Paul Krugman Attacks Britain's Austerity Drive As 'deeply Destructive'

[(Blizzard)]

I think their chart shows once and for all where most of the UKs debt problems came from:

Either there was a sudden increase in JSA / Incapacity Benefit in 2008, or something else happened

It also puts to bed the theory about Labour being more spendthrift than the Tories. Looks like Tories "spent their way" out of the 90s recession. And were spending more then than Labour did pre-financial crisis.

Labour themselves fell off the wagon in 2002, but even if we'd been running a surplus in 2008, we'd have a circa £100 billion deficit now.

I am still astonished that some of the posters here can't see where the problem is. Public spending is a drop in the ocean compared to the money we had to spend propping up the financial sector. Which is still continuing largely as it was

I think the chart supports the idea that a recession was avoided between 2001 and 2007 by government stimulus - just as Krugman advocates - and that's how we got here. In other words, spending has masked problems, but in doing so has made them far worse.

The UK economy has major structural problems - such as the crippled housing 'market' - which no amount of government spending will fix. Krugman thinks our problems are the same as America's problems or Europe's problems, which is wrong.

Frankly I think the 'public' vs 'private' spending argument just isn't that relevant in the UK, since our private sector seems just as incapable of making real productive investments as out public sector.

Edited May 31, 2012 by (Blizzard)

[R K]

It does suggest that for both Labour / Con from the 1990's onwards the only way to keep the UK economy going was ever larger govt deficit spending.

Rather than face reality and fix the structural problems they papered over the cracks with debt.

Think it through.

What happened in the 80/90s which required western govts. to start running deficits?

What global structural changes took hold?

Why have these global changes made tinkering around with irrelevancies such as JSA or child tax benefits a pathetic distraction?

Why have interest rates got nothing whatsoever to do with Krugman?

Come on........THINK FFS!

[(Blizzard)]

Think it through.

What happened in the 80/90s which required western govts. to start running deficits?

What global structural changes took hold?

Why have these global changes made tinkering around with irrelevancies such as JSA or child tax benefits a pathetic distraction?

Why have interest rates got nothing whatsoever to do with Krugman?

Come on........THINK FFS!

The death of Freddy Mercury?

[sleepwello'nights]

High raw material / input costs is reflected in the balance of trade.

What I find odd is a positive balance of trade, a positive current account balance, but a deficit.

Are they...

i) Servicing enormous debts?

ii) Spending huge amounts of money on investment - so much they are running up debts?

iii) Producing economic figures that don't stack up as there has been some massaging?

Could they be using all the dollars they are accumulating and as much as they can borrow to purchase all the natural resources in Africa

Edited May 31, 2012 by sleepwello'nights

[wonderpup]

The austerity is required because only by collectively taking a cut in living standards can we pay back the debt and rebalance the wealth .

I don't remember the benefits of that debt creation being 'collectively' shared though- only the downside. On the way up it was private gain- on the way down it's a civic responsibility- funny that.

[frederick]

I don't remember the benefits of that debt creation being 'collectively' shared though- only the downside. On the way up it was private gain- on the way down it's a civic responsibility- funny that.

The private gain was mainly waste, war in Iraq, war in afganistan, 600,000,000 wasted on a fire coordination computer system that didn't work. Building new schools just for the sake.

[bmf]

Very interesting, thanks.

In fact having seen all 6 pieces now via youtube I'd add that it's quite chilling. You can see Goldsmith feels this is true in his bones and is desperate to impart it. God what a mess.

Edited May 31, 2012 by bmf

[alexw]

Can I just ask for / raise a couple of points of clarification please?

Firstly, the charts tell us nothing about the benefits or otherwise of austerity.

Secondly, are you sure the structural deficit includes ANY direct costs related to GB bailout, I thought it didn't.

Thirdly, there is no point in just looking at government debt or deficit. Thanks to the banker bailing ex PM we are also effectively on the hook for all the private deficits run up by the banks and individuals during his tenure.

The austerity is required because only by collectively taking a cut in living standards can we pay back the debt and rebalance the wealth .

There needs to be austerity , spending money on a massive state will not generate real growth, it just kicks the can.

We need to cut back on spending and deleverage our economy, yes that means negative growth and the role of the state should be to alleviate the effects by investing in real value projects partly by further long te borrowing and partly by taxing the wealth that has been built up.

The fact remains the annual structural deficit needs wiping in order to reverse and pay back .

What exactly did we need hundreds of billions for in the years 2003-7 that we didn't seem to need before that. ? I am 44 and don't ever recall the population going hungry or cold in the 90's so why the increase? And before you pointlessly point to the deficit that is irrelevant . There were massive tax receipts increasing over that time compared to earlier years and we know for a fact that that extra tax was put on the national credit card by the taxpayers.

