Usa 'grows' It's Way Out Of Debt

[Dr_Mibbles]

Except Mr Krugman very astutely not to put in a time frame and says nothing about what would happen with a highly indebted economy with a weak economy (i.e Japan).

I think Japan will settle this argument once and for all in a few years,

Krugman has been supportive of the Japanese efforts to re-inflate their economy, so yes, it will provide an interesting case study.

That said, Japanese debt levels are vastly higher than... well, everyone elses, so I'm not sure you could assume whatever happens (be it good or bad) would replicate elsewhere. Japan, for example, has low unemployment and very high savings ratios (unlike us!).

[Dr_Mibbles]

(double post)

Edited May 18, 2013 by Dr_Mibbles

[Dr_Mibbles]

I haven't posted any figures. I've asked you, with quite considerable patience, to justify your dismissal of figures others have posted.

I'll say it again: they are different to CBO figures, which are universally accepted. If they are different, then any reasonable person will assume they are wrong. I don't need to elaborate further - you're entitled to believe whatever fantasy figures you like from random blogs, but don't expect me to accept them.

[easy2012]

Krugman has been supportive of the Japanese efforts to re-inflate their economy, so yes, it will provide an interesting case study.

That said, Japanese debt levels are vastly higher than... well, everyone elses, so I'm not sure you could assume whatever happens (be it good or bad) would replicate elsewhere. Japan, for example, has low unemployment and very high savings ratios (unlike us!).

No and No for both nowadays.

I know I know...the official single number says otherwise and part time employment counts are employment, and women not wanting to work due to cultural or whatever reason are removed from the denominator.

Krugman is supportive of any effort of government stimulating the economy, shame that he still focus more in academia/research when Mugabe did his experiment. However, he did not take up the offer to support effort to build the death star though..

and OECD says UK has higher saving rate than Japan 4.x% vs 2.x% nowadays.

http://www.oecd-ilibrary.org/economics/household-saving-rates-forecasts_2074384x-table7

Edited May 18, 2013 by easy2012

[Bloo Loo]

No and No for both nowadays.

I know I know...the official single number says otherwise and part time employment counts are employment, and women not wanting to work due to cultural or whatever reason are removed from the denominator.

Krugman is supportive of any effort of government stimulating the economy, shame that he still focus more in academia/research when Mugabe did his experiment. However, he did not take up the offer to support effort to build the death star though..

and OECD says UK has higher saving rate than Japan 4.x% vs 2.x% nowadays.

http://www.oecd-ilib...2074384x-table7

may I be so bold to suggest that Government wanting to keep the zombies going by issuance and debt are supporting Krugman....he therefore supports them.

It is bad Governments that give Krugman his voice...and the more that can get away with this nonsense, the more other Governments will listen.

This is all explained in the BUST phase of Austrian Economics lectures. If anyone wants a link :

[Guest_GradualCringe_*]

Except Mr Krugman very astutely not to put in a time frame and says nothing about what would happen with a highly indebted economy with a weak economy (i.e Japan).

This is why one reason I find the pro-interventionist argument to be so utterly dishonest (aside from the fake austerity argument). There's no concrete plan except to throw money into the economy for an indefinite period of time, without any defined limits, or objective measure that would indicate when such a process should be stopped.

[Guest_GradualCringe_*]

All that government stimulus to the political entrepreneurs not only massive waste, but continuing such stimulus is often pouring money into declining sectors that have already more than had their economic heyday.

Makes costs higher for competing emerging firms, the market entrepreneurs, that don't have favoured backing and government money to waste on over-paid and badly built projects, as well as giving them access to a smaller market share.

Governments have a long and chequered history of picking winners, the UK has its own examples, such as British Steel, British Leyland, etc. (all referred to colloquially at the time as the "lame ducks").

It's why I cannot take seriously the claims of "pro-growth" government spending.

As for the claim that deficit spending can be used for the purposes of austerity, it's a logical contradiction. Government spending always favours one party over another, and allows that one chosen group to consume at the expense of the rest (through inflation), without actually producing more. It basically amounts to little more than cooking the books so certain favoured groups do not have to face the consequences of their actions.

