Why left-wing economists’ warnings against austerity programs are wrong (Update: Greece will almost certainly leave Euro, with Spain to follow)

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    Apr 19, 2012 2:13 PM GMT
    As true when it was written as it is today. What is particularly risable is that same people (generally the extremist armchair leftists) who claim that what we need is more stimulus are never the ones who also preach reductions in government spending during the good years to allow for greater flexibility during the bad ones. Instead, they argue for even more spending.

    The problem Greece and Spain suffer is not too little spending. Quite the opposite.

    http://reason.com/archives/2010/09/20/austerity-agonistes

    Most European Union member states have no alternative. Countries that rely heavily on foreign investors—such as Greece, France, Ireland, Italy, and Spain—must cut spending to avoid being shut off from the global capital markets.

    Contrary to common belief, investors don’t judge sovereign default risks based on public debt as a percentage of gross domestic product. Instead, bond professionals grade on a curve, assessing one country’s fiscal behavior against another’s. When investors lose confidence in a government’s fiscal rectitude relative to its competitors, they withdraw, and the snubbed country suffers. Capital being a scarce good, the result is increased interest rates and a higher price for debt.

    One of the key signaling devices for international investors is how a government behaves under financial duress—how it balances the demands of its debtors with those of its welfare recipients. Announcements of lower spending and higher taxes tell investors a country is willing to go to great lengths not to default on its debt obligations. If the government instead focuses on preserving its welfare state and public employee benefits, investors know default is more likely and will shy away from that country’s bonds.Japan has the world’s biggest debt as a percentage of GDP, at 227 percent, nearly four times the economist-recommended 60 percent ceiling. It has gotten away with its carelessness without risking default because the country relies more heavily than most on domestic investors to fund its follies. The United States, despite a dangerous debt burden relative to GDP (66 percent) and a structural deficit among the highest of developed countries (almost 4 percent), has so far also escaped investor censure, thanks to the perception that the dollar remains the safest currency in the world. European countries don’t have that luxury.
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    Apr 19, 2012 2:22 PM GMT
    Shorter Riddler: "Here's my intellectually bankrupt argument that I will use to distract people from the fact that a few billionaires and multinationals are raping the world of its wealth and resources (which I implicitly support)." icon_rolleyes.gif

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    Apr 19, 2012 2:25 PM GMT
    Christian73 saidShorter Riddler: "Here's my intellectually bankrupt argument that I will use to distract people from the fact that a few billionaires and multinationals are raping the world of its wealth and resources (which I implicitly support)." icon_rolleyes.gif

    You represent the ideologically rigid and blinded who will never admit the failures of continual spending. Instead, you and your ilk double down failed policies.

    This is a very common sense debate that I'm am looking forward to in coming months. This is so basic that it will be effective in hammering your ideology back into obscurity in the US, where it went following Carter's defeat.
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    Apr 19, 2012 2:58 PM GMT
    Christian73 saidShorter Riddler: "Here's my intellectually bankrupt argument that I will use to distract people from the fact that a few billionaires and multinationals are raping the world of its wealth and resources (which I implicitly support)." icon_rolleyes.gif



    So what are their names and what are they guilty of? Talking about phantom people and evils that they are committing doesn't accomplish anything.
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    Apr 19, 2012 3:29 PM GMT
    socalfitness said
    Christian73 saidShorter Riddler: "Here's my intellectually bankrupt argument that I will use to distract people from the fact that a few billionaires and multinationals are raping the world of its wealth and resources (which I implicitly support)." icon_rolleyes.gif

    You represent the ideologically rigid and blinded who will never admit the failures of continual spending. Instead, you and your ilk double down failed policies.

    This is a very common sense debate that I'm am looking forward to in coming months. This is so basic that it will be effective in hammering your ideology back into obscurity in the US, where it went following Carter's defeat.


    No. A common sense debate would look at the origins of our debt and deficit (neither of which were caused by social spending, but wars, the military industrial complex, and tax give aways to corporations), and examine how we maximize revenues, particularly from the parties who most benefited from the past spending (e.g. multinationals, defense contractors and the 1%) - which suggests a top tax rate of 50-70% for a period that will eliminate the deficit and debt, while also looking at how to eliminate waste, duplication and other unnecessary federal spending.

