Wednesday, May 23, 2012

U.K now looking to boost growth, abandon austerity

Another good sign coming out of Europe!

"Deputy PM Clegg has said the UK Coalition is preparing a massive increase in state-backed investment in housing and infrastructure, signalling a shift from stark warnings by ministers about the debt crisis to a fresh emphasis on growth."

It's looking more and more like the U.S. will go it alone with austerity come next year. So the whole world will be back on a growth track, except for us.

40 comments:

Matt Franko said...

"So the whole world will be back on a growth track, except for us."

Only if Obama wins imo Mike...

Resp,

mike norman said...

You think Romney will do stimulus? Maybe extend the Bush tax cuts and give more tax breaks to rich, but he's been very clear about wanting to reduce debt. And Republicans may even win a majority in the Senate, which would mean unbelievable cuts, mass privatization of public assets and probably some states going bankrupt.

Georgie said...

The Tea Party wing of the GOP will happily charge off a cliff because they're nihilists who think if only they destroy everything, something lovely will grow in its place. So Congress is nuts. But I do think Romney will abandon austerity in favor of tax cuts if pushed against the wall. The two major parties are better understood as rival mafias fighting over who gets the spoils for four years. They have nothing to do with principles and little to do with rival policy prescriptions. Romney in the White House with the Democrats controlling the Senate, or even with the GOP lacking filibuster-proof majorities in either house, will be obstructionist as hell but not that much different from Obama plus a dysfunctional Congress.

Georgie said...

I meant Romney will abandon a balanced budget in favor of tax cuts.

Tyler Healey said...

Obama's a deficit hawk who thinks Clinton's balancing of the budget was a great accomplishment, so his reelection will mean austerity in '13. Romney's election will only bring austerity if the Dems lose the Senate.

So, our only hope for no austerity in 2013 is a President Romney and a Democrat-controlled Senate.

Anonymous said...

It is crazy that the U.S doesn't have a third party...

beowulf said...

"You think Romney will do stimulus?"
without question.

"Speaking in Michigan, Mr. Romney was asked about deficit reduction, and he absent-mindedly said something completely reasonable: “If you just cut,... as you cut spending you’ll slow down the economy.” A-ha. So he believes that cutting government spending hurts growth, other things equal.
"The right’s ideology police were, predictably, aghast... And a Romney spokesman tried to walk back the remark... But... Almost surely, he is, in fact, a closet Keynesian."
http://economistsview.typepad.com/economistsview/2012/02/paul-krugman-romneys-economic-closet.html

Dan Kervick said...

I don't think it matters much who wins the presidential election. These kinds of changes in grand economic strategy and direction are the result of global forces and the attitudes of elite opinion leaders and financial and corporate captains, as well as public opinion. The world was swept up in 2010 and 2011 in the austerity wave, and that movement caught on all over the West, more or less independently of which governments were in charge in particular Western countries. If the ideological tide is now shifting among the Western economic power-brokers toward public investment and growth, it will shift everywhere.

Politicians like Obama and Romney are shape-changing, subservient hacks. They just go along for the ride whichever way the wind blows.

Anonymous said...

Agree with Dan. The TPTB are deciding it's time to begin the next cycle of Capitalism.

Only prob is who will the U.S goto war with?

y said...

Mike,

"a massive increase in state-backed investment in housing and infrastructure"

Just means that the government is going to guarantee loans from banks to building contractors and developers, so if they default the government has to pick up the tab.

The government is not planning on increasing deficit spending. They think they've run out of money. So instead they have to depend on bank credit to get the economy going. It's stupid.

"a fresh emphasis on growth"

Just means getting people borrowing again, and introducing supply side reforms.

Don't trust the rhetoric.

Matt Franko said...

Mike I dont think GOP will do stimulus but rather a tax cut.