Edited May 18, 2013 by GradualCringe

[Bloo Loo]

This is why one reason I find the pro-interventionist argument to be so utterly dishonest (aside from the fake austerity argument). There's no concrete plan except to throw money into the economy for an indefinite period of time, without any defined limits, or objective measure that would indicate when such a process should be stopped.

but that is the whole point of Krugmans argument....there are no time limits because the debt doesnt matter....inflation makes todays debt worth less in the future....he argues that a £1 today being £100 in 100 years is irrelevent, becuase its purchasing power will be taken care of by wage increases.

What he deliberately omits is that the very size of Government is a drain on the wealth production of the community....easy money and easy spending means Governments dont have to be careful...they simply grow and grow.

Its this point that the austrians point out time and again...without restraint...Governments take over and bust the whole thing...

[Guest_GradualCringe_*]

but that is the whole point of Krugmans argument....there are no time limits because the debt doesnt matter....inflation makes todays debt worth less in the future....he argues that a £1 today being £100 in 100 years is irrelevent, becuase its purchasing power will be taken care of by wage increases.

What he deliberately omits is that the very size of Government is a drain on the wealth production of the community....easy money and easy spending means Governments dont have to be careful...they simply grow and grow.

Its this point that the austrians point out time and again...without restraint...Governments take over and bust the whole thing...

I agree, and it completely abrogates Mr. Krugman of having to really define any objective measure of success or failure, other than that spending is good (tell that to the poor people caught up in a hyperinflation when the decision to either spend immediately or hold government issued currency for more than a day two, becomes the difference between eating or going hungry).

Edited May 18, 2013 by GradualCringe

[Mr Jib Fingers]

I always ask the same question on these threads and have never got a satisfactory reply.

If higher government spending leads to economic growth and reduced deficits, then why after a decade of higher government spending has the deficit increased massively?

[easy2012]

This is why one reason I find the pro-interventionist argument to be so utterly dishonest (aside from the fake austerity argument). There's no concrete plan except to throw money into the economy for an indefinite period of time, without any defined limits, or objective measure that would indicate when such a process should be stopped.

Indeed so.

Not even Stalin would accept a project with no end date, no end budget other than a word of "keep going" printed on it.

[easy2012]

I always ask the same question on these threads and have never got a satisfactory reply.

If higher government spending leads to economic growth and reduced deficits, then why after a decade of higher government spending has the deficit increased massively?

Because true economist ignores inconvenient facts.

[Bloo Loo]

I always ask the same question on these threads and have never got a satisfactory reply.

If higher government spending leads to economic growth and reduced deficits, then why after a decade of higher government spending has the deficit increased massively?

thats becuase your question is wrong.

If higher government spending leads to economic growth and reduced deficits, then why after a decade of higher government spending has the deficit increased massively?

should read :

Does higher government spending leads to economic growth?

The answer is yes...in GDP terms...so if a GDP recession is found in the real economy, then it can be negated by borrowing and spending a bit more...hence, while real productive activity is falling, deficits make up for the loss...and GDP is saved.

Take this to extreme and see what happens where everyone works for the Government.....and see if you can make GDP stay level...of course, you can...you just borrow the non existent tax take ( apart from the circle jerk of Government employees paying their PAYE).

[Mr Jib Fingers]

thats becuase your question is wrong.

If higher government spending leads to economic growth and reduced deficits, then why after a decade of higher government spending has the deficit increased massively?

should read :

Does higher government spending leads to economic growth?

The answer is yes...in GDP terms...so if a GDP recession is found in the real economy, then it can be negated by borrowing and spending a bit more...hence, while real productive activity is falling, deficits make up for the loss...and GDP is saved.

Take this to extreme and see what happens where everyone works for the Government.....and see if you can make GDP stay level...of course, you can...you just borrow the non existent tax take ( apart from the circle jerk of Government employees paying their PAYE).

I always think GDP should have debt subtracted from it, otherwise it is essentially a meaningless measure.