    Of course, your idea that Carter's defeat had anything to do with left-wing ideology is so ridiculous that I regret that we don't have a pointing and laughing emoticon. icon_lol.gif
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    Apr 19, 2012 3:30 PM GMT
    mocktwinkie said
    Christian73 saidShorter Riddler: "Here's my intellectually bankrupt argument that I will use to distract people from the fact that a few billionaires and multinationals are raping the world of its wealth and resources (which I implicitly support)." icon_rolleyes.gif



    So what are their names and what are they guilty of? Talking about phantom people and evils that they are committing doesn't accomplish anything.


    Start with the Forbes 400 and the Fortune 500 and go from there. They are guilty of spending billions of dollars to buy our government and rewrite a host of laws (most notably the tax code) to create an extractionary economy which benefits a tiny minority of Americans.

    But since you personally benefit from those policies through your romantic relationship, I doubt you'll see it.
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    Apr 19, 2012 3:50 PM GMT
    Of course those who would have you believe that austerity is disastrous only have one mantra in good times and bad: spend. To them all (domestic) spending is apparently good. What they also don't tell you is that new taxes tend to actually have a significantly negative impact more so than any cost cutting that is done.

    http://www.voxeu.org/index.php?q=node/7836

    The European debate on fiscal austerity has gone astray – focusing exclusively on the size of deficit reductions. What policy makers should really be focusing on is the budget tightening’s composition (tax versus spending) and on the accompanying policies. Indeed, the title of this Vox debate – “Has austerity gone too far?” – reflects this inappropriate emphasis on size.
    In our view, the essential question is not 'how far' governments go but of 'how' they go far enough.

    Evidence on new taxes versus new spending cuts
    Economists have engaged in some lively debates about how to measure and evaluate the effects of large fiscal adjustments episodes in OECD countries (Europe in particular). But a careful and fair reading of the evidence makes clear a few relatively uncontroversial points, despite the differences in approaches. The accumulated evidence from over 40 years of fiscal adjustments across the OECD speaks loud and clear:

    - First, adjustments achieved through spending cuts are less recessionary than those achieved through tax increases.
    - Second, spending-based consolidations accompanied by the right polices tend to be less recessionary or even have a positive impact on growth.
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    Apr 19, 2012 4:06 PM GMT
    Christian73 said
    socalfitness said
    Christian73 saidShorter Riddler: "Here's my intellectually bankrupt argument that I will use to distract people from the fact that a few billionaires and multinationals are raping the world of its wealth and resources (which I implicitly support)." icon_rolleyes.gif

    You represent the ideologically rigid and blinded who will never admit the failures of continual spending. Instead, you and your ilk double down failed policies.

    This is a very common sense debate that I'm am looking forward to in coming months. This is so basic that it will be effective in hammering your ideology back into obscurity in the US, where it went following Carter's defeat.


    No. A common sense debate would look at the origins of our debt and deficit (neither of which were caused by social spending, but wars, the military industrial complex, and tax give aways to corporations), and examine how we maximize revenues, particularly from the parties who most benefited from the past spending (e.g. multinationals, defense contractors and the 1%) - which suggests a top tax rate of 50-70% for a period that will eliminate the deficit and debt, while also looking at how to eliminate waste, duplication and other unnecessary federal spending.

    Of course, your idea that Carter's defeat had anything to do with left-wing ideology is so ridiculous that I regret that we don't have a pointing and laughing emoticon. icon_lol.gif

    Will look forward to the debate. Just to point out your reading comprehension needs some work. I did not say Carter's defeat had anything to do with his ideology. I said a result of his defeat was the obscurity of his ideology. Different concepts.
  • GQjock

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    Apr 19, 2012 4:26 PM GMT
    Uh .... Like you do know that a certain Alzheimery guy EXPLODED the debt when he was President .....

    And he also put into place the seeds of the little deregulatory bombs we're suffering through right now
    But it's always the middle class and the poor who have to be Whiipped in order to make amends for the thievery of the wealthy

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    Apr 19, 2012 4:27 PM GMT
    socalfitness said
    Christian73 said
    socalfitness said
    Christian73 saidShorter Riddler: "Here's my intellectually bankrupt argument that I will use to distract people from the fact that a few billionaires and multinationals are raping the world of its wealth and resources (which I implicitly support)." icon_rolleyes.gif

    You represent the ideologically rigid and blinded who will never admit the failures of continual spending. Instead, you and your ilk double down failed policies.