If past is prologue, under the Bush II admin it seems they (GOP) started to like doing tax rebates either thru extreme adjustment in the withholdings (first Bush II admin) or eventually just sending out checks from the bottom up (Bush II in 2008):

http://en.wikipedia.org/wiki/Economic_Stimulus_Act_of_2008

Here they sent back about $150B in 2008 and then lost the election so game off.

A lot comes back to housing and cars...

Auto sales are almost recovered:

http://ycharts.com/indicators/auto_sales

Although smaller cars with better mileage...

Now housing we need about another 700,000 new sales (to get us back over 1M units) times $200,000 (2,000 sq ft @ $100/sq ft) = $140B.

So I could see a Romney admin easily doing a $150B rebate similar to what Bush did in 2008 to pick up where they left off.

As far as "debt doomday" I dont think Peterson is GOP anymore as his sidekick Walker sued Dick Cheney and Peterson said this in 2004: " Following record deficits under President George W. Bush, Peterson commented in 2004: "I remain a Republican, but the Republicans have become a far more theological, faith-directed party, not troubling with evidence."[9]

http://en.wikipedia.org/wiki/Peter_g_peterson

So it sounds like Peterson is some sort of Evo-Atheist and now looks like he has gone over to the Democrat side and has found a welcome ear in Barak Obama. That could be why Obama went "debt doomsday" from day one and then did the Simpson-Bowles Commission (Peterson influence).

So it looks like Democrats are 100% morons, and GOP is 95% morons being manipulated by 5% liars in power.

We've gone with the 100% moron approach for 4 years now it is not working so perhaps it is time to switch back to the 95% morons/5% liars.... a Hobson's Choice but sadly it seems that is all we have in front of us....

Resp,

Leverage said...

Cuts for the 1% 'job creators' won't do it. We will see what happens.

As for Europe, all words, but we don't know how it will be done.

I want to see how balance sheets end up, because if one way or an other they are going to load it up in the back of the private sector and 99% households, we will be worse in 2 years with even more private sector.

Anyway, we will see how inflation responds in mid-to-late 2013, this for me will be next important thing macro wise. The one which will tell me if this model is done for good and for ever or not.

And I suspect the lites will see it the same way, they will want to see how inflation plays, they are not going to reduce their share of McMansions and inflation creation just so the rest of us can consume a bit more and developing nations can go develop. The social-darwinist model is behind all this policies & economic ideologies that have been dominating the last 30 years, and that has not changed, kit has got worse even.

So they are going to let us eat cake or not? That's the big question, if the answer is 'no' (what I suspect given the evolution of the rethoric and shorter economic cyles) we will see an evolution towards a neofeudal world where there is this state capitalism thing with diminishing democracy (just see the EU). If the anwer is YES we may see a turn back to keynesianism in a more consistent way.

It's a choice between MMT for the elites or MMT for everybody, but don't get overenthusiastic, labour discipline will be the dominant theme and most of the share of MMT will go to them.

P.S: Anyway, at least this will reflate the ongoing market decline.

Dan Kervick said...

I should clarify: the battle isn't over. I expect a general bipartisan turn toward renewed public investment. But that will be combined with a continuing conservative attack on social services and entitlements, as well as a drive to preserve economic privileges, income disparities and class differences. So while the austerity mania might come to an end, there is still a war to be waged on behalf of equality, full employment and democratic decency.

Dan Kervick said...

But... Almost surely, he is, in fact, a closet Keynesian."

He hired Mankiw as his top economic adviser, right. Mankiw is a leading light of so-called New Keynesianism

mike norman said...

Romney will cut taxes for the rich and corporations and go to war with some country. That is what constitutes Republican stimulus. YOu will see a continuation of the collapse in real wages of the working (middle) class.

Tom Hickey said...

Mike, the one thing you neglected to mention is the enormous increase in crony capitalism and corruption, oops, I mean deregulation and suspension of oversight, that would inevitably lead to a bigger next financial crisis than is already baked in now. This is probably the key factor, in my view.

