British Economic Triumphalism in Perspective
Dig a deep hole with "expansionary fiscal austerity" and then declare victory when you start to climb out of it with selected data to prove it.
Some people seem to consider the case of Latvia the ultimate Keynes killer, showing that austerity policies suffice to get you out of deep recessions and not having to fall back on Keynesian stimulus.Hmm …What are the facts? Latvia today has a real GDP that still is far below its pre-crisis peak. Its unemployment rate is close to 15 %. Indeed an impressive success …Latvia and Sweden — the ultimate Keynes killers? (video)
The arguments serve an ideological goal. Perhaps we shouldn't assume that the main motivation of many pundits and policymakers is economic rather than political?The neoliberal position is that politics is economics and economics is laissez-faire. TINA period. Alternatives are ruled out.
Some comments on the latest report from the BISEconomist's View
Austerity has failed. It turned a nascent recovery into stagnation. That imposes huge and unnecessary costs, not just in the short run, but also in the long term: the costs of investments unmade, of businesses not started, of skills atrophied, and of hopes destroyed.Martin Wolf takes austerity and the austerians apart.
What is being done here in the UK and also in much of the eurozone is worse than a crime, it is a blunder.In today's environment, it's more insulting to call someone stupid than a criminal.
Yet what is critical here is Krugman and other liberals’ understanding of precisely what “work” in fact means.
Liberals are of course correct that European austerity, as well as the US version, has not generated an immediate economic expansion. But to get a clearer idea of the actual purpose of austerity, it is far more useful to listen not to liberal economists but to the politicians who actually decide to implement it. Greek European Commissioner Maria Damanaki recently noted, “‘The strategy of the European Commission over the past year and a half or two has been to reduce the labour costs in all European countries in order to improve the competitiveness of European companies over the rivals from Eastern Europe and Asia.’”Similarly, in her recent keynote speech at the World Economic Forum, Angela Merkel was admirably frank in asserting that high unemployment is, according to the Guardian, the “price Europe had to pay to become more competitive.” Merkel’s statement that austerity is intended to “ensure the prosperity of our people” is an oxymoron only to those liberal economists who do not see capitalism as a class-based system. For, Krugman’s contention that recessions are merely “technical malfunctions” ignores what both politicians and capitalists have long asserted: recessions are “correctives” that reduce the cost of the one commodity that is more adjustable and often more expensive than any other: labor.
CounterpunchAusterity, via slashing social spending and expanding a surplus labor pool that is ever more desperate, achieves its aim via making labor cheap enough so that it can again be profitably exploited by capitalists. That is, our recession will come to an end, and the standard of living will be ever-lower, once business can again make a profit off of an ample number of workers, which of course is wage labor’s raison d’etre in capitalism in the first place. While the consequences of further impoverishing millions of people in order to more effectively profit off of them might engender political instability, this is not part of the economic equation. After all, political instability is what police states are for.
The results of Europe’s experiment with austerity are in and they’re clear: it doesn’t work. Here’s how such a flawed idea became the West’s default response to financial crises.Foreign Affairs — Published by the Council on Foreign Relations
I just did another interview on Reinhart&Rogoff and the magic, disappearing, 90% debt ratio, centered on the Neoliberal belief in “expansionary austerity”. You can see the original here: http://acemaxx-analytics-dispinar.blogspot.ch/2013/04/interview-prof-l-randall-wray.html
Here is the text of the newest interview:
Right now there’s a serious effort to rethink the move to austerity. Between the developments in Japan and the IMF’s efforts in Europe and England, the common wisdom will soon be that austerity as a solution was oversold, with all the toxic side effects hidden. The question next will be how to turn that into political power.The Washington Post | Wonkblog
The last month of data flow from Europe is nothing short of depressing. It seems that the history of the Eurocrisis can be summed up as a repeated effort to snatch failure from the jaws of defeat. The Euro and the policy framework that supports it is now clearly inconsistent with anything but sustained recession....
Bottom Line: How high does unemployment need to rise, how much output needs to be lost, how much poverty must be endured before European policymakers realize that the policymakers see that the framework supporting the Euro politcally is an economic failure?Amen.
Finance minister and Work and Pensions Secretary say new welfare cuts will encourage more Britons to work.
Find out more about the bedroom tax, the part of welfare reform that will cut the amount of benefit that people can get if they are considered to have a spare bedroom.
Welfare reforms will cut the amount of benefit that people can get if they are deemed to have a spare bedroom in their council or housing association home. This measure will apply from 1 April 2013 to tenants of working age.
The power to do this is contained in the Welfare Reform Act 2012 and is commonly referred to as the bedroom tax, size criteria or under-occupation penalty.
What do the changes mean?
The size criteria in the social rented sector will restrict housing benefit to allow for one bedroom for each person or couple living as part of the household, with the following exceptions:
The British government has lost its marbles. This is really crazy stuff.
- Children under 16 of same gender expected to share
- Children under 10 expected to share regardless of gender
- Disabled tenant or partner who needs non resident overnight carer will be allowed an extra bedroom
...severe austerity tends to turn recessions into depressions, consign millions to the dole or under-employment and lead to frightening political turbulence.