[Dr_Mibbles]

I always ask the same question on these threads and have never got a satisfactory reply.

If higher government spending leads to economic growth and reduced deficits, then why after a decade of higher government spending has the deficit increased massively?

I'm sure you aware that the deficit was caused by the global financial crisis, and the resulting collapse in tax revenues. In fact, in 2008 before the crisis hit, our deficit and debt levels were much lower than when the Tories handed over power in 1997.

The question, then, is how to react to a once-in-a-lifetime economic shock. Government spending was never the problem - it was private debt (sub-prime mortgages) and highly leveraged financial institutions which caused and deepened the crisis.

Government spending in the UK has declined in real terms since 2010, and important 'growth enhancing' expenditure such as investment in building/infrastructure has collapsed by more than 50%. Spending on the automatic stablisers (benefit payments) has increased, and this is the price of failure.

Overall, then, austerity has been disastrous and entirely self-defeating. Our deficit has increased because austerity has removed demand from the economy during a time where consumers and businesses tried to pay down their debts - this de-leveraging is temporary, but without someone in the economy spending money, we enter an economic death spiral.

The figures speak for themselves. We are in the longest period of depressed economic activity ever recorded. Even the IMF, which once promoted austerity, is now backtracking since their calculations showed that for every £1 of austerity, £1.30 is lost from the economy.

There is a time for austerity. But it isn't now, not during a depressing. That is insanity. Now is a time for government to use the excess liquidity looking for a productive home to temporarily boost the economy, meaning consumers and business can pay off their debts without the economy collapsing. If everyone tries to de-leverage at the same time, disaster awaits.

The evidence is now very strong. We've had 5 years of experimenting with austerity around the world. It simply hasn't worked, and one must leave ideology at the door and ask a simple question: does it work? All evidence says: no.

[Dr_Mibbles]

I always think GDP should have debt subtracted from it, otherwise it is essentially a meaningless measure.

Pure nonsense. One persons debt is another persons asset/savings. Debt removes no money from the economy.

If you loan a business £1m of your money at 5% interest, then you have an asset paying you interest, while the business can invest and expand. Debt is not a bad thing per se. Removing peoples asset from the economy because someone else is putting the asset to use would be pure insanity.

Edited May 18, 2013 by Dr_Mibbles

[Mr Jib Fingers]

I'm sure you aware that the deficit was caused by the global financial crisis, and the resulting collapse in tax revenues. In fact, in 2008 before the crisis hit, our deficit and debt levels were much lower than when the Tories handed over power in 1997.

The question, then, is how to react to a once-in-a-lifetime economic shock. Government spending was never the problem - it was private debt (sub-prime mortgages) and highly leveraged financial institutions which caused and deepened the crisis.

So are we in agreement that government spending was based on unsustainable amounts of private debt expansion and that the resulting deficit was because government spending hasn't dropped to the level that would remove the deficit when that debt bubble burst?

Government spending in the UK has declined in real terms since 2010

I'm sure it has, but I'm not sure what relevance that has. We are having stimulus in the form of government spending higher than it is taking in tax revenue. That's what stimulus is isn't it? The fact that it was even higher before shouldn't stop the stimulus from being effective now.

Overall, then, austerity has been disastrous and entirely self-defeating. Our deficit has increased

I'm not sure what definition of austerity has a rising deficit. A deficit is extra government spending. The fact that the spending is on things that you don't think will help the economy doesn't mean that it is austerity. It just handily highlights how bad governments are at stimulating the economy that people who actually want more government spending admit that they are spending it on the wrong things.

[Mr Jib Fingers]

Pure nonsense. One persons debt is another persons asset/savings. Debt removes no money from the economy.

If you loan a business £1m of your money at 5% interest, then you have an asset paying you interest, while the business can invest and expand. Debt is not a bad thing per se. Removing peoples asset from the economy because someone else is putting the asset to use would be pure insanity.

So if the amount of debt in an economy isn't important, then how can the financial crisis have been caused by the amount of private debt as you stated earlier?

