No shock here. Welcome to a UK government austerity budget environment. My short perusal of some of the coverage of this 4Q result indicates that many of the surprised forecasters are resorting to the "do you believe those numbers?!" type of response. Classic denial.
Even in the face of this "double dip", I saw former UK PM Gordon Brown interviewed on CNBC this am warning that the UK still had to have a credible deficit reduction plan...will they never learn?
Hey Gordo, GDP= C + I + G + (X -I), where "G" is government spending!
Story here.
33 comments:
"The Office for National Statistics blamed the dire figure mostly on heavy snow that gripped the country during December, snarling roads, crippling Heathrow and other airports and keeping people away from shops before Christmas."
Denial, anyone?
@Matt
The Tories work really hard to earn a reputation for being the toughest and most ruthless government worldwide.
Youth unemployment hits record high in the UK: >20% http://goo.gl/vNXJM
Basic economics strikes out again.
Always looking at the short term. The whole point is that Britain is willing to take its medicine NOW. Borrowing more money and then spending it no doubt would have shown "growth" in the GDP numbers but at what cost? An individual who borrows a lot of money looks wealthy during the dispensation period,too. The cost of more debt-fueled consumption spending would have just been a much worse crisis later. Do you understand that the reason that Britian is in such dire straits is because of their profligacy over the last decade? Hair of the dog isn't the answer.
It is this short-sightedness that hindered you from noticing the waters roiling under the surface prior to the U.S. economic collapse. We shall see where Britain is in 3 or 4 years compared to the U.S.
Governor Ryan talked tonight about this crushing deficit and debt burden.
What a load of crap from a wimpy RepubliKlan !
The deficit and debt are no where near historical past markers.
Even if they strengthen the budget and remove deficits then they will be up a creek when they want to export since export is their puritan obsession.
However, we know that even with a tanked European economy the Euro still does better than the dollar.
Removing the deficit will not strengthen the dollar which is not their real policy only lip service.
And Rep or Gov Ryan whatever he is, he doesn't explain that it's OK for Reagan and RepubliKlan members to spend but no one else ... only they can be trusted.
Finally - no one is addressing the financial instruments which blew up the economy, especially the RReal economy
All those models and instruments basically overvaluated everything from oil, euros, quid, houses, stocks ... and this was more fictious than MMT
MMT is easy to explain but no one person can easily explain the "printing" that took place with the financial instruments that were not regulated.
MMT is inherently self regulated.
We can see a deficit, but you cannot see the WMD of the banks !!
Goog,
It's like you took the words right out of my mouth... the GOP is being disengenuous with their recent fiscal conservatism.
We have to keep an eye on the actual numbers though, so far, the US does not look like it is proposing fiscal austerity of the magnitude that was implemented in the UK. Ryan is on the record for $60B cuts immediately this FY, while going in the wrong direction, it is not "off a cliff"... stay tuned.
Matt,
Where do you guys see fiscal austerity at all? The amounts being proposed for reduction at the state level are chump change compared to what the federal government is spending. That they aren't spending as much as you guys would like doesn't mean that there has been any "austerity." It's the exact opposite for crying out loud.
The federal government needs to cut well over a trillion dollars of spending per year just to get back to the spending levels of the year 2000.
There is no fiscal conservatism in D.C. One party proposes spending relatively less that the other party. The party that proposes spending slightly less is called fiscally conservative. That's like calling a 300 pound woman slim because the woman standing next to her is 400 pounds.
yes gov spending is up a trillion to keep up with the fact that the RREAL economy was high jacked by goldman sachs ( their weighting algorithm for oil pricing ) and over valued by a 20 to 50 times factor ( 20 trillion to 50 ) than the "printing" done by the Fed & Tsy.
Therefore, we need to credit the middle tier banks and not the standard top tier with 2 trillion for small business
WWS,
We see fiscal austerity in the output gap (cap. utilization) and the unemployment figures (10%+).
Read Marshall Auerback's latest over at New Deal 2.0 for the complete accounting/stock-flow consistent analysis.