Politically, Romney would buy off the social right by further corrupting the judiciary, too, which is part of the neoliberal de facto coup d'etat now firmly established by the Roberts court.

As I said of Obama-MeCain, Obama would be a disaster and MeCain a total catastrophe. Same with Obama-Romney. The US won't survive either intact, but GOP control of the administration, legislature and judiciary would see the formal institution of empire, oops, I mean American exceptionalism.

Tom Hickey said...

"Only prob is who will the U.S goto war with?"

If there is a GOP win, there will almost certainly be war with Iran. Otherwise, it's about 60-40 toward war, I'd guess. TPTB are just weighing the downside. Otherwise, it's a go.

beowulf said...

"Romney will cut taxes for the rich and corporations and go to war with some country. That is what constitutes Republican stimulus. You will see a continuation of the collapse in real wages of the working (middle) class."

When all else fails, the Republicans end up supporting sensible policy by stealing issues from the Democrats, which is why Seniors remember that Bush expanded Medicare spending and that Obamacare cut it.

Romney's team is smart enough to know the score (they're humoring the tea party congressmen only until most of them lose this November). Income inequality is a serious problem and Romney has already endorsed indexing minimum wage to inflation. Edmund Phelps has come up with the golden ticket for Romney to quietly redistribute wealth to the poor (perhaps Phelps's fiscal estimate is too low. Ehh, who cares, deficits only matter for Democrats).

"As he has updated that proposal, the government should provide a subsidy of $4.50 an hour for the lowest-paid workers, with declining amounts until they earn more than $15 an hour. Unlike the current “earned income tax credit,” his plan would not be biased toward families with dependent children, but would apply equally to all workers.
He estimates today that the cost of such a program would be about $150 billion a year, around 1 percent of gross domestic product. The program would be well worth the expense."

http://www.nytimes.com/2011/11/27/business/long-term-unemployment-carries-risks-for-us.html

Tom Hickey said...

@ Dan K

What's happening is that the elite is forcing neoliberalism, neoconservatism, neocolonialism, and neo-imperialism (what I call institutional fascism) to the social and political limit as a result of the crisis, which they see as an opportunity for disaster capitalism. They will only relax the social, political and economy pressure as they see the limits being reached, i.e., before revolt develops critical mass.

Tom Hickey said...

The GOP's ace in the hole is knowledge that stimulus can always be added through military spending in a way that proved pretty much politically safe in the past as long as not too many American die in the process.

Romney will cut social spending and make up for it by increasing military spending and then some, along with tax cuts and privatizations. That's the Laffer model.

beowulf said...

Romney is his father's son. He's the most moderate GOP nominee since Ford.

“Traditionally, many members of my party saw the corporation as the source of our economic strength. They, therefore, believed that strengthening corporations would strengthen America. Traditionally, many Democrats saw government as the source of our strength. For them, strengthening government strengthened America. I believe that neither had it completely right. I believe that the source of our greatness is our people...
We invest in people when we make it easier for them to afford housing and healthcare. We invest in people and their freedoms when we defend civil rights, regardless of gender, sexual orientation, or race and when we protect their rights to make their own choices. We disinvest in people when we tax away their ability to invest in themselves and to make their own life choices.”
Gov. Romney inaugural address 2003.
http://boston.cbslocal.com/2012/05/03/mitt-romneys-first-100-days/

Dan Kervick said...

Politically, Romney would buy off the social right by further corrupting the judiciary, too, which is part of the neoliberal de facto coup d'etat now firmly established by the Roberts court.

Yes, I worry about that a lot too Tom. Even if Obama and Romney were economic Siamese twins, and the only difference between them were that Romney would appoint more Robertses and Alitos to the bench and Obama would appoint more Kagans and Sotomoyors, that would be enough to tip the balance.

The approach I have taken for the past couple of years is to invest a lot less time and intellectual energy into presidential electoral politics. We only get two choices in this country, and nothing important will happen or change between now and Novemeber. As always, there will be a lesser of two evils decision to make.