[easy2012]

There is a time for austerity. But it isn't now, not during a depressing. That is insanity. Now is a time for government to use the excess liquidity looking for a productive home to temporarily boost the economy, meaning consumers and business can pay off their debts without the economy collapsing. If everyone tries to de-leverage at the same time, disaster awaits.

The evidence is now very strong. We've had 5 years of experimenting with austerity around the world. It simply hasn't worked, and one must leave ideology at the door and ask a simple question: does it work? All evidence says: no.

If you can more clearly define what do you mean by temporary, and how much spending in what sectors/to whom (roughly) and what you expect to see at end of year 1,2,3 (within a reasonable range) and when you would stop and what you are going to do with the debt at that point, I would seriously consider going along with your plan.

If your plan is about doing more PFI/Stimulus Dome, then I am afraid I want no part of it.

Otherwise, you are as astute and smart as Paul..

Edited May 18, 2013 by easy2012

[Goat]

I'm sure you aware that the deficit was caused by the global financial crisis, and the resulting collapse in tax revenues.

Not true, look at the following chart:

What the above shows is that from 2000/01 (the last year of Ken Clark's spending plans) to 2007/08 government spending increased from 34% of GDP to 41%; this during a period of strong economic growth.

If you look at this chart:

You can see that tax revenue has stayed relatively stable at 36% of GDP for approximately the last 40 years.

The crisis in the public finances is not simply a result of the financial crisis. It is the result of running a 5% of GDP structural deficit at the peak of a 10 year credit boom.

In fact, in 2008 before the crisis hit, our deficit and debt levels were much lower than when the Tories handed over power in 1997.

Partially correct but seriously misleading, what is important is not just the overall debt and deficit levels but also the path that spending is set upon. Another chart for you (can't get this one to post, you'll have to put up with a link):

UK National Debt As Percent Of GDP

So in 1997 the debt as a % of GDP is falling and conitinues on that path until 2001/02 (again, Ken Clark's spending plans). In 2001/02 Gordon Brown went on his spending spree and the ratio started to rise again.

Of course things got a lot worse once the crisis hit but the fundamental problem is that we were budgeting to run a £60bn deficit at the peak of the bubble, which is the height of madness and which meant that when the economic cycle did turn we were in serious s***

Edited May 18, 2013 by Goat

[Bloo Loo]

ou

I'm sure you aware that the deficit was caused by the global financial crisis, and the resulting collapse in tax revenues. In fact, in 2008 before the crisis hit, our deficit and debt levels were much lower than when the Tories handed over power in 1997.

The question, then, is how to react to a once-in-a-lifetime economic shock. Government spending was never the problem - it was private debt (sub-prime mortgages) and highly leveraged financial institutions which caused and deepened the crisis.

Government spending in the UK has declined in real terms since 2010, and important 'growth enhancing' expenditure such as investment in building/infrastructure has collapsed by more than 50%. Spending on the automatic stablisers (benefit payments) has increased, and this is the price of failure.

Overall, then, austerity has been disastrous and entirely self-defeating. Our deficit has increased because austerity has removed demand from the economy during a time where consumers and businesses tried to pay down their debts - this de-leveraging is temporary, but without someone in the economy spending money, we enter an economic death spiral.

The figures speak for themselves. We are in the longest period of depressed economic activity ever recorded. Even the IMF, which once promoted austerity, is now backtracking since their calculations showed that for every £1 of austerity, £1.30 is lost from the economy.

There is a time for austerity. But it isn't now, not during a depressing. That is insanity. Now is a time for government to use the excess liquidity looking for a productive home to temporarily boost the economy, meaning consumers and business can pay off their debts without the economy collapsing. If everyone tries to de-leverage at the same time, disaster awaits.

The evidence is now very strong. We've had 5 years of experimenting with austerity around the world. It simply hasn't worked, and one must leave ideology at the door and ask a simple question: does it work? All evidence says: no.

to counter,we have had 100 years of deficit spending as POLICY...nothing to with the global collapse.

