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Will Enforced Austerity Solve Anything?


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What austerity?

When this country's debt stops increasing and starts falling and when we start exporting more than we import then you can talk about austerity.

At the moment the scale of our living beyong our means has merely been stabilized.

People on this forum live in a dreamworld.

Well according to the BOE own figures we have been living a fantasy since the First World War if not since the Napleonic wars

debt-gdp.jpg

uk_debt_300.png

http://www.economicshelp.org/blog/uk-economy/uk-national-debt/

http://www.ukpublicspending.co.uk/debt_brief.php

One assumes those who experienced the austerity of the 1840s and the 1930s lived in a dream world too

Anway I am all for moral hazard but it has to apply to EVERYONE not just particular sub sections of society.

Edited by realcrookswearsuits
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But it's not spending that caused the problem, it was the bailout and the subsequent recession caused by the banks removing finance from business.

neatly rationalised - 'business' as overseen by the previous govt was dependent on short term credit - you cannot remove something that had not actually been used yet

this is the dilemma at the heart of the new-socialist c0ck-up that is the credit crunch - surely if Gordon Brown's ongoing 'investment' programmes - both thru artificially low market interest rates as well as more directly thru govt borrowing - if they actually constituted investment in the true sense of the word, then the UK would have more to show for it than being considerably materially poorer on a per capita basis than they were before the 'investment' began in 1996

so it WAS spending that caused the problem. and this is the terrible truth that you simply cannot let yourself face

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Well according to the BOE own figures we have been living a fantasy since the First World War if not since the Napleonic wars

debt-gdp.jpg

uk_debt_300.png

http://www.economics...-national-debt/

http://www.ukpublics.../debt_brief.php

One assumes those who experienced the austerity of the 1840s and the 1930s lived in a dream world too

Anway I am all for moral hazard but it has to apply to EVERYONE not just particular sub sections of society.

you cant have Moral Hazard that applies to everyone.

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‘Austerity’ is an exaggeration and an excuse to enshrine public sector entitlements through a sympathy vote while cutting public sector services and increasing taxes to keep the ball rolling.

An example. My local council East Hertfordshire recently consulted on savings in next year’s budget. As they put it ‘The Government's Comprehensive Spending Review announced last month that funding for East Herts Council will be reduced in real terms by 28 per cent over the next four years.’ Boo hoo I hear? Perhaps, except the reality is quite different. The consultation amounted to a survey on how much to cut some basic local services (including provision of public toilets, token xmas get-togethers for elderly residents, youth groups) which when totted up came to just 310k.

In the financial year 2009-10 total allowances paid to members (councillors – not all full time) amounted to 431k.

The notion of austerity on a local level is nonsense. The majority of initial cuts could easily be covered through means of social accountability and responsibility by those who work to serve us. If they did indeed work to serve us.

(Thanks to the poster Protect Rural England for highlighting some of the issues local to me).

You want to get a council like Gloucestershire. They started at the top sacked half of the senior managers and are working down.

http://www.bbc.co.uk/news/uk-england-gloucestershire-12002001

http://www.thisisgloucestershire.co.uk/news/senior-managers-county-council-axe-falls-fat-cats/article-3019087-detail/article.html

Also no more bonuses for council fat cats

http://www.thisisgloucestershire.co.uk/news/Council-bosses-Gloucester-waive-bonuses-help-balance-books/article-2918871-detail/article.html

Also cut is a Polish speaking drop in centre, no more speed cameras, no overtime.

Perhaps you should send your council the link as a suggestion.

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There is no real austerity taking place in this country. Spending is rising about £40bn over the next 5 years. (http://www.ukpublicspending.co.uk/ )

The deficit is being reduced every year very slightly, that is all. Public ignorance and lazy journalism on the issue seem to be rife. The ridiculous rhetoric during the spending review speech should have been pointed out as just that. Ludicrous drama about very little real change.

The key is going to be to keep the economy growing and creating jobs over the next few years. This will have to be driven by trade and signs are encouraging. The relative strength of the € and the $ are benefitting us is this regard. It will take several decades to bring the actual level of debt back down to near pre 2007 levels.

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These budgets all cover the old Labour 4 year spending review so are largely meaningless.

The first budget for the new spending round is not until March 2011

Thats going to be a real moment of truth hey?

Thanks for highlighting those budget cuts going on where you live. I believe a 4% or less increase in spending actually forces the powers that be to cuts to the frontline. As all the managers and consultants and such get hefty pay increases and bonuses each year. Plus cost of living adjustments. Then there is the masses of retirees in these systems and shortfalls in investments have to be made up. Then there is all the fat cat contractors who surely put up their prices each year.