    This is a very common sense debate that I'm am looking forward to in coming months. This is so basic that it will be effective in hammering your ideology back into obscurity in the US, where it went following Carter's defeat.


    No. A common sense debate would look at the origins of our debt and deficit (neither of which were caused by social spending, but wars, the military industrial complex, and tax give aways to corporations), and examine how we maximize revenues, particularly from the parties who most benefited from the past spending (e.g. multinationals, defense contractors and the 1%) - which suggests a top tax rate of 50-70% for a period that will eliminate the deficit and debt, while also looking at how to eliminate waste, duplication and other unnecessary federal spending.

    Of course, your idea that Carter's defeat had anything to do with left-wing ideology is so ridiculous that I regret that we don't have a pointing and laughing emoticon. icon_lol.gif

    Will look forward to the debate. Just to point out your reading comprehension needs some work. I did not say Carter's defeat had anything to do with his ideology. I said a result of his defeat was the obscurity of his ideology. Different concepts.


    That's called a "distinction without a difference."

    I'm excited about the debate, as you call it, as it's one Romney can't win. icon_smile.gif
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    Apr 19, 2012 4:37 PM GMT
    Christian73 said
    socalfitness said
    Christian73 said
    socalfitness said
    Christian73 saidShorter Riddler: "Here's my intellectually bankrupt argument that I will use to distract people from the fact that a few billionaires and multinationals are raping the world of its wealth and resources (which I implicitly support)." icon_rolleyes.gif

    You represent the ideologically rigid and blinded who will never admit the failures of continual spending. Instead, you and your ilk double down failed policies.

    This is a very common sense debate that I'm am looking forward to in coming months. This is so basic that it will be effective in hammering your ideology back into obscurity in the US, where it went following Carter's defeat.


    No. A common sense debate would look at the origins of our debt and deficit (neither of which were caused by social spending, but wars, the military industrial complex, and tax give aways to corporations), and examine how we maximize revenues, particularly from the parties who most benefited from the past spending (e.g. multinationals, defense contractors and the 1%) - which suggests a top tax rate of 50-70% for a period that will eliminate the deficit and debt, while also looking at how to eliminate waste, duplication and other unnecessary federal spending.

    Of course, your idea that Carter's defeat had anything to do with left-wing ideology is so ridiculous that I regret that we don't have a pointing and laughing emoticon. icon_lol.gif

    Will look forward to the debate. Just to point out your reading comprehension needs some work. I did not say Carter's defeat had anything to do with his ideology. I said a result of his defeat was the obscurity of his ideology. Different concepts.


    That's called a "distinction without a difference."

    I'm excited about the debate, as you call it, as it's one Romney can't win. icon_smile.gif


    It's one that Romney has already won given how disastrous this recovery has been.
  • GQjock

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    Apr 19, 2012 4:42 PM GMT
    the recovery has been DISASTROUS????

    Dude ..... how about the friggin' recession?
    How do you think we got into this mess? ..... It was because of YOUR party's policies .... JEEZ
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    Apr 19, 2012 4:47 PM GMT
    GQjock saidthe recovery has been DISASTROUS????

    Dude ..... how about the friggin' recession?
    How do you think we got into this mess? ..... It was because of YOUR party's policies .... JEEZ


    Right... ever tire of your trope? keep telling yourself that - especially considering it's social policies that brought about the mess as you point out - e.g. mortgage interest deductions, CRA1999 to encourage sub prime lending, Fannie Mae, Freddie Mac, and the list goes on.
  • GQjock

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    Apr 19, 2012 4:52 PM GMT
    RID .... Who were the ones who profited by those Mortgage Shananigans ?
    Who the hell MADE it possible to play monopoly money with mortgage subsidiaries and changed the banking system SO THEY COULD DO IT????

    Do you hear yourself?

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    Apr 19, 2012 4:55 PM GMT
    GQjock saidRID .... Who were the ones who profited by those Mortgage Shananigans ?
    Who the hell MADE it possible to play monopoly money with mortgage subsidiaries and changed the banking system SO THEY COULD DO IT????

    Do you hear yourself?



