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Spooked Into Austerity, We Dig Our Own Economic Grave

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http://www.guardian.co.uk/commentisfree/2011/sep/13/spooked-austerity-economic-grave

The stupidity of the current macroeconomic stance in the UK is surprising in itself; but when combined with similar voices in Europe and the US, it is downright astonishing. Three years after the collapse of Lehman Brothers, the global economy is not going through a recovery from financial crisis, but simply entering act two after a brief intermission. On current form this play is a farce that will end in tragedy.

Policy discussion on both sides of the Atlantic is dominated by extreme fiscal hawks, who wrongly see public spending as the problem rather than at least part of the solution. The emphasis on fiscal rectitude is accompanied by the inability to rein in finance. All this condemns economies to financial instability, depressed and even contracting GDP and worsening conditions for ordinary citizens.

Consider: the UK government's focus is still on cutting the budget deficit, though the economy is not just tottering but into the downswing already. The Vickers report on controlling the financial sector is well-intentioned but so modest as to tend to irrelevance. It misses essential points about the financial system, and the lengthy grace period it awards to banks (more than seven years before they have to ringfence their operations) risks being completely overtaken by the likely future volatility in banking.

Part of the problem is that the bulk of the mainstream economics profession has forgotten basic Keynesian macroeconomics, and so is unable to offer even the most obvious advice. But the other aspect of the problem is deeper, reflecting the class configurations that create and intensify the mess. The choice between increasingly futile and counterproductive monetary easing and dithering about policies oriented to more austerity to satisfy bond markets is ultimately a political one, reflecting the continued power of finance.

There are some voices of sanity. The 2011 Unctad trade and development report makes the point that fiscal tightening, especially in the advanced economies, is likely to be self-defeating. It will reduce GDP growth and revenues – not just bad news for a sustained recovery but counterproductive for fiscal consolidation.

.......

Of course, how this is done matters. Tax cuts (especially on the rich) are less effective than spending on infrastructure, social transfers and subsidies. Multiplier effects are higher when public spending is directed to lower-income groups that have higher propensity to spend their incomes. How could any government, including in the UK, ignore this obvious point?

Arguments that cuts are necessary to appease financial markets are specious. Fiscal imbalances were a result of the financial crisis, not a cause of it: public bailouts accounted for a large part of Ireland and Spain's deficit.

Meanwhile, attempts to rein in banks have been limited – and strong re-regulation is required, not the namby-pamby approach of the Vickers report. The Unctad report points the way. Controls have to be tighter on the "too-big-to-fail" institutions. But re-regulation alone will not orient credit to real investment or make it accessible to small and medium-sized firms.

An article that fails to mention that the cause of the problem is debt and the only way we can spend on infrastructure is to generate even more debt.

To be a Keynesian and spend money to grow your way out first you need to have saved a surplus from the boom years, this no one has done.

Although the too big to fail institutions have been allowed to become even bigger....

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she asserts that the west has forgotten about Keynesian economics - they haven't, it is simply that microeconomics play a part as well, and Keynesian stimulus needs to be balanced against the need to bring down debt, instead of being used as an excuse to keep on stimulating her own personal economic situation with more government cash

academic economists are self-selecting lefties as no-one will offer them a well paying job outside academia

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http://www.guardian.co.uk/commentisfree/2011/sep/13/spooked-austerity-economic-grave

An article that fails to mention that the cause of the problem is debt and the only way we can spend on infrastructure is to generate even more debt.

To be a Keynesian and spend money to grow your way out first you need to have saved a surplus from the boom years, this no one has done.

Although the too big to fail institutions have been allowed to become even bigger....

...sounds like it was written by Gordo Clown.... :rolleyes:

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Arguments that cuts are necessary to appease financial markets are specious. Fiscal imbalances were a result of the financial crisis, not a cause of it: public bailouts accounted for a large part of Ireland and Spain's deficit.