Real change, I think, will have to happen from the ground up and not the leadership elite down. If we can get a country filled with people who have been convinced by MMT and other progressive approaches, the pressure of citizen numbers and spontaneous organization and activism will eventually make itself felt in the leadership. So I'm more interested in addressing the hearts and minds of my ordinary fellow-citizens now, not wasting hours watching mindless debates and regurgitations of party doctrines that everyone knows by heart.

Leverage said...

I don't remember where I've read or seen it but I remember a study that studied amongst other things income and job multipliers from certain spendings (or something like that), the only two areas that benefited in a remotely meaningful way from military spending where... Washington and N.Y., tadda!

The multiplier of military spending is really low unless you go into major war mode, and even then remember war ALWAYS destroys capital. Military keynesianism has only worked for nations like USA or UK because they were isolated from the disaster caused by war.

What happens in other cases is that the intra-national 'net of social contracts' aka paper financial economy loses importance rapidly (no one talks about debts when you're in total war mode, no one doubts government can always pay in its own currency, and USA had it's own experience during the civil war), and real resource-based economy takes place, normally in a centralized command economy way.

Only sustainable for so long until morale is beaten and as long as there is common purpose. But with the proper motivation/propaganda this can be a long time, a long time where wealth concentrates even more (merchants of death sucking 50%-90% of the GDP for example, that's a lot of money and political power), unemployment is literally destroyed, and society is 'stabilized' in a weird way due to common objectives and purposes.

Tom Hickey said...

"Romney has already endorsed indexing minimum wage to inflation."

Inflation indexing is a really bad idea, and indexing income is fatal.

Dan Kervick said...

When all else fails, the Republicans end up supporting sensible policy by stealing issues from the Democrats, which is why Seniors remember that Bush expanded Medicare spending and that Obamacare cut it.

Also, wasn't one of Bush's first moves to erect protectionist tariffs for the steel industry? Democrats are such saps that way.

Matt Franko said...

This is from the wiki on the last economic stimulus authored by the GOP:

"The researchers found that the stimulus checks increased spending for the typical family by 3.5% when the rebate arrived, boosting overall nondurable consumption by 2.4% in the second quarter of 2008.[12] The study concludes that the rebate payments for U.S. households were an effective stimulus method by increasing disposable income despite the predictions of certain economic theories such as the permanent income hypothesis.[13]"

All Obama Admin had to do was double down on this. But the Admin thinks Peterson has a better idea with his deficit reduction and Krugman has a better idea with his NAIRU.

Resp,

Anonymous said...

"Romney is his father's son. He's the most moderate GOP nominee since Ford."

Even if that was true, if this years have shown something is that the president is powerless with a madhouse like the congress behind them. Or at least not willing to use his powers (ha! if John Adams, or worse, Hamilton, and Jefferson were alive, the discussion would be epic).

Dan Kervick said...

He's the most moderate GOP nominee since Ford.

He'll only be moderate if center-right coalition moderate. He'll absorb the zeitgeist and reflect it. I wouldn't expect the political posture that worked for him in Massachusetts to sell well among his target base for re-election nationally. So if he is elected he will definitely govern more from the right than he did in the Bay State.

All those Massachusetts libs might have been reassured by Romney's not-too-cold, not-to-hot difference splitting between corporations and government. But the people who would be responsible for electing Romney to national office, if he is elected, will demand much more anti-government red meat. You sure won't be hearing that Boston inaugural address from the steps of the capitol.

beowulf said...

"Inflation indexing is a really bad idea, and indexing income is fatal."

Minimum wage workers, almost by definition, have less bargaining power than anyone else. Not much risk of a wage-price spiral.

Curious that Romney is to the left of you on this (or any) issue, Tom.
:o)

Tom Hickey said...

beo "Romney is his father's son. He's the most moderate GOP nominee since Ford."