As stupid as it sounds we might get to the point where there is no frontline services at all.. but still the same level of taxes.. all going to the fat cats. The Soviet Union got to that point basically during the 1980's. Everyone worked in the bureaucracy somewhere, but no one was actually doing work.

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And this is what is causing inflation not the other way around.Manufacturing plants worldwide running at 30% to 50% capacity.Prices rise because modern manufacturing is all about operational leverage.Most manufacturing could raise production by 50% and youd see prices falling.

What people arent getting is the inflation has already gone through the system,all that credit expansion has already been consumed,.The big problem is malinvestment.Government deficits are supporting a welfare state of consumption not investment.IMO the answers are simple enough.Claw in the welfare state ie benefits at the same time as spending on infrastructure.New roads,new trains,new telecoms.Push the money to the workers alongside massive tax cuts on earnings,income tax,NI,council tax etc.

Of course the other huge problem is China not consuming enough.They need to increase their welfare state to encourage spending.Austerity while printing money that goes straight into commods is a disaster.What we have now is austerity for the workers/people alongside massive printing pushing up prices.

The only way out of this mess is higher dissposable income through higher earnings or lower prices or both.Anthing else will be a disaster.The bankers are still calling all the shots it seems.

I strongly agree wtih your dual stimulus plan.. of coming in with big new infrastructure spending and in addition massive tax cuts for people. Thats why the USA tax deal was so good, 2% tax cut, so someone earning 100k a year has 2k more a year in cold hard cash to spend. That money will flow around the economy.

I thought the political right could take a different approach. Instead of being for austerity against the left's stimulus.. the right could argue for stimulus through tax cuts. And it seems some on the political right in the USA at least have taken ths approach.

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I strongly agree wtih your dual stimulus plan.. of coming in with big new infrastructure spending and in addition massive tax cuts for people. Thats why the USA tax deal was so good, 2% tax cut, so someone earning 100k a year has 2k more a year in cold hard cash to spend. That money will flow around the economy.

I thought the political right could take a different approach. Instead of being for austerity against the left's stimulus.. the right could argue for stimulus through tax cuts. And it seems some on the political right in the USA at least have taken ths approach.

what tax cut?...they just extended the current scheme...which has produced........nada.

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I thought that as well, but apparently there is are two additional tax cuts as well. The super rich get a lower inheritance tax rate and there are some new payroll tax deductions as well.

just checking 0hedge, and apparently they are announcing social benefit cuts in the coming presidential address...

and the debt level is just 200bn short of the lawful ceiling.

so, its tax cuts for the Rich, and benefits losses for the poor.

the trouble with balancing the books, is that a rise in one area where reciepts are culled, then thats a loss in another area...so the net gain in stimulus is 0..less compounding interest.

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All this government is going to do is pass more public services to the private sector, you'll pay more for less and line the pockets of share holders.

The Tories aim is to remove support for the economy

that employs millions of people in the north of England. They are rationalising the country and the result will an even bigger inbalance.

The private sector won't pick up the slack because the banks are no longer interested in traditional retail banking.....they make far more from investments.

Under this government this country will slump into a mire of incompetence. We will be the laughing stock of Europe.

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I strongly agree wtih your dual stimulus plan.. of coming in with big new infrastructure spending and in addition massive tax cuts for people. Thats why the USA tax deal was so good, 2% tax cut, so someone earning 100k a year has 2k more a year in cold hard cash to spend. That money will flow around the economy.

I thought the political right could take a different approach. Instead of being for austerity against the left's stimulus.. the right could argue for stimulus through tax cuts. And it seems some on the political right in the USA at least have taken ths approach.

How do you balance your view for the requirement for infinite economic growth with the ability of us to find cheap resources to support that growth?

The 2000 post dot com bubble stimulus created global malinvestment on a grand scale can we really afford to take that to the next level required to meet a requirement for continued growth.

Take China as one example, how many more cities can they build and leave empty. This uses precious resources and now they are just lying empty. Can we encourage further "growth" in the face of growing resource scarcity? Those homes need to pass from the investors to the normal Chinese citizen and the only way this can be achieved is through a huge crash of the current Chinese miracle economy.

Sadly a global depression is needed to resolves the massive imbalances that are building. Continuing to hide from this fact will just make things worse. The rich will take a greater share of the wealth if they do try and stimulate us to new "growth" and since 09 we have seen the richest wealth explode, can society take this grotesque imbalance?

http://www.dailymail.co.uk/news/article-1339536/Ghost-towns-China-Satellite-images-cities-lying-completely-deserted.html

article-1339536-0C859393000005DC-319_634x475.jpg

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All this government is going to do is pass more public services to the private sector, you'll pay more for less and line the pockets of share holders.