While this quote is technically correct, I think, it misses the point. The fiscal position grew as the economy grew, when that growth was revealed as a bubble and so illusory, the corollary was that the fiscal position was also illusory. However, that cannot be faced, so we are left with a fiscal imbalance. But it is a real imbalance, because the economy in a non-bubble state can't support it. It has to be dealt with to move on,

Peter.

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The choice between increasingly futile and counterproductive monetary easing and dithering about policies oriented to more austerity to satisfy bond markets is ultimately a political one, reflecting the continued power of finance.

er...who else is going to provide the money for your (borrowed money) public spending?

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er...who else is going to provide the money for your (borrowed money) public spending?

the silly woman is a wordsmith - often , from academic social scientists, to hiude b0ll0cks, they spout syllables instead, and sound all educated

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the silly woman is a wordsmith - often , from academic social scientists, to hiude b0ll0cks, they spout syllables instead, and sound all educated

perhaps we should borrow, spend (I mean waste) and default ...

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You also forget resources are becoming more scarce, the planet is finite and developing countries are now competing for the same resources the western world use to fight over.

A serious downgrade of the western world is happening right now, the art for the Global Elites is to get all the horses over the finishing line together if one was to imagine each country being a horse.

In which case, we should be investing in thngs that will make resources more abundant.. i.e. Nuclear power, closed system recycling, bio engineered food production, synthetic fuels, vastly improved telepresence, etc..

The complete lack of ambition amongst the political classes on these subjects is more than a bit depressing..

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The cause of the problem isn't debt.

It's imbalances.

Every asset is also a liability.

How could any government, including in the UK, ignore this obvious point?

'Cause they exist for the benefit of the rich, the landowners and the bankers. Duh!

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In which case, we should be investing in thngs that will make resources more abundant.. i.e. Nuclear power, closed system recycling, bio engineered food production, synthetic fuels, vastly improved telepresence, etc..

The complete lack of ambition amongst the political classes on these subjects is more than a bit depressing..

I think you have missed the important one: manufacturing for export ...

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er...who else is going to provide the money for your (borrowed money) public spending?

Corporates are sitting on $2 trillion of savings. They're awash with the stuff.

China is falling over itself to lend to Europe to keep their export model going.

It seems only Osborne (oh and nutters like Bachmann) wilfully ignore the obvious.

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She is right though, isn't she?

It's just simply not working.

Not too sure about the proposed solution though as the boom was bogus. Any surplus was already spent maintaining the illusion.

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The trouble with ALL these stimulistas is they ALL think where we want to be is back at 2005.

No, stimulus isnt bad in itself. But applied in the ways of Krugman, Posen, Blanchflower et al, ie consumption stimulus, ALL we get is lousy inflation.

We need production stimulus. Once people are getting income from producing, consumption will follow.

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Corporates are sitting on $2 trillion of savings. They're awash with the stuff.

China is falling over itself to lend to Europe to keep their export model going.

It seems only Osborne (oh and nutters like Bachmann) wilfully ignore the obvious.

Italy just paid more than 5% for 5 year bonds ...

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The trouble with ALL these stimulistas is they ALL think where we want to be is back at 2005.

No, stimulus isnt bad in itself. But applied in the ways of Krugman, Posen, Blanchflower et al, ie consumption stimulus, ALL we get is lousy inflation.

We need production stimulus. Once people are getting income from producing, consumption will follow.

Good points.

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she asserts that the west has forgotten about Keynesian economics - they haven't, it is simply that microeconomics play a part as well, and Keynesian stimulus needs to be balanced against the need to bring down debt, instead of being used as an excuse to keep on stimulating her own personal economic situation with more government cash

academic economists are self-selecting lefties as no-one will offer them a well paying job outside academia

Any evidence for your assertion about academic economists? My impression is that the higher proportion are right-leaning monetarists, though they definitely fall into certain camps by institutions historical allegiances.

Meanwhile, the 'successful' economists in well-paying jobs across the city institutions - free-market right wingers generally - managed to fail to predict the global economic meltdown of the banking system...

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Any evidence for your assertion about academic economists? My impression is that the higher proportion are right-leaning monetarists, though they definitely fall into certain camps by institutions historical allegiances.

