....so what happens then? Would spending cuts be justified in such a scenario?
Basing EU funding on expansion of the EU-wide public debt, would in my view, be a stopgap that helps speed recovery from the crisis, but is just a prelude to full-on monetary reform.
It depends on where employment is created, no matter what the spending (both public and private); unregulated private industry has already showed it can put spending into pretty unsustainable areas, like a housing bubble, for the sake of speculative profits rather than real sustainable economic gains.In terms of long-term benefit, that really depends on where that employment is created. For example, as I’ve said before on other threads, providing employment in construction for all of Ireland’s unemployed construction workers, purely for the purpose of generating full employment, really doesn’t strike me as a wise investment.
It's really a moot argument, because if we ever reach full employment again, it's going to have to be put into sustainable areas, no matter what the means are by which we reach full employment again; this applies to any policies which rely on private industry to fix itself, as well as those that apply to public spending.
Straight away though, we know that there are going to be oil shortages in the near-ish future, and we know we have pretty poor infrastructure in many areas which could do with upgrading; this makes working on non-fossil-fuel based infrastructure a priority for sustainability going forward, and it is even a priority for avoiding inflation in our economy, from when fossil fuel prices shoot up ever more.
A lot of cold water is poured on public spending for tacking this, just for the purely ideological reason that it's public rather than private spending, and then arguments start revolving around that same basic ideological framework of 'private good' and 'public bad'.
What that ignores, is that something has to be done about those issues, or we're going to be experiencing serious economic trouble and probably inflation from increasing fossil fuel prices in the future; either private industry needs to work on this, or public spending needs to be put to work against this, or (preferably) both.
If we wait on it until the problems are already here, that is too late, because the projects needed to ameliorate these problems will be decade if not multi-decades long projects (needing to be undertaken that long in advance of problems; something private industry is bad at), such as building alternative non-fossil-fuel power sources, and researching of new technologies, among more.
So that's power plants and large infrastructural changes that are needed; private industry isn't going to spontaneously do this, because it is unlikely to be profitable while they can continue profiting off of cheaper fossil fuel sources in the present. You can pour cold water on specific policies/ways of tackling these issues, but you can't say it should be ignored by either public or private industry.
This is where non-debt-based money is so powerful: Since you don't have to pay back a debt with non-debt-based money, then you don't need to turn a profit, and you can fund projects for purposes other than profit, such as for social benefit, for avoiding widescale far-future economic issues, for ecological benefit etc.; all things which private industry cannot do, where it does not return a profit.0 -
I'm somewhat confused now. You've been arguing that a stimulus should be used to fund infrastructure projects, creating employment for unemployed construction workers, right? That's not really sustainable though, is it?KyussBishop wrote: »It depends on where employment is created, no matter what the spending (both public and private); unregulated private industry has already showed it can put spending into pretty unsustainable areas, like a housing bubble, for the sake of speculative profits rather than real sustainable economic gains.
It's really a moot argument, because if we ever reach full employment again, it's going to have to be put into sustainable areas, no matter what the means are by which we reach full employment again; this applies to any policies which rely on private industry to fix itself, as well as those that apply to public spending.
Just taking this as an example, we really don’t know what the post-oil economy is going to look like yet, so ploughing ahead with large investments in alternative energies is risky. Besides, as I’ve said in other threads, I’m not at all convinced that skills acquired building houses are going to be transferrable to building infrastructure – you’re not going to need many brickies to build a tidal harness.KyussBishop wrote: »...this makes working on non-fossil-fuel based infrastructure a priority for sustainability going forward...
In my opinion, that money would be better spent on research.
There may not be a debt to repay, but there is still an associated cost. So for example, if you want to invest in non-oil based energy sources and print money to do so, you’re going to experience an increase in the cost of importing oil (which you’re still dependent on in the mean time), which could have severe economic consequences.KyussBishop wrote: »This is where non-debt-based money is so powerful: Since you don't have to pay back a debt with non-debt-based money, then you don't need to turn a profit...0 -
Cody Pomeray wrote: »But it's not even technically correct.
A technical definition of a stimulus would have to incorporate increased spending (not simply spending as an increased proportion of the economy as a direct result of a falling denominator) and a deliberate attempt to boost as opposed to maintain.
Unless we're calling every government expenditure a stimulus.
Which would be ridiculous.KyussBishop wrote: »Oh I agree, it's not even technically correct, and it's one of the semantic redefinitions (particular to economic conservatives) which nobody else uses (except other conservative economists), and thus is pretty expressly for the purpose of derailing/muddying debate.