    Both parties - at the substantial behest of the Democrats who were very much for making housing "more affordable" before they were against it.
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    Apr 20, 2012 7:25 AM GMT
    Certain inconvenient facts for those who push the stimulus agenda - let alone the fact that countries like Greece and Spain just don't have the financial flexibility (who are they going to borrow from?) to choose stimulus... is that austerity worked in Asia.

    The choice is either use bandaid solutions that you will be paying for years to come or to take the short term financial pain for even greater long term gain. The clear facts that remain following US stimulus is that substantially fewer jobs were created than anticipated, and the additional trillion or so dollars of the cumulative deficits have reduced American flexibility in the financial markets and will result in greater borrowing costs for everyone with time. The latter fact alone has led the non-partisan CBO to state that the cost of the stimulus will be negative to the US economy over the long run.

    http://www.aljazeera.com/indepth/opinion/2012/03/20123781637209922.html


    Lessons from Asia: Austerity can work

    In response, current-account balances - the Achilles' heel of the so-called East Asian growth miracle - went from deficit to surplus. For the ASEAN-5, current-account deficits averaging four per cent of GDP in 1996-97 swung dramatically into average surpluses of 6.8 per cent of GDP in 1998-99. A similar transformation occurred in South Korea, where a 2.8 per cent current-account deficit in 1996-1997 became an 8.6 per cent surplus in 1998-1999.

    Since then, the region has never looked back. Within two years, most of Asia's crisis-ridden economies had regained their pre-crisis peaks. Nor was this a temporary rebound. Beginning in 1999, the ASEAN-5 began a ten-year spurt of five per cent average annual GDP growth (5.5 per cent in South Korea over the same period). In short, there were no lasting negative effects from the short-term dose of austerity, and, to the extent that austerity was essential to post-crisis healing, the long-term benefits have proven to be both enduring and astounding.

    Three lessons for the rest of us come to mind. First, there is no gain without pain. Few of us in the developed world can fathom aggregate-output contractions on the scale that crisis-torn Asia suffered in 1998, let alone muster the political will to impose them on our economies. The economic dislocations and the humiliation of proud nations were, indeed, devastating (as Greeks today can attest). But, once the excesses were purged, Asia's post-crisis rebounds were both strong and sustainable.

    Second, currencies played an important role as an escape valve in the early days of Asia's post-crisis adjustment process. As the region moved from hard exchange-rate pegs to floating rates, Asian currencies plunged - with drops against the dollar, ranging from 28 per cent in South Korea and roughly 37 per cent in Thailand, Malaysia and the Philippines to almost 80 per cent in Indonesia.

    Finally, there is no substitute for restructuring. In Asia in the late 1990s, measures aimed at the financial sector dominated IMF-imposed structural adjustment programmes, but there were also programmes that focused on tax and expenditure reforms, corporate governance, privatisation and business-debt restructuring. While not all of these programmes were implemented in strict compliance with IMF conditionality, they played a key role in promoting significant improvements in Asian competitiveness.
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    Apr 20, 2012 12:37 PM GMT
    While I feel sorry for the people impacted, I welcome discussions like this. Many economic debates involve technical issues or questions of how relevant the experience of one country is to be a lesson for another country. When Socialists deny the policies that led to the situations and want even more spending (as if compliant lenders can be magically produced), they make themselves look so ridiculous as to completely discredit themselves and their failed and bankrupt ideology.

    "Best way to prevent withdrawal is to keep the supply of heroin readily available. Best way to prevent a hangover is to keep drinking."

    (Per comments in another thread, not advocating no spending, but spending and related entitlements need to be reduced compared to levels that were not sustainable, and there comes the pain that the Socialists cannot accept.)
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    Apr 20, 2012 7:15 PM GMT
    socalfitness saidWhile I feel sorry for the people impacted, I welcome discussions like this. Many economic debates involve technical issues or questions of how relevant the experience of one country is to be a lesson for another country. When Socialists deny the policies that led to the situations and want even more spending (as if compliant lenders can be magically produced), they make themselves look so ridiculous as to completely discredit themselves and their failed and bankrupt ideology.

    "Best way to prevent withdrawal is to keep the supply of heroin readily available. Best way to prevent a hangover is to keep drinking."

    (Per comments in another thread, not advocating no spending, but spending and related entitlements need to be reduced compared to levels that were not sustainable, and there comes the pain that the Socialists cannot accept.)