Indeed, our banks earned so much money that really deficits should have been wiped out years ago...they werent because they were POLICY.

we have had no austerity.

And I read everywhere that the deficit has NOT increased....which you say it has.

i fail to understand your grim clutching to a figure (GDP) that was designed to show how much the deficit spend SHOULD BE. it has nothing to do with wealth creation, which is all we can really spend....the rest is just poor arithmetic.

Edited May 18, 2013 by Bloo Loo

[alexw]

So unless you can figure out how to prevent the elite from capturing these stimulus, we have no choice but to starve the beast and force a significant reduction in wasteful state spending - CAP (EU), Ethanol (US), A4E + PFI (UK) etc.

Do you honestly believe that it matters whether we have stimulus or not with regard to the degree with which elites can capture the state and funnel money to themselves?

Look at spain, greece and ireland. These are undertaking austerity. Do you see the wealthy elites in these nations taking a hit?

It's not austerity or stimulus that matters. State capture enables the elites to "win" whichever scenario occurs. If you have stimulus they will make sure the stimulus money is funneled to themselves, your A4E and PFI examples being apt. If you have austerity they will use the large excess of labour that engenders to screw down on workers and enforce pay cuts while funneling a substantial part of the difference to themselves. Either way they win. Of course the idea that they might lose under a small state scenario is something the elites love to promote, since it gives the plebs something to fight over. Divide and conquer and all that.

Edited May 18, 2013 by alexw

[easy2012]

Do you honestly believe that it matters whether we have stimulus or not with regard to the degree with which elites can capture the state and funnel money to themselves?

Look at spain, greece and ireland. These are undertaking austerity. Do you see the wealthy elites in these nations taking a hit?

It's not austerity or stimulus that matters. State capture enables the elites to "win" whichever scenario occurs. If you have stimulus they will make sure the stimulus money is funneled to themselves, your A4E and PFI examples being apt. If you have austerity they will use the large excess of labour that engenders to screw down on workers and enforce pay cuts while funneling a substantial part of the difference to themselves. Either way they win. Of course the idea that they might lose under a small state scenario is something the elites love to promote, since it gives the plebs something to fight over. Divide and conquer and all that.

Yes - government has less money = less money to steal (even if the same % are being stolen). 10% of £350bn is less than 10% of £700bn

Now the elite are intercepting the ECB / BoE / FED largesse (which is of course an arm of the government). However, I am guessing that elite in Spain etc are not doing as well as elite in US/London...

[alexw]

No and No for both nowadays.

I know I know...the official single number says otherwise and part time employment counts are employment, and women not wanting to work due to cultural or whatever reason are removed from the denominator.

Krugman is supportive of any effort of government stimulating the economy, shame that he still focus more in academia/research when Mugabe did his experiment. However, he did not take up the offer to support effort to build the death star though..

and OECD says UK has higher saving rate than Japan 4.x% vs 2.x% nowadays.

http://www.oecd-ilibrary.org/economics/household-saving-rates-forecasts_2074384x-table7

I don't think Japan can be used as a reference for us or anyone else.

Out of all western nations they have a shrinking population. Whatever else, a debt based monetary system and a shrinking population do not work together. They simply cannot, since a shrinking population is anthema to the continual economic growth paradigm that debt based money needs.

[alexw]

but that is the whole point of Krugmans argument....there are no time limits because the debt doesnt matter....inflation makes todays debt worth less in the future....he argues that a £1 today being £100 in 100 years is irrelevent, becuase its purchasing power will be taken care of by wage increases.

What he deliberately omits is that the very size of Government is a drain on the wealth production of the community....easy money and easy spending means Governments dont have to be careful...they simply grow and grow.

Its this point that the austrians point out time and again...without restraint...Governments take over and bust the whole thing...

When the system is operating at 100% of capacity yes. Then any growth in government must come from a shrinkage of the private sector. But we are not in that scenario.

Currently we have a large degree of economic slack. There's a couple million unemployed and a few more million underemployed or in disguised unemployment.

These could be put to work without any negative impact on the private sector.