Off Topic Thread 3.0

Synode wrote: »

So Greece should have continued to borrow endless amounts of money instead of cutting spending? Nonsense.

Also, Ireland is an example the other way i.e. austerity budgets and now showing good economic growth.

Good economic management by successive Governments allows a country to maintain spending when their economy is contracting. But this rarely ever happens as we all know. Hence why austerity is the only real solution

Complete straw man there but...

Austerity is absolutely not the only real solution. Look at the countries who recovered quickest from the debt crisis (hint, they didn't impose austerity). Look at historic examples of austerity and the absolute disasters that have followed its implementation.

At the moment we're undergoing the largest amount of QE that we've ever seen. 80 billion euro a month is being spent on it at the moment. There's your austerity for you, a stimulus back before the mistakes that were made under Trichet would have cost considerably less in total than we are spending now per month.

Synode wrote: »

Not a strawman at all. Give me the very real alternative to austerity budgets in either Greece or Ireland in the last crisis? Maintain spending at the existing levels? Increase spending? Are you willing to throw that debt on to future generations

Well the best thing I would suggest is to read Blyth on this and he not only explains an alternative but also explains the underlying fallacies that led to a widespread belief in "expansionary austerity", alternatively this article from Krugman makes the same case at a later point when the papers that supported austerity had eventually been thoroughly disrecited: http://www.nybooks.com/articles/2013/06/06/how-case-austerity-has-crumbled

The alternative is what Draghi has eventually settled on, but they're now making the error of attempting to do everything via fiscal policy. Varoufakis makes the very sensible argument that the EIB and ECB should be brought together to achieve what Draghi is attempting now (as well as the very interesting argument of a new Breton Woods, Varoufakis for president I say).

Synode wrote: »

It's emotive because it's true. Borrowings have to be repaid. Had Ireland (or Greece) continued spending at the same levels, on the same things, then we would have piled debt on taxpayers in the future. And what would they have to show for it (bar a reasonable inter-city motorway network mostly funded from PPPs)?

Lets call a spade a spade: Austerity budgets are a mechanism to take the trough that everyone is gorging from, throw it in the bin and attempt to get public spending back in line with reality.

I'll call you on it then. If it's not a strawman show me someone serious who thinks that we should just borrow today and let the next generation pay it off. Anyone.

Great this free market capitalism isn't it. Only one thing certain the rich get richer.


Sorry lads but nearly sixty years of experience tells me so.

Synode wrote: »

Yes it was a poor effort because of the banks. But you can pretty much double the debt had we continued to spend at the same levels. And that wouldn't be repaid in a generation, possibly even 2 or 3.

I'm not saying austerity is the correct solution in all cases. But in Ireland's it was preferable as we needed to reverse the ridiculous giveaway budgets FF used to hold on to power. That type of public spending simply wasn't sustainable

No, you can't. You're just completely disregarding Keynesian theory when we've seen it applied successfully after the crisis in countries that outperformed Ireland.

... I'm missing GoT already

molloyjh wrote: »

Now I'm no economist, but surely you can't take the Keynesian approach in isolation? Surely it requires that approach to be taken in the good times and not just suddenly adopted in the bad times? And by taking that approach in the good times you have the capital to invest in the bad times. If you haven't done the austerity in the good times then do you not severely hamper your ability to invest in the bad?

No. Keynesian theory developed from the great depression where JMK was specifically critical of the government for not investing during the depression. The cyclical nature of the economy is actually an extension of Ricardian theory.

Most governments will always have capital to invest during the bad times, because they control fiscal and monetary policy. This is what the US did through all sorts of crazy mechanisms and magic at the federal reserve. Their bailouts of numerous industries far exceeded ours and they didn't engage in austerity. The Irish government gave away their ability to do this to the ECB (and EIB who everyone forgets because they're pointlessly toothless) and were then burnt for doing this, but if Draghi's current policy was in place when we needed it (unlike Trichet's approach which was a disaster) then it's likely what would have happened, and is what DSK at the IMF was supposedly recommending before he was arrested. Under Draghi currently QE is greater every month than the entirety of the debt that was created for us in the crisis. If the EU had just done that 8/9 years ago things would be very different today in the smaller European countries who have been critically damaged by the debt crisis.

In Ireland we had to borrow just to pay for our day to day expenditure as well as to help bail out banks that our Government didn't regulate properly. We went from our lowest ever debt to GDP to our highest ever in just 6 years. To invest money in the economy would have required borrowing even more again. But who would we have borrowed from? The markets weren't lending to us (at least not a realistic rates), so where does the money come from in a time of global recession?

Just as an aside it's important to point out that our banks weren't the problem, they were the symptom of a much greater, much worse policed, problem in larger European countries. The government bailout was a guarrantee of their debts to foreign banks, mostly European banks. Of course the EU didn't actually care about the sustainability of our small banks when they demanded we guarrantee their debts. They cared about Deutsche Bank and Societe Generale and the rest of their creditors, and the fact they had been capitalised far beyond the ability of the Eurozone to bail them out. The 3 largest French banks were 250% of the entire French GDP. The top 6 US banks were only 60% of US GDP, to put that in perspective, and THEY were supposedly too big to fail. German/UK/French Banks together were double the GDP of the entire EU. And they were massively exposed to the PIGS countries, if there had been a run through those markets it would have cost France (the country) 33% of its GDP alone. They were "too big to bail" and so the EU had to prevent a run on the banks at all costs in order to save the currency union, and they did that by showing that they would force member states to guarrantee their debtors retroactively.

The Irish government did fail to regulate our banks but only to a small degree of what the French/German/Dutch and UK had done, and our citizens paid the cost for that through the form of an austerity policy that could have been avoided if the EU had wanted to or if we hadn't given up our own ability to do so upon joining the Eurozone. This is all laid out very well in the likes of Blyth's book or this talk of his, or Krugman's article I linked above, or this article specifically referring to Ireland written fairly recently by Legrain. Why did our citizens pay for a problem in larger countries? People can come to their own conclusions there, but it's cost us a generation to go backwards.

And to answer the question in the final sentence, the money comes from exactly where it's coming from now actually. LTROs and QE.