    The sad truth is that those who advocate additional spending like the public unions are less interested in the services that can be delivered to the disadvantaged/impoverished, but rather increasing their number and maintaining how already overpaid they are relative to the rest of society.

    Secondly, the sad irony is that when additional spending/regulations do happen, it often happens at the expense of consumers and taxpayers and to the benefit of connected businesses like GE, Goldman Sachs etc. That they advocate a prescription that would prolong the suffering rather than take it faster in the pursuit of faster future growth in the private sector is a testament to how out of touch, in addition to being morally and fiscally bankrupt they are as you point out.
  • tokugawa

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    Apr 21, 2012 6:01 AM GMT
    riddler78 said ... countries like Greece and Spain just don't have the financial flexibility ...


    ... because the Euro has put Greece and Spain into financial straight jackets. If Greece had its own currency, after a devaluation its exports to other countries would increase, thereby easing the crisis. The Euro experiment has failed badly, and going back to a currency for each country may become a necessity.

    In 1929, President Hoover kept a balanced budget, and unemployment rose to 25% by the end of his term in 1933. FDR became president in 1933, initiated an economic policy of deficit spending, and by 1936 the unemployment rate dropped to 15%

    Was Hoover's austerity budget the correct economic policy from 1929-1933?

    Was FDR's deficit spending the correct economic policy from 1933-1936?


    In 1937, FDR decided to make a balanced federal budget his top economic goal. He initiated an austerity budget, like you want. The result was a disaster. Unemployment increased to 18% by 1938. Rather than achieving a balanced budget, the federal budget deficit INCREASED.

    The lesson is that during an economic downturn, imposing an austerity budget will reduce employment, since many of the cuts will result in reduced government employment levels, with many of these cuts hurting states and local governments the hardest. Within the last year, the city of Camden, New Jersey laid off 50% of its police force.
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    Apr 21, 2012 6:11 AM GMT
    JPtheBITCH saidThis thread is like watching chimpanzees at the zoo solemnly discussing quantum mechanics.

    Not one of you has the faintest fucking knowledge of economics. But please, keep on, this is wildly entertaining.


    So says the moron who pretends he does. icon_rolleyes.gif
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    Apr 21, 2012 6:16 AM GMT
    tokugawa said
    riddler78 said ... countries like Greece and Spain just don't have the financial flexibility ...


    ... because the Euro has put Greece and Spain into financial straight jackets. If Greece had its own currency, after a devaluation its exports to other countries would increase, thereby easing the crisis. The Euro experiment has failed badly, and going back to a currency for each country may become a necessity.

    In 1929, President Hoover kept a balanced budget, and unemployment rose to 25% by the end of his term in 1933. FDR became president in 1933, initiated an economic policy of deficit spending, and by 1936 the unemployment rate dropped to 15%

    Was Hoover's austerity budget the correct economic policy from 1929-1933?

    Was FDR's deficit spending the correct economic policy from 1933-1936?


    In 1937, FDR decided to make a balanced federal budget his top economic goal. He initiated an austerity budget, like you want. The result was a disaster. Unemployment increased to 18% by 1938. Rather than achieving a balanced budget, the federal budget deficit INCREASED.

    The lesson is that during an economic downturn, imposing an austerity budget will reduce employment, since many of the cuts will result in reduced government employment levels, with many of these cuts hurting states and local governments the hardest. Within the last year, the city of Camden, New Jersey laid off 50% of its police force.


    Not really as is noted by the austerity in Asian countries - the type of austerity matters. FDR's "austerity" was also coupled by a great deal of protectionism, price controls and tax hikes - and that was what was disastrous not the austerity.

    You do understand this idea that a condition can exist that you don't have any more money to spend? The problem for Greece wasn't so much the Euro - in good years it allowed Greece to also borrow at more affordable rates - but the problem was they borrowed way more than they could have afforded.

    Certainly, having their own currency would result in greater flexibility in dealing with the crisis but there can be no doubt that the crisis was not caused by the currency but by over spending on things that did not create a return for Greece and Spain.
  • tokugawa

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    Apr 21, 2012 10:39 AM GMT
    socalfitness said ... as if compliant lenders can be magically produced ...