The most famous episode of austerity was during the interwar years, as Germany, Britain, France and Japan all fought to stay on the Gold Standard even amid the Great Depression. The deflationary impact of keeping their currencies pegged to gold, along with the austerity policies they followed to do so, was disastrous....
IAs the political scientist Mark Blyth says in his new book, Austerity: "Austerity didn't just fail – it helped blow up the world. That's the definition of a very dangerous idea."
And yet when Europe's crisis began in earnest in 2009, rightwing politicians across the continent adopted the line that the best governments could do was cut spending to encourage the private sector to spend....
And where in Greece, historic cuts were rolled out in the name of economic modernisation, here Cameron [in the UK] wants to whip us into a "global race" [to the bottom].The Guardian | Comment is free
The normally astute and blunt Martin Wolf is either having an uncharacteristic bout of circumspection or is managing to miss an important, arguably determining reason why the Eurozone persists in inflicting destructive austerity on much of its population.Naked Capitalism
Republicans cling to a policy that pretty much everyone agrees is a total disaster.
Now Mr Weidmann would like to see austerity policies in all deficit countries as the preferred tool of adjustment. However, this adjustment has caused mass unemployment in the European deficit countries and falling GDP with no light at the end of the tunnel so far. This, I believe, is the background of the conflict in the ECB. Some, like Mr Weidmann, are calling for internal devaluation policies, while others, like Mr Constâncio, are more open to other ways of economic adjustment.
By the way: there is a clear distributional effect of this choice. Adjustment by austerity leaves capital owners in surplus countries unharmed (at least it seems so to people who do not understand theparadox of thrift) while it hurts workers in the deficit countries. Adjustment by exchange rate changes leaves nominal wages untouched, but some capital owners in the surplus country lose because their investments in the deficit country are now worth less in domestic currency. However, while there is proof that the second avenue works the first – austerity – is without theory. There is no theory of expansionary austerity – it is all wishful thinking.The crux of it:
When the euro system was introduced, many feared that some people in the ECB would think along national lines only, favoring policies that benefit only their country. It seems that this situation has now arrived.econoblog101
There is much hype about “currency wars” in the international media this week, reaching the heights of the Davos gathering. The excitement seems to have been started by Bundesbank president Jens Weidmann, who earlier this week aired his concerns about an apparent politicization of exchange rates owing to an erosion of central bank independence and rising political pressures for more aggressive monetary policies.Multiplier Effect
As part of their never-ending campaign to canonize President Ronald Reagan, conservatives three years ago proposed replacing Ulysses S. Grant on the 50 dollar bill with the likeness of the Gipper. But while his hagiographers mercifully failed in that quest, a new and altogether fitting denomination has emerged to memorialize Reagan. The much-discussed one trillion dollar platinum coin, the unfortunate gimmick that may be needed to circumvent the Republicans' dangerously real gimmick on the debt ceiling, would be a perfect home for Reagan's image. After all, President Reagan didn't merely triple the national debt in his eight years in the White House and establish budget-busting tax cuts as a permanent fixture in Republican politics. As it turns out, Reagan excoriated those in Congress who would jeopardize the full faith and credit of the United States by refusing to increase the nation's debt limit.
Reagan came to the Oval Office in 1981 promising to slash taxes by 30 percent, boost Pentagon funding and balance the budget. But as most analysts predicted, Reagan's massive $749 billion supply-side tax cuts in 1981 quickly produced even more massive annual budget deficits. Combined with his rapid increase in defense spending, Reagan delivered not the balanced budgets he promised, but record-setting debt. Even his OMB alchemist David Stockman could not obscure the disaster with his famous "rosy scenarios."
Forced to raise taxes eleven times to avert financial catastrophe, the Gipper nonetheless presided over a tripling of the American national debt to nearly $3 trillion. Federal spending grew several times faster than under President Obama, while the public sector employment expanded much more quickly than any time since. By the time he left office in 1989, Ronald Reagan more than equaled the entire debt burden produced by the previous 200 years of American history. It's no wonder that, almost 30 years after he concluded "the supply-siders have gone too far," former Arthur Laffer acolyte and Reagan budget chief David Stockmanlamented:
"[The] debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party's embrace, about three decades ago, of the insidious doctrine that deficits don't matter if they result from tax cuts."Perrspectives
Now, thanks in large part to Republicans grandstanding and misinformation, a dangerous new veil of confusion is once again enveloping the American people. (It should be noted that Americans' confusion is even more profound than the recent CBS numbers show; other polls show that the public rejects cuts to entitlements and wants federal spending increased in most areas of the budget.) Once again, almost 70 percent believe the debt ceiling, the borrowing authority which must be raised, should not be increased. Or to put the Party of Lincoln's strategy another way, you can fool some of the people all of the time, and that's their target market.Austerity is "working" — politically for the GOP.
On September 15, 2011, a Wall Street lobbying organization known as “Third Way” proposed that the congressional “super committee” adopt a stringent austerity program.
Third Way’s tag line on its web site is “Fresh Thinking,” but it simply a mouthpiece for Wall Street’s curdled ideas.
Third Way’s rationale for austerity is a marvel of duplicity or ineptitude so great that duplicity would do less damage to their reputation.New Economic Perspectives