Mark Thoma — 'The Intellectual Bankruptcy of the Austerians'

Some comments on the latest report from the BIS

Economist's View
'The Intellectual Bankruptcy of the Austerians'
Mark Thoma | Professor of Economics, University of Oregon

BIS or BS? The title to this post should be "Calling BS."

Martin Wolf — How Austerity Has Failed

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.

New York Review of Books
How Austerity Has Failed
Martin Wolf

(h/t Bill McBride at Calculated Risk)

Michael Stephens — This Time Is Indifferent

Yet, revealingly, there are some deficit hawks who are treating the rapid shrinking of the deficit as bad news — and not for the Keynesian reason that this indicates the government is failing to do its part in supporting the economy, as Bernanke stressed in his remarks yesterday, but because the disappearing deficit is easing congressional pressure to pass “entitlement reform” (which, as we’ll see below, does belong in scare quotes)....

For the fauxsterian, the question of whether austerity can be expansionary, or whether economic growth falls off a cliff when countries’ public debt ratios surpass 90 percent of GDP, is really all beside the point. Deficit and debt hysteria have simply been a useful tool for pushing specific legislative changes that may or may or may not be related to the budget balance — changes that might be difficult to pass outside an atmosphere of imminent crisis.

A recent Washington Post column by Steven Pearlstein, “The Case for Austerity Isn’t Dead Yet,” more or less endorses this line. The problem with fiscal stimulus, the column tells us, is that it works: it boosts short-term economic growth, thus easing the pressure to pass “structural reform.”

Multiplier Effect
This Time Is Indifferent
Michael Stephens

I'll be the first to say it: The debt doesn't matter at all...at any level.

Thomas Herndon is the grad student over at UMass Amherst who co-wrote the paper refuting the results of Reinhart/Rogoff. He's the David compared to the mainstream academics' Reinhart-Rogoff Goliath, right?

Well, maybe not so fast.

Today Herndon wrote a piece in Business Insider where he rebuts RR's claim that their result was essentially the same as his.

But then he said this:

"There is not one word in our paper which suggests that a high level of government indebtedness is never a problem. It would be absurd to think that governments never have to worry about their level of indebtedness. The aim of our paper was much more narrowly focused. We show that, contrary to R&R, there is no definitive threshold for the public debt/GDP ratio, beyond which countries will invariably suffer a major decline in GDP growth."

With that comment he may have just resurrected Reinhart/Rogoff and the entire austerity movement. That's because they're gonna say, as long as you feel that debt can be a problem, why wait for it to become a problem? Why not just keep it low all the time or better yet, eliminate it completely?

This is EXACTLY the argument that is continuously employed so ineffectively by people like Paul Krugman. It's also the argument used by every single member of the Democratic Party, including Obama. By agreeing to the false belief that debt is a problem they open up a huge hole that the Austerians can drive a truck through. From there, they're simply able to frame themselves as the grown-ups; the people who represent fiscal responsibility.

The fact is, debt in and of itself is never a problem (as long as we're talking about a fiat money system), it's merely a choice. By allowing debt to rise you may risk inflation at some point. That's a choice. On the other hand keeping debt low or eliminating it via austerity or fixing the quantity of money via a gold standard or some regime of convertibility means deflation. That's also a choice.

Why is deflation (and high unemployment), the current choice, better than inflation? I say it's not. Why do we treat it as the "grown up" way to address this supposed problem?

As long as we keep agreeing to the Austerians' assertions about debt, at whatever threshold, we lose the debate, pure and simple.

The fact is, the discussion should not be about debt at all. The level of debt is irrelevant in a fiat money system. We should be talking about jobs, standard of living and the general welfare of the citizens in our society and we should be doing whatever it is we need to do, within our physical and intellectual constraints to achieve that. That means people, brains, energy, water, land and air, etc.

To hell with the the debt! Stop saying it matters, no matter what level. It doesn't.

Mike Konczal on austerian special pleading

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
Reinhart/Rogoff-gate isn’t the first time austerians have used bad data
Mike Konczal | Roosevelt Institute Fellow
(h/t Mark Thoma at Economist's View)

See also Konczal's IMF, Economist and Roosevelt Institute on Alesina and Ardagna at Rortybomb, October 5, 2010. (h/t Paul Krugman)

Anyone see a pattern here?

Bill Mitchell — When you’ve got friends like this [Jared Bernstein]

In wishing us all happy new year, Jared Bernstein also pounded his readers with a confused macroeconomic logic, that if applied, would in all likelihood make their new year (collectively) worse. His article (December 29, 2012) – My Views on Spending Cuts and Entitlements – is another one of those cases when friendly fire shoots the progressive movement in the foot.

Bill Mitchell — billy blog
When you’ve got friends like this – Part 10
Bill Mitchell

Paul Krugman — SMACKDOWN

The key thing we need to understand, however, is that the prophets of fiscal disaster, no matter how respectable they may seem, are at this point effectively members of a doomsday cult. They are emotionally and professionally committed to the belief that fiscal crisis lurks just around the corner, and they will hold to their belief no matter how many corners we turn without encountering that crisis.

The New York Times | Opinion
When Prophecy Fails
Paul Krugman | Professor of Economics, Princeton University

Bloomberg — Richard Koo on the EZ

He is more hopeful his ideas will gain a following in the U.S., noting Fed Chairman Ben S. Bernanke has read his book and is warning against premature fiscal consolidation as $600 billion in government spending cuts and tax increases loom unless the law is changed.

“If they’re not careful, the U.S. could fall off the fiscal cliff,” he said, estimating it amounts to 3 percent of GDP, the same as Japan’s 1997 budget cuts.

Bloomberg
Europe Dispensing Wrong Fiscal Medicine in Koo Warning
Simon Kennedy
(h/t Yves Smith at Naked Capitalism)