LINK_http://www.newdeal20.org/2011/01/26/sotu-the-dollar-gap-between-rhetoric-and-reality-33889/
Resp,
Matt, googleheim,
I don't think most of you on this blog have read anything of Austrian thought. Here's your chance. Paul Krugman and Austrian Robert Murphy are having a very public internet back-and-forth at the moment. Just google "My Response to Paul Krugman on Austrian Business-Cycle Theory" by Robert Murphy.
Matt, I'm going to check out your link though I am familiar with the ideas.
I'm familiar with the Austrian economics nonsense. To iterate Paul Krugman on the issue: "In case you’re wondering, no, I haven’t changed my view of Austrianism. If I say it’s interesting, well, I’d say the same thing about the phlogiston theory of fire."
The Murphy challenge is just another waste of time. But guys like welfarewarfare get totally excited when somebody like Krugman even acknowledges that this nonsense exists. Since a century they hope and pray for the final breakthrough :-) We are also listened to!!!
Stephan,
That quote is from 1998. Mr. Krugman has matured since then a bit. If he doesn't think it is worth considering why are he and others (Tyler Cowen comes to mind) spending so much time trying to counter it? I believe it was Mr. Krugman himself that advocated that the Fed replace the burst tech bubble with a housing bubble in 2002 and again in 2003. He's got more than a little egg on his face because of that. It was the Austrians who were the most critical of the Fed's actions in 2002 and beyond.
Also, in response to a posting to Matt you claimed that the Tories were responsible for high youth unemployment. Might the high unemployment that has been endemic to the euro zone for decades have something to do with high minimum wage laws and rigid labor market courtesy of union demands and Labor party acquiesence? Maybe?
Almost forgot Stephan,
We are being listened to. It is the Austrians that are on the ascent. It doesn't matter so much whether brainwashed drones like you listen to us. You are already a lost cause. There are millions of young Americans that are listening to us. Given what is to come over the next 5 to 10 years, there will be many more that will lend us an ear. By that time it won't even be a debate anymore--it will be history.
Well, there is a chance the Austrian/Employer dream of zero minimum wage and zero social safety net will be realized. Unfortunately it will be accompanied by continued high unemployment and government deficits.
If crushing labor is the goal of Austrian economics, then you guys will have won. If not, then good luck trying to defeat the state and the powerful interests that control it.
This outcome wouldn't change the factual accuracy of MMT. You don't have to be a progressive to understand how the monetary system works. Recognizing the options available to government in terms of economic policy doesn't require you to advocate them.
Perhaps there is an MMT blog for conservatives (ie. misanthropes)
wws,
Looked at the piece by Murphy. Quick take: (admit very quick):
It seems to me Austrians give a bit of a 'short shrift' to the external sector. Also, they do not perhaps take into enough account the effects of modern, global, real-time info. technology on the concept of inventories.
Resp,
Matt,
Glad you took a look at it. Did you consider what the Austrians are saying about the capital structure? This is where the misunderstanding comes into play.
Laura,
This is an economics blog, but I will briefly address the so-called social safety net.
The genesis of the welfare state came our of Bismarck's Prussia. The Prussian state wanted to accomplish two things with the social welfare state: (1) Slow down the appeal of the socialists by tying to the current government those among the Prussian people who would be most susceptible to Marxism and (2) Replacing what was formerly done by the Catholic church and other groups by the state. In this way the people were bought off in effect. Some of this is the U.S. government's justification for doing the same.
Read Alexis de Tocqueville's 'Democracy in America' to get an idea of how Americans organized themselves in the absence of the welfare state. There were numerous mutual aid societies, fraternal org.'s, churches, families, local communities, unions, private charities, etc. that cared for those who were either chroncially destitute of temporarily in need. Those things WERE the social safety net. There was no force initiated against the individual as with the coercion of state collectivism.
All of this tended to bring society together and created a real sense of community. The force of the welfare state is atomizing society because people resent force being intiated against them, and everyone is aware of the tens of billions of dollars of fraud every year with these programs.
I know that you imagine that you are on the side of angels, but you are mistaken. You have simply bought into a warped moral code whereby force is morality and theft is instiutionalized.
How exactly is labor faring in your progressive-corporatist state? Maybe you should address your starting premises. And why do insist on calling yourself a so-called progressive anyway? You are a democratic socialist.