I don't much care for the current government or for ken Clarke or john major but don't try and pretend for a single second that Gordon Brown did not ****** this country up the **** with his banker friends.

Umm no.

Austerity as being discussed does not solve the problem whatsoever. There are two issues the first is that there are trillions in bad debts hidden in the banks with offsheet accounting and various other frauds. The system cannot and will not recover until these bad debts are purged. Currently we are trying to slowly cut spending in real terms but this is being massively outweighed by bad debts being realized. Ask yourself how much in the past year has the UK contributed to bailing out EU banks, and bailing out individuals via benefits because of what results from individuals/businesses being overloaded with debt. There is simply no way the government can cut discretionary spending enough to pay for the all bad debts. The debts are simply too large.

The second issue is due to inequality. Taxes mostly act as a redistributive mechanism to keep society functioning. Its a bit of a chicken-egg scenario but it does seem to be that taxes have been rising over the past two decades mostly to counterbalance the rising inequality our society has seen. If we want to keep our society cohesive and whole then as inequality rises redistribution must also increase and that de facto means tax rises.

But now given the debts that need to either be paid or defaulted upon our government has a choice. It can either say no and let the debts be defaulted upon or gradually cut redistributive mechanisms year on year on year in order to redirect the payments to attempt to make sure the debts are not defaulted upon. It will of course fail in the end because the debts are too large but it still can try.

Thus two scenarios,

Continual gradual death of a thousand cuts with rising poverty for the masses with a tiny elite growing ever more wealthy and powerful until eventual collapse, either through debt overwhelming the system and/or the masses rising up and choosing a new order (as is happening in greece with Syriza).

Or wholesale debt reputation. The wealthy will lose most of their wealth. Their will of course be some natural austerity involved but small to moderate in scale, since as debt is repudiated worker and government income is freed up from debt service payments and counterbalances most of the fallout from debt repudiation.

Scenario one is greece, portugal, spain.

Scenario two is argentina (2002) and to an extent iceland though it has only partially defaulted.

[Game_Over]

Yes - I suppose that sounds more satisfyingly contradictory and irrefutably wrong - by which I mean totally misleading.

By all means have the academic debate the ideal State size. Whatever. If we defined the size of the State by borrowing alone, looking at the graph we have effectively multiplied its size by what 5x ? I think we have a bigger problem than the 'underlying' problem.

For a reductio absurdum: we are choosing between completely destroying the state for the sake of the banks (i.e. do not borrow a penny) or we blithely carry on as if nothing had happened and happily borrow/spend our way to the next and bigger financial armageddon (borrow as before + cost of propping up banks).

Socialism Botherers and Socialism Dawkinists will pick their prejudice - equally destructive in principle. However, it would be electoral suicide for the latter to sell austerity as a wonderful excuse to shrink the state.

The reality is we will borrow whatever happens its just a matter of degree - so the argument is simply ignorant. The question is how much ? How much cutting to keep the wolf from the door while ensuring enough 'borrowing reducing' income to fund the soup kitchens and maybe even a future for the general population?

As a technical aside, I would be interested to know what the inflation adjusted graph would look like. And to counter that I would be interested to know what our off-books liabilities are - what about all those dodgy PFI contracts ?

Of course we will continue to borrow - the argument is over the direction of travel and the extent

The best scenario would be to reduce borrowing, however, not increasing borrowing at an ever accelerating rate would be a good start.

Obviously if debt interest continues to account for a larger and larger share of government revenue then catastrophe is unavoidable.

The idea that growth, fueled by ever increasing government borrowing is the answer, however, is an absurdity.

[Game_Over]

Umm no.

Austerity as being discussed does not solve the problem whatsoever. There are two issues the first is that there are trillions in bad debts hidden in the banks with offsheet accounting and various other frauds. The system cannot and will not recover until these bad debts are purged. Currently we are trying to slowly cut spending in real terms but this is being massively outweighed by bad debts being realized. Ask yourself how much in the past year has the UK contributed to bailing out EU banks, and bailing out individuals via benefits because of what results from individuals/businesses being overloaded with debt. There is simply no way the government can cut discretionary spending enough to pay for the all bad debts. The debts are simply too large.

The second issue is due to inequality. Taxes mostly act as a redistributive mechanism to keep society functioning. Its a bit of a chicken-egg scenario but it does seem to be that taxes have been rising over the past two decades mostly to counterbalance the rising inequality our society has seen. If we want to keep our society cohesive and whole then as inequality rises redistribution must also increase and that de facto means tax rises.