The Tories aim is to remove support for the economy

that employs millions of people in the north of England. They are rationalising the country and the result will an even bigger inbalance.

The private sector won't pick up the slack because the banks are no longer interested in traditional retail banking.....they make far more from investments.

Under this government this country will slump into a mire of incompetence. We will be the laughing stock of Europe.

We are already the laughing stock of Europe.

The state here and in Germany already consume roughly equivalent percentages of GDP. In this country, this consumption is being wasted. In Germany, the consumption is being used to deliver superior services to its citizens.

Somewhere along the way, we lost sight of the fact that the social safety net is supposed to protect those who need help rather than to support the lifestyle of those who purportedly deliver the services to those who need help and to enrich landlords at the public's expense.

The delivery of social services in this country has already slumped into a mire of incompetence.

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How do you balance your view for the requirement for infinite economic growth with the ability of us to find cheap resources to support that growth?

The 2000 post dot com bubble stimulus created global malinvestment on a grand scale can we really afford to take that to the next level required to meet a requirement for continued growth.

Take China as one example, how many more cities can they build and leave empty. This uses precious resources and now they are just lying empty. Can we encourage further "growth" in the face of growing resource scarcity? Those homes need to pass from the investors to the normal Chinese citizen and the only way this can be achieved is through a huge crash of the current Chinese miracle economy.

Sadly a global depression is needed to resolves the massive imbalances that are building. Continuing to hide from this fact will just make things worse. The rich will take a greater share of the wealth if they do try and stimulate us to new "growth" and since 09 we have seen the richest wealth explode, can society take this grotesque imbalance?

clearly the stimulus plan will work a treat, if you want proof look at the stimulus of debt to replace growth that worked so superbly to extend and pretend from 01 to 07, i dont think anyone can sanely argue that we arent in a much better and more stable economic position than 10 years ago

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I strongly agree wtih your dual stimulus plan.. of coming in with big new infrastructure spending and in addition massive tax cuts for people. Thats why the USA tax deal was so good, 2% tax cut, so someone earning 100k a year has 2k more a year in cold hard cash to spend. That money will flow around the economy.

I thought the political right could take a different approach. Instead of being for austerity against the left's stimulus.. the right could argue for stimulus through tax cuts. And it seems some on the political right in the USA at least have taken ths approach.

The state's ability to spend is a fraction of the economy's output plus state borrowing and monetary debasement.

We have already reached the point where the share of the economy's output consumed by the state has reached the point of negative returns. State borrowing is rapidly reaching the point of saturation.

The only choice left is to either debase money or rein in spending. It is in the interests of savers to see spending reined in. It is in the interests of the political class to see money being debased.

I think that we can all guess where we are going.

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clearly the stimulus plan will work a treat, if you want proof look at the stimulus of debt to replace growth that worked so superbly to extend and pretend from 01 to 07, i dont think anyone can sanely argue that we arent in a much better and more stable economic position than 10 years ago

You know that we are in the sh!t when members of the FED use a fairy tale to describe the economic conditions during the extend and pretend from 01...

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Austerity will reduce the effect of peak oil oil by reducing consumption, then why continue to suggest raising GDP is good. Reports from environment conferences want to suggest that we should consume more to save more which is odd.Its Like paying for solar panel that will not pay of for themselves for over ten years, and should they get damaged then they might never make sense. However if say the cost of energy was to treble overnight then strangely they make sense. So is austerity just a politically sensitive way of preparing for the shock of peak oil?

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In what way did Thatcher fail? I remember things being a lot better under her, and her winning 3 elections in a row.

The policies at the time inspired people to work hard and be self sufficient. Today we have policies inspiring people not to bother and be dependent on the work of others.

Sorry but what this should really mean is low taxes, where I spend my money on what I want. Those that dont work dont have any money to spend. Sounds fair to me.

I agree with what you say. Intuitively this makes sense to me. I don't understand when someone says there is no money. Either the resources are there or they're not, money is just a token representing the effort an individual has to put in to get a share of the resources. Money is not a tangible thing there can never be a shortage of it, it can't run out.

As I understand it Thatcher put in place monetarist policies to stop the money tokens being increased. The result was that the public sector, commerce and industry rebalanced to get their share of the available money. Rather than state monopolies being supported by the state they had to make their products and services more competitive so that individuals were prepared to choose to use their products and services. Kinda what the Austrian (Austerian) school of economics desire, but I don't fully follow how they intend to acheive it.

Increasing taxes to take away an individuals choice on how to spend their money won't acheive the same purpose. The problem is not excess demand so increasing taxes to suppress demand seems counter productive to me. But then I'm not an economist so can someone explain?