By misanthrope I take it to mean that I am subhuman. Well, I don't respect you either.
Lastly, I am not a conservative-- I am a classical liberal.
Which begs the question: what exactly is the problem being a democratic socialist? I surely am one.
WWS,
I have to agree, taxing one segment of society to "pay for" the social services of another is a diabolical practice.
There are other ways to achieve similar outcomes (probably BETTER outcomes).
I'll look into the capital issues wrt the Austrians.
Resp,
Stephan,
At least you know what you are. I think you are the British chap that posts here occassionally, right? The reason that those in your country and elsewhere in europe don't have to resort to misleading identifiers like liberal (they are in fact illiberal) or progressive is because the term 'socialst' is perfectly acceptable in europe. Not so here in the states.
Democratic socialism is often times mistakenly equated with communism among many Americans. They don't understand the subtle differences betweeen competing collectivist ideologies. Democratically socialism is sold to the people piecemeal under names like "safety net," "social justice," "liberalism," "progressivism," etc. If many of these socialist programs were identified as such, they would be rejected out of hand by many Americans. Social Security, for instance, was misleadingly sold to a gullible American public as "insurance" because if it were sold to the public as a welfare transfer program it would have gotten nowhere legislative.
Enough of this anyway. This is an economics blog.
@welfarewarfare
Shocking news! I'm a real Austrian and you are not.
>Enough of this anyway. This is an economics blog.
OK. Economics is about the welfare of people. Do you think otherwise? BTW Galbraith once asked Austrian chancellor Kreisky how it happened - the economic miracle after WW2. Kreisky replied: "A lot of exports. We exported all of our economists." What he meant with this remark is, that all the "leading lights" in economics of the 30s in Austria (Mises, Hayek, ...) meanwhile were living in the USA. So better be grateful for our socialist leaning!
wws,
"This is an economics blog." imo your comments here are very much related to macro economics? The types of things you point out here are the main influences on policy.
Resp,
WWS,
I was suggesting you select another blog to troll, in the forlorn hope you might actually discuss MMT instead of obsessing on the ideological position of progressives. Then again, Austrian economics is not really a school of economics, it's just another ideology to be promoted by it's supporters. As is the case with neo-liberalism, for supporters of the status quo.
The government social safety net does not atomize society, unemployment does. A job is more than a means of survival for most people, it provides us with social contact, and affirms our dignity. To that end I prefer a job guarantee to the current policy of keeping the unemployed on the brink of homelessness. I prefer giving everyone a chance to contribute to society.
Now who could be opposed to this?
Behind the deficit hysteria are employers and business interests who do not want a job guarantee or anything near full employment. They prefer to have a workforce that is obedient, if not desperate. High unemployment comes in handy for keeping workers in their place. To that end, they are happy to support the removal of minimum wage laws and financial support for the unemployed. If it lowers wages and increases profits, then it must be good. The only question is how far can they go without triggering mass social unrest.
To that end they will support the Austrian fantasy. But no further. Government by the wealthy, for the wealthy is much to handy to give up.
How are workers doing you ask?
About as well as expected given the deficit hysteria, NAIRU dogma and anti-inflationary policies.
If you believe Austrian economics would build stronger communities then you're not a misanthrope. I wish I could say the same for those who would have us return to our supposedly non-coercive past.
Yes, this is an economics blog. My main interest is Modern Monetary Theory and the implications that stem from it. Maybe Bill Mitchell could set you straight if you were able to remove your ideological blinders long enough.
wws,
"There were numerous mutual aid societies, fraternal org.'s, churches, families, local communities, unions, private charities, etc. that cared for those who were either chroncially destitute of temporarily in need. Those things WERE the social safety net. "
No corruption there?
Stephan,
Mises wasn't "exported" from Vienna. He had to flee becuase not only was he a Jew, he was alos the leading advocate of free markets in Austria. This marked him as a target for the National Socialists (Nazis).
Laissez-faire wasn't practiced in Austria while Hayek or Mises were there. Mises considered it his greates failure that he wasn't able to stop the socialist wave.