But now given the debts that need to either be paid or defaulted upon our government has a choice. It can either say no and let the debts be defaulted upon or gradually cut redistributive mechanisms year on year on year in order to redirect the payments to attempt to make sure the debts are not defaulted upon. It will of course fail in the end because the debts are too large but it still can try.

Thus two scenarios,

Continual gradual death of a thousand cuts with rising poverty for the masses with a tiny elite growing ever more wealthy and powerful until eventual collapse, either through debt overwhelming the system and/or the masses rising up and choosing a new order (as is happening in greece with Syriza).

Or wholesale debt reputation. The wealthy will lose most of their wealth. Their will of course be some natural austerity involved but small to moderate in scale, since as debt is repudiated worker and government income is freed up from debt service payments and counterbalances most of the fallout from debt repudiation.

Scenario one is greece, portugal, spain.

Scenario two is argentina (2002) and to an extent iceland though it has only partially defaulted.

So the whole basis of your philosophy is that defaulting and removing debt interest payments from the deficit would result in governments running a balanced budget which would mean they would not have to cut in order to avoid returning to the markets.

Sorry - but the figures just don't add up.

Any country defaulting has also to endure huge cuts and this is why Greece does not want to leave the Euro - because they want to continue living way beyond their means by spending other peoples money.

[Sir Harold m]

So the whole basis of your philosophy is that defaulting and removing debt interest payments from the deficit would result in governments running a balanced budget which would mean they would not have to cut in order to avoid returning to the markets.

Sorry - but the figures just don't add up.

Any country defaulting has also to endure huge cuts and this is why Greece does not want to leave the Euro - because they want to continue living way beyond their means by spending other peoples money.

+1. He made absolutely valid arguments but based it all on a total falsehood thus rendering the argument baseless

[wonderpup]

There is a strange paradox here in that the argument presented by the banksters goes like this:

In order to preserve your prosperity and way of life you must live in poverty and abandon democracy.

The reality is that the people who have the most to lose here are the people who gained the most- and they are desperate to avoid the loss of the psuedo wealth that their ponzi schemes have created.

'Austerity' is about diverting resources to debt repayment to ensure that the 1% hang on to their wealth- even if this means ruination for the rest of us.

[pig]

There is a strange paradox here in that the argument presented by the banksters goes like this:

In order to preserve your prosperity and way of life you must live in poverty and abandon democracy.

The reality is that the people who have the most to lose here are the people who gained the most- and they are desperate to avoid the loss of the psuedo wealth that their ponzi schemes have created.

'Austerity' is about diverting resources to debt repayment to ensure that the 1% hang on to their wealth- even if this means ruination for the rest of us.

Sort of puts some perspective on the bankers bonus debate doesn't it ?

[alexw]

So the whole basis of your philosophy is that defaulting and removing debt interest payments from the deficit would result in governments running a balanced budget which would mean they would not have to cut in order to avoid returning to the markets.

Sorry - but the figures just don't add up.

Any country defaulting has also to endure huge cuts and this is why Greece does not want to leave the Euro - because they want to continue living way beyond their means by spending other peoples money.

You seem not to understand.

Most of us, the bottom 90% of society or so is a net payer of interest on debt. This holds true even if you have no debt yourself. Even if you are debt free you are buying goods and services from those who must pay interest on debt and thus you must pay more for goods and services than you would otherwise would. You can imagine it as a great root system entangling the bottom 90% of society channeling interest from debt to the top 10% of our societies.

A default on unpayable debts includes a mass of corporate, government and household debt, arising from the debt fueled bubble that grew over the last 30 years. That frees us (or mostly frees us) from that great system of channeling money/wealth upwards. Without that the wealth of the elites collapses, and much of the growing redistributive effect of the government is nolonger needed. Thus the government can cut and the masses are still better off, their is no austerity, as any cuts are outweighed by the lifting of the debt burden.

P.S. For Greece if the interest payments are stripped out government spending was in near balance with tax revenues last year. With the continuing collapse that may have changed however.

Edited June 1, 2012 by alexw

[PopGun]

......other idiots??

oh yes, and those who dish out Nobel prizes?

oh well when you but it like that.............

[PopGun]

Austerity is a smokescreen to appease the markets. The debt can never be paid back, but we can still pretend. It's the actual corresponding deficit and debt hysteria that's doing the actual damage, hence why most of the cuts are still in the private sector.

Actual Cuts/Austerity will never work as we’d never be able to cut enough against the debt interest to make any difference. Akin to sending hundreds of men over the top to die in vain in WW1 trench warfare, and shooting in the face anyone who refuses to partake in the madness.