I think that most conservatives have figured that out. I guess they will hold their noses and vote for him anyway and hope to have enough strength in Congress to shape policy or at least prevent him from doing anything they seriously disapprove of. Rent in the Big Tent?

Matt Franko said...

" I guess they will hold their noses and vote for him "

That has been my first hand experience with my more conservative GOP friends.

NONE of them have ANYTHING good to say about Romney.... literally Tom NOTHING good to say about him.

They say things like "we have to keep an eye on him", etc

Then I try to explain things to them and their eyes LITERALLY GLAZE OVER.

Tom, it's like we are observing the goings on in an insane asylum sometimes...

Resp,

Andy said...

Forget anything Cleggy says. He's a compulsive liar.
I have no faith in the idea that the Coalition is truly contemplating massive infrastructure investment.
As you were.

Tom Hickey said...

"Minimum wage workers, almost by definition, have less bargaining power than anyone else. Not much risk of a wage-price spiral."

Why all the concern over SS cola then?

Index this, index that and then everyone one wants to get their piece indexed too.

I'llHaveADouble said...

We've gone with the 100% moron approach for 4 years now it is not working so perhaps it is time to switch back to the 95% morons/5% liars.... a Hobson's Choice but sadly it seems that is all we have in front of us....

$800 billion stimulus package. Payroll tax cut. SBA stuff. Proposed additional stimulus - Jobs Act - that Republicans killed.

The correct choice is not to count on dangerous, crazy people to - probably accidentally - do the right thing. It's to vote in a Democratic majority in both houses and re-elect the president.

GLH said...

I seriously doubt that anyone in either party will do anything for the people until the people solidify and stop private financing of elections. Please read at Naked Capitalism, “Clinton’s $80 million payday.” That should disabuse anyone of expecting anything reasonable from either party.
By the way I do appreciate all that you guys do to inform people.

Ben said...

As a Brit, I think I can safely say, the UK Government is still very much wedded to austerity. Their strategy is to just say they are going all out for growth, and hope that will do, without actually doing anything much. As Matt F likes to say, they are morons, especially Mr Clegg, who's fond of saying 'there's no money left'.

Leverage said...

I concur with what Ben and Andy are saying and extend it to whole Europe.

All this talk about growth policies, want to see facts to believe. They must have been reading monetarists on expectations and some absurdity like that.

Next we will see is CB's targeting NGDP by saying it, "and there will be light".

Anonymous said...

Ok, the UK's plan for growth involves underwriting private corporate debt, NOT increasing deficit spending.

This will be accompanied by supply-side reforms - reducing regulation etc.

The UK government says it has "run out of money", so thinks that the solution is to get the banks to create more money - the same banks that literally had "run out of money" until the government stepped in and gave them a whole fuckload of cash.


The guys in power in the UK are divided into three main categories:

1. Fucktards who really believe the government has "run out of money".

2.Ideologues who say the govt has "run out of money" but don't actually believe it - they just keep saying it because it helps their supply-side cause.

3. Intelligent people who know the government hasn't "run out of money" but are worried about the ever-growing CAD and fear the country could be heading for a severe balance-of-payments crisis.

Matt Franko said...

Dubs,

Somebody in the US GOP knows what is going on. You cannot design the Economic Stimulus Act of 2008 without knowing how fiscal really works, and that Act was very progressive (ie bottom up).

Whether they would be influential in a Romney Admin I guess is not known, my hope is they are still there and can be influential.

This thread is perhaps jumping the gun a bit on this as neither campaign has really talked a lot about what their respective post election economic proposals are in any detail.

Resp,

Jonf said...

There is a little matter of supreme court appointments. I don't want to move the court further right. Obama is not particularly progressive, but Romney by his own mouth calls himself very severely conservative. So I should take a chance he is moderate? I took tha chance once and it did not work out. So I live in a red state, sounds like Jill Stein for me.