When is a stimulus a stimulus?
An interesting question and you guys have some interesting views on this. However, you are missing one fundamental point. For any expenditure to reckon as a stimulus, the multiplier has to be greater than one. There is an argument that in a small open economy such as ours where there is substantial expenditure on imported consumer goods, that the multiplier is less than one when applied to the vast majority of current expenditure.0 -
When is a stimulus a stimulus?
An interesting question and you guys have some interesting views on this. However, you are missing one fundamental point. For any expenditure to reckon as a stimulus, the multiplier has to be greater than one. There is an argument that in a small open economy such as ours where there is substantial expenditure on imported consumer goods, that the multiplier is less than one when applied to the vast majority of current expenditure.
I would think that to describe spending as 'stimulus spending' you would have to compare the relative multipliers of, on the one hand, the spending, and on the other, the borrowing or taxation needed to provide the spending money. And there, I suspect, we would rediscover again the problem that "infinite are the arguments of economists".
cordially,
Scofflaw0 -
You're driving this back around in circles now; we have been talking about such policies based upon either EU-wide-debt utilized through the EIB, or public use of money creation, not based upon Ireland acting alone.I'm somewhat confused now. You've been arguing that a stimulus should be used to fund infrastructure projects, creating employment for unemployed construction workers, right? That's not really sustainable though, is it?
Here is the line of quotes here:djpbarry wrote:But that's a baseless assumption on your part - I'm not at all convinced that full employment can be achieved, in a sustainable manner, without racking up unsustainable debt/GDP levels across the Eurozone.KyussBishop wrote:If this (the EU-wide debt funded spending) hits debt-limits before full employment, then yes, that would limit it against full employment...djpbarry wrote:...so what happens then? Would spending cuts be justified in such a scenario?
There isn't really a purpose to your redirecting of the discussion, back over what has already been discussed, except to parrot the vague "but it's unsustainable" assertion, ignoring everything discussed thus far; I have already said, spending would not be expanded up to unsustainable levels, and that the EU-wide debt-to-GDP allows lots of room for sustainable spending, and that there is yet more room for sustainable spending through money creation, before inflation targets would be hit.KyussBishop wrote:If there were an absence of alternatives (as in the case of Ireland without EU help, because of having a fixed-exchange currency), then yes, but there is always the availability of money that is non-debt-based, which would obsolete that problem entirely.
Basing EU funding on expansion of the EU-wide public debt, would in my view, be a stopgap that helps speed recovery from the crisis, but is just a prelude to full-on monetary reform.
It's simple: Expand spending up to a sustainable EU-wide debt-to-GDP level (thus, inherently, that means it would be sustainable), and then later (I would view use of EU-wide debt as a stopgap measure on the way to this) utilize money creation, up to a sustainable inflation-target level (again, that means it is inherently sustainable).
We know it will involve much more expensive oil, thus we need to expand non-fossil-fuel based infrastructure; we need research and infrastructure, because a lot of power infrastructure can take a very long time to properly build and get functioning (so starting construction, only when the oil crisis strikes, means we take the brunt of the crisis without having done more to alleviate the damage).Just taking this as an example, we really don’t know what the post-oil economy is going to look like yet, so ploughing ahead with large investments in alternative energies is risky. Besides, as I’ve said in other threads, I’m not at all convinced that skills acquired building houses are going to be transferrable to building infrastructure – you’re not going to need many brickies to build a tidal harness.
In my opinion, that money would be better spent on research.
We need this, regardless of whether you think we have the right construction workers or not; this is an active way we can spend to prevent future inflation, from having an economy overdependent on fossil fuels that increase in price.
You don't even explain the mechanism of how you expect that to happen (which I will bet, is based on false or misleading theory, such as the Quantity Theory of Money).There may not be a debt to repay, but there is still an associated cost. So for example, if you want to invest in non-oil based energy sources and print money to do so, you’re going to experience an increase in the cost of importing oil (which you’re still dependent on in the mean time), which could have severe economic consequences.
Any change in the price of oil (up or down) would depend upon the level of economic activity and employment, and thus the level of excess money (where money spent into increasing economic activity, soaks up much of that excess), and the external trade balance of the EU.
It's not a simple "create money = oil price goes up" scenario (private banks for instance, create money all the time, and have been before and since the crisis), because what determines the relative strength of currencies, is a lot more complicated than that.
When you make the assumption, that policies will be implemented in such a way as to cause that kind of problem, you are presenting a straw-man.