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I agree with what you say. Intuitively this makes sense to me. I don't understand when someone says there is no money. Either the resources are there or they're not, money is just a token representing the effort an individual has to put in to get a share of the resources. Money is not a tangible thing there can never be a shortage of it, it can't run out.

As I understand it Thatcher put in place monetarist policies to stop the money tokens being increased. The result was that the public sector, commerce and industry rebalanced to get their share of the available money. Rather than state monopolies being supported by the state they had to make their products and services more competitive so that individuals were prepared to choose to use their products and services. Kinda what the Austrian (Austerian) school of economics desire, but I don't fully follow how they intend to acheive it.

Increasing taxes to take away an individuals choice on how to spend their money won't acheive the same purpose. The problem is not excess demand so increasing taxes to suppress demand seems counter productive to me. But then I'm not an economist so can someone explain?

You have distilled the argument down to its essence.

The role of the state is to ensure that its economy makes as many things as possible while protecting those who do not participate in the making of things in the least destructive way possible.

The Germans seem to have worked out how to reconcile these two competing goals. The UK has lost sight of the fact that we need to make things to survive in the long run and that we cannot prosper by simply looking after those who do not make things.

The Chinese and possibly the Indians have lost sight of the fact that making things requires a level of social cohesion in the long run.

The Japanese have shown us that all systems are unstable and that what worked 20 years ago might not work to-day.

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Austerity merely penalises the entire population for the mistakes and failures of the few.

It won't work and never will.

"The few" are generally the politicians. Unfortunately, their excesses need to be purged from the system through austerity programs at the expense of the many.

To repeat my view, Gordon Brown and his henchmen chose to bail out the failed banks and bankers out of hubris rather than necessity.

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"The few" are generally the politicians. Unfortunately, their excesses need to be purged from the system through austerity programs at the expense of the many.

To repeat my view, Gordon Brown and his henchmen chose to bail out the failed banks and bankers out of hubris rather than necessity.

actually nobody penalises anyone except those who recieved the benefit of the excesses of the boom.

the BOOM was the bad times. leading to increased expectations and borrowing...too many beleived they are ENTITLED to a certain lifestyle.

Austerity should just be a return to normal spending with some savings to repay for the past.

BUT, it usually means the weakest in society get it in the breadbasket.

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no, the currency has failed in every country Austerity has been forced.

the currency is NOT the economy.

The economy is the trading of goods and services by the populace.

please everyone, dont confuse the economy with the monetary position of debt holders....thats just money yet to materialise...however, the potato in the pan is there, its real, its going to fill the stomach.

Exactly

Debt is just promises expressed as numbers on databaess. Those promises cannot be met by the people who made them. In any event, the thing that was given to them in return for their promises was a fraud. That is all. It wouldn't matter except the he whole damned world is being held to ransom in order that we don't have to come to terms with the above.

However, as the poster above points out, a potato is still in the pan and it will still feed you.

.....Insanity.

If the likes of the Irish and Greek governments bow to IMF and European bank pressure to be "saved", they will have signed away their own soveriengty and will have sold theirs and descendants freedom down the river

Edited by tallguy
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actually nobody penalises anyone except those who recieved the benefit of the excesses of the boom.

the BOOM was the bad times. leading to increased expectations and borrowing...too many beleived they are ENTITLED to a certain lifestyle.

Austerity should just be a return to normal spending with some savings to repay for the past.

BUT, it usually means the weakest in society get it in the breadbasket.

I see it a bit differently.

It is those of us in the middle who get it in the bread basket. The very top and the bottom of our society are protected from the consequences of poor policy during the boom and confiscatory policy during the bust.

I do concede that the "middle" are going to shrink in numbers during the upcoming restructuring and that change might not occur until the "middle" no longer exists.

I think that this is a different way of expressing the "squeezed middle" argument with different expectations with regards to the outcome than the Coalition arguments.

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Well according to the BOE own figures we have been living a fantasy since the First World War if not since the Napleonic wars

debt-gdp.jpg

uk_debt_300.png

http://www.economicshelp.org/blog/uk-economy/uk-national-debt/

http://www.ukpublicspending.co.uk/debt_brief.php

One assumes those who experienced the austerity of the 1840s and the 1930s lived in a dream world too

Anway I am all for moral hazard but it has to apply to EVERYONE not just particular sub sections of society.

And how does our personal and corporate debt of now confirm to those of other eras?

And what has all the debt we've added in the last decade achieved but unaffordable housing and imported consumer tat.

The big increases in the past were used to beat Napoleon, Prussian militarisma and Hitler.

And are you expecting the rapid economic growth and technological progress of the Victorian era and post WWII period?

And I already know about moral hazard as I live within my means and work in manufacturing. Its about time the public sector learnt a little about it. Unfortunately the bankers got away from it because Gordon Brown bailed them out without conditions.

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