Of course Austria's economy improved after the war. So did every other economy in europe. That should be expected after a war. It would have improved at a far faster clip if not for being infected with some socialist programs. A child can still grow even if it is malnourished. It is the same with economies.
Laura,
A troll is someone who deliberately tries to derail a thread and/or resorts to ad hominem attacks. I do recall that is was you who attacked me by calling me a misanthrope which is just another way of saying that I am an animal. It wasn't me who derailed the thread but you who resorted to unprovoked ad hominem attacks on me. It is you who are the troll by that definition. Your position seems to be that I shouldn't be allowed to defend myself.
I do frequently argue MMT with guys here all the time. The only thing that I have noticed that you do is to make snarky comments for those who dare disagree with your orthodoxy. Mr. Norman doesn't have a problem with my postings. I wasn't aware that no dissent was tolerated in your totalitarian wonderland. It's an open thread last time I checked.
As for your charge that Austrian economics isn't economics, that's just absurd. Austrian economics is just nothing more than the natural extension of classical economics. You imagine that economics, the science of human action, can ever be reduced to a purely empirical science. It can't be. It must be primarily a deductive science. Many of those simplistic equations that you confuse with science are nothing more than the pretence of knowledge. You are relying on far too much aggregation. These equations ignore human action, individual plans, and motivation.
It isn't me that is arguing for the status quo for crying out loud. I want to completely scrap most of what the state is doing. We have a partially planned economy last time I checked. This is what you favor--not me. It is you who unwittingly support the staus quo. Your ideas are the ones that have been dominant in govt., media, and academia for the last many generations. Observe the results.
Austrian economcs isn't an ideology for the rich. Many large businesses hate laissez-faire. There is always someone nipping at your heels. There is just too much class movement up and DOWN for the liking of those who are already at the top. This is why many at the top like your ideology. There is far less class movement in a progressive-corporatist system. Big business love mandates, subsidies, favorable regulations that create barriers to entry, grants, public-private partnerships, state-sanctioned cartels, etc.
You claim that the coercion of the welfare state doesn't cause atomization. You say it is due to unemployment. Hehe! You don't recognize that the welfare state causes higher unemployment. It in fact rewards it. It also insures that less welath gets created than otherwise would. All of society is poorer because of the welfare state.
You say my ideas are a fantasy, but when most of my ideas were dominant in the 19th century this country did very well. We went from a subsistence level to the wealthiest country in the world in 100 years. Your ideas have been dominant since the teens but especially since the New Deal. That's about four generations. Our country is in collapse because of your ideas.
It's not debt hysteria. Reality is going to hit you upside your head when the bond market implodes at some point in the next two years.
Matt,
There was corruption when the natural collectivism of mutual aid societies, fraternal org.s', charities, churches, etc. were the mechanism for delivering aid but is was small scale larceny. This was far better than state collectivism though because if people thought these organizations weren't effective or were misusing funds the individual could always withdraw his participation. The people funding and administering these org.s' were keen to spot the loafers and cheats.
Compare this to the bureaucrats in the welfare state apparatus. Fraud is endemic to the system. Welfare bureaucrats are incentivized to bring new people on board and to keep those on the dole in the welfare system as long as possible because it is job security for them. The adminstration of these bureaucracies also want to expand because that is more money and power for them. There are numerous other problems with the welfare bureaucracy.
WWS,
You do not argue MMT at all. Your only interest is to argue with 'progressives', real or imagined, and use that as an excuse to promote the same ideology one could easily find on mises.org
Yes, I think you are a troll, whether you are cutting and pasting your replies here, on Paul Krugman's blog, or elsewhere. I have read these soundbytes before and am familiar with them.
You, on the other hand, are not familiar with MMT, nor do you seem to realize that it isn't an ideology cooked up by progressives and, lest we forget, 'totalitarians'.
But I suppose you aren't interested in a theory that can be accepted by all sides of the political spectrum.
Parts of Austrian dogma are a useful ideology for the rich. Unions, welfare benefits and minimum wage laws all have to go. Personal responsibility will be in, the nanny state will be out. The rest of it, the parts of government that are useful to their continued privilege, will remain. Laissez-faire, as Austrians imagine it, will not be allowed to happen. At best you may be able to shorten your name to WS someday.