It's strange also, that you defend allowing much greater long-term inflation to happen (caused by future oil crisis), because you fear an (alleged, without backing) short-term inflation, that would be limited within inflation targets anyway (we won't have that choice, limiting inflation within inflation targets, if we let the big crisis hit).
That future crisis is the much bigger inflationary threat, that we would have far less control over, so if you really do care about inflation (and aren't just using it as a point of contention), then surely you would want to deal with that now, before the much bigger inflationary shock hits.
Not only that, but we know speculators today, are causing instability and inflation in the price of oil, so we could also tackle that with regulations, to reduce inflation; however, I notice that a lot of people who are highly critical of mere potential inflation from public spending, are far more protective of letting private industry engage in blowing inflationary bubbles (in the guise of promoting deregulation).
It's more private vs public type stuff: Public money creation bad, private money creation good (even though the only real economic difference, is less debt); inflation through public spending (even if limited to inflation targets) bad, inflation through private spending (often blowing hugely destructive asset bubbles, such as what caused the crisis) good.
There's also the myth that public money creation (i.e. non-debt-based money) is more inflationary than private money creation (i.e. debt-based money, though even government could do this as well with a public bank), when they both have very much the same mechanics: Private banks put money into the economy through loans, government puts it in through public spending; private banks take money out through debt + interest (which btw, is inherently unsustainable), government takes money out through taxation.
These kinds of discussions start to have less to do with economics, and more to do with politics, where people base their arguments on economic theory, specifically constructed with anti-state political goals embedded within them; that's pure politics, not discussion of economic possibilities.0 -
But I'm not talking about unsustainable spending in this instance. I'm talking about employment being created in an unsustainable manner within a particular sector (construction, in Ireland's case).KyussBishop wrote: »There isn't really a purpose to your redirecting of the discussion, back over what has already been discussed, except to parrot the vague "but it's unsustainable" assertion, ignoring everything discussed thus far; I have already said, spending would not be expanded up to unsustainable levels...
The problem is, we don't really know what this non-fossil fuel based infrastructure is just yet.KyussBishop wrote: »We know it will involve much more expensive oil, thus we need to expand non-fossil-fuel based infrastructure...
Well, gas prices in North America are on the decrease due to the harnessing of shale gas and we ain't gonna run out of coal any time soon.KyussBishop wrote: »We need this, regardless of whether you think we have the right construction workers or not; this is an active way we can spend to prevent future inflation, from having an economy overdependent on fossil fuels that increase in price.
False or misleading because you happen to disagree with it?KyussBishop wrote: »You don't even explain the mechanism of how you expect that to happen (which I will bet, is based on false or misleading theory, such as the Quantity Theory of Money).
Yep, economics is pretty complicated stuff alright.KyussBishop wrote: »It's not a simple "create money = oil price goes up" scenario (private banks for instance, create money all the time, and have been before and since the crisis), because what determines the relative strength of currencies, is a lot more complicated than that.
But you seem pretty confident you've got it all figured out?
Probably because I'm not convinced that such a crisis will occur.KyussBishop wrote: »It's strange also, that you defend allowing much greater long-term inflation to happen (caused by future oil crisis), because you fear an (alleged, without backing) short-term inflation, that would be limited within inflation targets anyway (we won't have that choice, limiting inflation within inflation targets, if we let the big crisis hit).0 -
Construction as a whole isn't unsustainable, it's what you construct that determines stability; constructing more houses or motorways where there is no demand or need, is a waste and unsustainable, but constructing new power infrastructure and (useful) rail transport infrastructure, is perfectly sustainable as it is providing something useful to the economy (which in the case of power infrastructure, can be used to fight inflation).But I'm not talking about unsustainable spending in this instance. I'm talking about employment being created in an unsustainable manner within a particular sector (construction, in Ireland's case).
The idea of these spending programs also, is to reinvigorate private industry through consumer spending power, generated by wages in the public project programs; as private industry improves, workers will move from the public programs into private industry again. This is not unsustainable, because it is inherently tapering down the projects over time.
Again, you assume the program would be put together in an unsustainable way, when that is not the proposal; that makes it a straw-man.
We have nuclear, and renewables like wind/solar/wave generation; these are not enough to make up for the shortfall (we are likely too late to avoid taking at least some hit from the oil crisis), but they take out some of the bite.The problem is, we don't really know what this non-fossil fuel based infrastructure is just yet.