    There is no shortage of buyers when the U.S. Treasury offers bonds, bills, or notes. There is no magic in this. The U.S. government has never defaulted on its debt. Short term debt offerings have sold out when the interest rate is one eighth of one percent: 0.125%

    During the panic after the failure of Lehman Brothers, the interest rate for U.S. treasuries on the secondary market became negative. Investors were willing to pay a fee in order to put their money in a safe harbor. Last time I looked, the interest rate on my savings account is one tenth of one percent: 0.10%.

    When interest rates are close to zero, and businesses still don't invest, we have fallen into the LIQUIDITY TRAP. Monetary policy to stimulate the economy does not work because the FED cannot reduce the interest rate below zero. When monetary policy does not work, fiscal policy is the only alternative. FDR made it work from 1933-1936 by using deficit spending; the unemployment rate fell from 25% to 15%.

    Then there is the matter of the Iraq war. We have spend over $1 TRILLION on the Iraq disaster, but no effort was made to pay for this war by, say, increasing taxes. However, more tax cuts for the very rich were enacted. A few very well connected insiders and contractors made a killing, and no doubt made generous political contributions to the party which will give us more useless foreign wars in the future.
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    Apr 21, 2012 10:46 AM GMT
    tokugawa said
    socalfitness said ... as if compliant lenders can be magically produced ...


    There is no shortage of buyers when the U.S. Treasury offers bonds, bills, or notes. There is no magic in this. The U.S. government has never defaulted on its debt. Short term debt offerings have sold out when the interest rate is one eighth of one percent: 0.125%

    During the panic after the failure of Lehman Brothers, the interest rate for U.S. treasuries on the secondary market became negative. Investors were willing to pay a fee in order to put their money in a safe harbor. Last time I looked, the interest rate on my savings account is one tenth of one percent: 0.10%.

    When interest rates are close to zero, and businesses still don't invest, we have fallen into the LIQUIDITY TRAP. Monetary policy to stimulate the economy does not work because the FED cannot reduce the interest rate below zero. When monetary policy does not work, fiscal policy is the only alternative. FDR made it work from 1933-1936 by using deficit spending; the unemployment rate fell from 25% to 15%.

    Then there is the matter of the Iraq war. We have spend over $1 TRILLION on the Iraq disaster, but no effort was made to pay for this war by, say, increasing taxes. However, more tax cuts for the very rich were enacted. A few very well connected insiders and contractors made a killing, and no doubt made generous political contributions to the party which will give us more useless foreign wars in the future.

    The phrase you quoted was in the context of lenders to the European countries in question. Their loans have come with conditions obviously not palatable to many there.
  • tokugawa

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    Apr 21, 2012 11:24 AM GMT
    riddler78 said
    tokugawa said

    ... In 1929, President Hoover kept a balanced budget, and unemployment rose to 25% by the end of his term in 1933. FDR became president in 1933, initiated an economic policy of deficit spending, and by 1936 the unemployment rate dropped to 15%

    In 1937, FDR decided to make a balanced federal budget his top economic goal. He initiated an austerity budget, like you want. The result was a disaster. Unemployment increased to 18% by 1938. Rather than achieving a balanced budget, the federal budget deficit INCREASED.

    The lesson is that during an economic downturn, imposing an austerity budget will reduce employment, since many of the cuts will result in reduced government employment levels, with many of these cuts hurting states and local governments the hardest. Within the last year, the city of Camden, New Jersey laid off 50% of its police force. ...


    Not really as is noted by the austerity in Asian countries - the type of austerity matters. FDR's "austerity" was also coupled by a great deal of protectionism, price controls and tax hikes - and that was what was disastrous not the austerity.

    Was Hoover's austerity budget the correct economic policy from 1929-1933? ?

    riddler78> ?

    Was FDR's deficit spending the correct economic policy from 1933-1936?

    riddler78> ?
  • tokugawa

    Posts: 945

    Apr 21, 2012 11:32 AM GMT
    The Asian economic crisis was caused by deregulation of those countries' currency controls, which allowed foreign speculators to move in for a quick profit and pull out before the bubble burst. The result: Asian currencies plunging. While the pain imposed on those countries (and their citizens) was severe, the speculators did not feel any of it. Instead, they were laughing all the way to the bank.

    The lesson: deregulation is not always good.