I don't know what you believe misanthropy has to with animals. Does reducing society to the law of the jungle have something to do with it?
WWS,
Consider that a govt policy of full employment (not a bs one like the the Fed is giving us now but a real full employment policy) backed up by a Job Guaranty Program, supported by whatever fiscal policy was necessary to achieve it, is not Socialism or Social Welfare or whatever you want to call it. In fact it would end the 'welfare state' as it is currently configured. And yes we would have better overall outcomes.
It is simply a just policy that any enlightened government should want to implement for it's citizens. There can still be plenty of private capital, profits, innovation, etc... folks who really add great value to society will still make a ton of money. Think Bill Gates/Paul Allen, the google people, Michael Dell, Steve Jobs, the FEDEX guy, Pro Sports players, major artists, etc... all of that can coexist (and prosper) with a full employment policy. Running high fiscal deficits to support full employment under a free floating non convertable regime like we have in place now is NOT SOCIALISM.
It would be a new form of economics that could NOT be categorized by any of the historic systems in the economic lexicon.
It would be facilitated by the very inexpensive IT that we have now that we have never enjoyed in human history. Without our current level of IT, I dont think it could have ever been contemplated as it would have been way too expensive to administer. Today, for the first time in human history, we can do this.
Resp,
A government could move to a guaranteed minimum income system and rid itself of the means-testing bureaucracy if it wanted to. There was discussion about this in Canada but it seems to have faded from the headlines.
Matt,
What you are advocating is central planning of the money supply. The dollar is one half of every transaction made. What a phenomenol, destructive power for the state to have. It gives the power to manipulate the most important price in the economy, the interest rate, to a group of central planners. It is a massive transfer of economic decision-making power away from hundreds of millions of market actors to a small group of bureuacrats. It is an element of socialism.
Laura,
The government can't guarantee you crap. If it sets wage rates artificially high then you'll just get less entry level jobs. Look at the youth unemployment rate in europe and the U.S. It's the minimum wage laws and rigid labor market courtesy of union demands that cause it. Wouldn't these youthful people be a lot better off learning some job skills and getting some kind of work history to use as a step ladder than being unemployed? Most people aren't in marginal low wage jobs for long any way. Just as most people move in and out of social classes over the course of their lives.
Sorry, by guaranteed minimum income I am referring to a negative income tax. If your annual income falls below a threshold, some of your non-refundable tax credits actually become refundable.
I know that you imagine that you are on the side of angels, but you are mistaken. You have simply bought into a warped moral code whereby force is morality and theft is institutionalized.
On the side of the angels and of Professor Frederich Hayek, you should read him sometime. He was a very insightful economist who won the Nobel Prize. I object to you characterizing the Hayek position as a "warped moral code".
There is no reason why in a society which has reached the general level of wealth which ours has attained the first kind of security ["security of a minimum income"] should be not be guaranteed to all without endangering general freedom... There can be no doubt that some minimum of food, shelter and clothing, sufficient to preserve health and the capacity to work, can be assured every one…
Nor is there any reason why the state should not assist the individuals in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision... as in the case of sickness and accident... where, in short, we deal with genuinely insurable risks – the case for the state’s helping to organize a comprehensive system of social insurance is very strong... there is no incompatibility in principle between the state's providing greater security in this way and the preservation of individual freedom.
F.A. Hayek, Road to Serfdom, Chpt. 9, 123-124.
Beowulf,
I have read the "Road to Serfdom" though it isn't a strictly economic work per se. I am very familiar with these these quotes because not only did I read this book (twice), I have seen people hostile to free markets cut and paste this quote repeatedly to use as a weapon against their adversaries on the right.
The "Road to Serfdom" was written in the fifties. He abandoned the ideas that you cited in later years. You shouldn't have stopped reading Hayek after you put down "The Road to Serfdom." He discovered that the severely circumcscribed socialism that he allowed for at one time had many unintended consequences. Murray Rothbard, another notable Austrian, even called this work by Hayek "evil" because of the quote that you cited. I wouldn't go that far, but Hayek corrected this in later years at any rate.
If you get the chance, pick up Hayek's three-volume work "The Constitution of Liberty."
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