In addition, we would do well to fund research on yet more alternatives, as well as the above (but they are likely not to be close to ready, until the crisis has already hit, so we need to still make a start on infrastructure now to ameliorate the hit).
We are not going to run out of oil for a very long time indeed, but we are running out of easy to extract oil (which is what peak oil is about), and that inflates the cost of extracting and thus the price.Well, gas prices in North America are on the decrease due to the harnessing of shale gas and we ain't gonna run out of coal any time soon.
It is pretty empirically false. The entire Quantity Theory of Money is usually predicated on fallacious 'in the long run' special pleading, or in other words, it mainly is only supposed to apply in times of full employment and full economic activity.False or misleading because you happen to disagree with it?
We have high unemployment and a large GDP output gap, so this is precisely the time that the Quantity Theory of Money does not apply; if you search for criticism of the QTOM online, you can find rather a lot of backing as to it being false.
It also depends upon money being 'exogenous' (the quantity of money being determined external to the economy), but money is 'endogenous' (determined within the economy), because the quantity of money is determined by bank loans (because banks create money through loans); this is another important pillar of the QTOM debunked.
It's not merely a disagreement with the QTOM, it is empirically wrong, and holding onto it requires denial of evidence (something most economic theory today, is quite happy to do, unfortunately); the QTOM is also the cornerstone of politically-motivated hyperinflation scaremongering, which is a part of most conservative economics (which are particularly notable, for a lack of interest in evidence).
I'm slowly figuring out every facet relating to money creation, and potential inflation, yes; to understand this, requires an understanding of the monetary system, banks and debt, which (bizzarely) most economic theory does not teach.Yep, economics is pretty complicated stuff alright.
But you seem pretty confident you've got it all figured out?
There are two main areas people try to downplay money creation, by saying it creates either: 1: inflation, or 2: devaluation.
Almost all varieties of inflation go back to resource supply bottlenecks, because when the supply of something falls below demand, the price increases (inflates); so that means avoiding/managing inflation is all about resources management, and avoiding throwing money at resource bottlenecks which trigger inflation.
Labour is the most important resource, because once you reach full employment, that's a resource bottleneck which puts a cap on overall economic activity; if you spend past the point of full employment, you do get increasing inflation (this is when the QTOM fits), but when you are at less than full employment, you have room to spend.
Regarding devaluation: This depends upon the balance of trade (exports vs imports), and the availability of excess money in the local economy (which would get put up for trade on foreign exchange markets); so here, whether or not you experience devaluation depends upon how created money is spent, and how that spending affects imports vs exports, and also whether or not the money is soaked up by increasing economic activity, or whether it creates an excess of money that goes onto the foreign exchange markets.
Not at all a simple matter, to say either inflation or devaluation will happen; you also have other things to consider, such as peoples spending power: the increase in economic activity through spending with money creation, may also affect wages such that it counteracts (in relation to worker income) any inflation or devaluation.
You may also want to accept an increased spending burden as a percentage of income (by being more lax with inflation/devaluation), on the wider economy (like we have already, caused by 'internal devaluation'), to 'spread out' the pain of crisis across the whole economy, instead of lumping it all onto the unemployed (especially when they may become long-term unemployed, causing particularly lopsided suffering); allowing a fairer sharing of the pain of the crisis, maintaining full-employment, and pumping-up the private sector faster than austerity (thus achieving economic recovery faster), not to mention being able to put the spare labour to good use on needed infrastructure.
People may have political objections to much of this, but the major point, is that it is all economically possible to do all of this, while maintaining sustainability, and staying within sustainable inflation/devaluation limits, and with the benefits of keeping greater economic stability/prosperity (especially with labour never being inefficiently wasted, like it is right now through unemployment).
When it comes down to it, almost all the arguments against this (even economic ones, since they are so politically charged) seem to end up reducing down to political arguments which oppose the state, and which promote 'private good, public bad' type free market views.
It's a pretty inevitable crisis: All of the cheap-to-extract oil wells will eventually hit their production peak, and will go into terminal decline; then more-expensive-to-extract alternatives (like shale oil) will gradually take their place, and thus the greater expense of extracting those alternative sources, will push oil prices up.Probably because I'm not convinced that such a crisis will occur.0 -
I would think that to describe spending as 'stimulus spending' you would have to compare the relative multipliers of, on the one hand, the spending, and on the other, the borrowing or taxation needed to provide the spending money. And there, I suspect, we would rediscover again the problem that "infinite are the arguments of economists".
cordially,
Scofflaw
Which is why this thread goes round and round.0
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