Meanwhile, the 'successful' economists in well-paying jobs across the city institutions - free-market right wingers generally - managed to fail to predict the global economic meltdown of the banking system...

good call - my sentence was poorly formed, there are of course plenty of right wing academic economists

i should rephrase my first sentence "a disturbing number of academic economists who have not held private sector positions..."

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Meanwhile, the 'successful' economists in well-paying jobs across the city institutions - free-market right wingers generally - managed to fail to predict the global economic meltdown of the banking system...

MOST economists missed this - those that did see it include (lefty) Krugman 'the return of depression economics' (great book) written in 2000, and Peter Schiff (very right wing)

Edited by Si1

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perhaps we should borrow, spend (I mean waste) and default ...

I suspect that this is the plan that our governments are working to - except that the default will be a 'soft' one via debasement. More fool to anyone who lends them money.

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Corporates are sitting on $2 trillion of savings. They're awash with the stuff.

China is falling over itself to lend to Europe to keep their export model going.

It seems only Osborne (oh and nutters like Bachmann) wilfully ignore the obvious.

The corporates are sitting on piles of credit, not savings, but I agree with the thrust of your point.

However, the question is: why aren't they spending it? If there were good things for them to invest in, don't you think they would rather do that than sit on it, perhaps with a negative real return?

If you want to prod them with a stick, let some banks fold and the markets will drive them to spend their credit, before it becomes worthless. At least then they may invest in their business and employment, rather than leaving the government waste machine to munch away on it.

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http://www.guardian.co.uk/commentisfree/2011/sep/13/spooked-austerity-economic-grave

An article that fails to mention that the cause of the problem is debt and the only way we can spend on infrastructure is to generate even more debt.

To be a Keynesian and spend money to grow your way out first you need to have saved a surplus from the boom years, this no one has done.

Although the too big to fail institutions have been allowed to become even bigger....

Keynesianism only works when you are within reasonable debt limits such as 5% GDP. And only when it is spent on something which will assist the economy like infrastructure. Saving dead duck industry which will never be profitable is just making debts bigger. Spending on pointless council activity is the same. Thw writer of the article has not seen enough graphs on the reducing returns of deficit financing which become actually negative evntually - and they would be now for almost anything but essential maintenance.

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Keynesianism only works when you are within reasonable debt limits such as 5% GDP. And only when it is spent on something which will assist the economy like infrastructure. Saving dead duck industry which will never be profitable is just making debts bigger. Spending on pointless council activity is the same. Thw writer of the article has not seen enough graphs on the reducing returns of deficit financing which become actually negative evntually - and they would be now for almost anything but essential maintenance.

I've seen this graph for the USA over at Market Ticker, whether it has reached negativity, it was almost there. Does a similar graph exist for the UK.

The argument on the left is that keeping people busy with debt-created work is the thing to do, and that 'magic' will happen. Like you say, we are probably long past the point of no return. TPTP will simply not cut out the cancer behind the problem. The reset button needs to be pressed.

edit: 'Market Ticker' of course, not 'Market Ticket'

Edited by tinker

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You dont think restriction of human births would be better? Afterall how many people are really carrying out an activity that will further the human race? The vast majority are engaged in activities that support the consumer lifestyle, very few people make breakthroughs, but those breakthroughs tend to be in the main from scientists.

Considering that most of our problems simply wouldn't exist if there were far fewer people? We should be looking at acceptable ways to achieve this, but TPTB prefer to ignore it (who wants to have to face a difficult issue, particularly when there's still enough around for them to loot to keep themselves happy?)

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I've seen this graph for the USA over at Market Ticket, whether it has reached negativity, it was almost there. Does a similar graph exist for the UK.

The argument on the left is that keeping people busy with debt-created work is the thing to do, and that 'magic' will happen. Like you say, we are probably long past the point of no return. TPTP will simply not cut out the cancer behind the problem. The reset button needs to be pressed.

Forcing kids into debt slavery is also completely immoral too. Not that morality would get in the way of the violent, thieving, state though.

edit: typo

Edited by Traktion

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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