Borrowing/spending is no longer an option either, and arguably helped to creat this mess in the first place. There’s only so much cr4p you can hide under the rug, and this isn't the time for one trick ponies.

The only solution is to decapitate the beast, not feed or appease it.

[LiveAndLetBuy]

a bit more PFI maybe, Sir?

Course, the PFI doesnt show up in that chart, not directly,,, not till payments are being made.

Why not just print and spend?

(We might as well cut out the private lender who is ultimately backed by the state anyway)

[Jack's Creation]

You seem not to understand.

Most of us, the bottom 90% of society or so is a net payer of interest on debt. This holds true even if you have no debt yourself. Even if you are debt free you are buying goods and services from those who must pay interest on debt and thus you must pay more for goods and services than you would otherwise would. You can imagine it as a great root system entangling the bottom 90% of society channeling interest from debt to the top 10% of our societies.

A default on unpayable debts includes a mass of corporate, government and household debt, arising from the debt fueled bubble that grew over the last 30 years. That frees us (or mostly frees us) from that great system of channeling money/wealth upwards. Without that the wealth of the elites collapses, and much of the growing redistributive effect of the government is nolonger needed. Thus the government can cut and the masses are still better off, their is no austerity, as any cuts are outweighed by the lifting of the debt burden.

P.S. For Greece if the interest payments are stripped out government spending was in near balance with tax revenues last year. With the continuing collapse that may have changed however.

Have you got any figures for this? Is this figure net of the EU bailout money and post previously implemented cuts? How are future unfunded liabilities weighted?

Can you also clarify exactly what you mean by net payer of interest on debt?

[fluffy666]

Why not just print and spend?

(We might as well cut out the private lender who is ultimately backed by the state anyway)

Could easily print and spend perhaps 5% of GDP on a sustainable basis. Would have to balance the rest of the budget pretty strictly.

[Bloo Loo]

Why not just print and spend?

(We might as well cut out the private lender who is ultimately backed by the state anyway)

why have money at all?...people just take what they need.

[dredwerker]

There are no Keynesian economists on the planet. It would certainly be interesting to see what Keynes would make of the current situation. I suspect he would be livid that we are in a similar position to that of the great depression. I wonder if he'd rip Krugman apart for his stupidity.

A debate between Hayek, Keynes and Krugman would be fun, everyone would see how inept Krugman really is.

The guardian chart is also interesting as it perhaps indicates Labour was already trying to fight a economic "bust" before the financial collapse.

I can't comment on Krugman but the other two on Newsnight were idiots. They started the whole household debt nonsense, trying to relate to the masses. The bank guy came up with Estonia as an example of well performing country, Krugman just ignored him. They looked like morons and got pwned. I was on twitter at the time and that was the consensus of most comments.

I think there is some merit in investing your way out of a recession as long as it is on capital projects/businesses that will make money, instead of benefits, olympics and bailouts.

[nixy]

why have money at all?...people just take what they need.

'cos they'll take what they want.......funny, tho, how honestly boxes work in some areas? (veg at road side)

[interestrateripoff]

I can't comment on Krugman but the other two on Newsnight were idiots. They started the whole household debt nonsense, trying to relate to the masses. The bank guy came up with Estonia as an example of well performing country, Krugman just ignored him. They looked like morons and got pwned. I was on twitter at the time and that was the consensus of most comments.

I think there is some merit in investing your way out of a recession as long as it is on capital projects/businesses that will make money, instead of benefits, olympics and bailouts.

That is the trick unfortunately cronyism gets in the way and you end up "investing" in the wrong areas.

Rover was allowed to go bust, yet it's rescue would have cost a fraction of what was used to bailout the banks.

[Jack's Creation]

That is the trick unfortunately cronyism gets in the way and you end up "investing" in the wrong areas.

Rover was allowed to go bust, yet it's rescue would have cost a fraction of what was used to bailout the banks.

QE was to bail out the Govt, not the banks. They just used the commercial banks to recycle the gilt money back into it's own coffers so it didn't fall foul of the Maastricht treaty.

[OnlyMe]

I can't comment on Krugman but the other two on Newsnight were idiots. They started the whole household debt nonsense, trying to relate to the masses. The bank guy came up with Estonia as an example of well performing country, Krugman just ignored him. They looked like morons and got pwned. I was on twitter at the time and that was the consensus of most comments.

I think there is some merit in investing your way out of a recession as long as it is on capital projects/businesses that will make money, instead of benefits, olympics and bailouts.

Here''s the clip.