In fact, a core tenet of Keynesianism is austerity-like policies during the upturn when the economy is strong enough to handle paying down the debt incurred dealing with a downturn.
My point is that austerity during a recession may not be the lol retarded that some people are making it out to be. I'm sure proponents of a heyekian economy would say that it is perfectly logical, sense it leads you to a more stable economy, even though you pay the price of an extended recession now. There's no great time to switch.
But... It is "lol retarded"
Look at every single situation where it's being implemented.
Allegedly a voice of reason.
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AManFromEarthLet's get to twerk!The King in the SwampRegistered Userregular
In fact, a core tenet of Keynesianism is austerity-like policies during the upturn when the economy is strong enough to handle paying down the debt incurred dealing with a downturn.
My point is that austerity during a recession may not be the lol retarded that some people are making it out to be. I'm sure proponents of a heyekian economy would say that it is perfectly logical, sense it leads you to a more stable economy, even though you pay the price of an extended recession now. There's no great time to switch.
Let's take a look at an economy that chose austerity (The UK, the Eurozone) as a response to the recession and let's take a look at one that didn't (the US).
In fact, a core tenet of Keynesianism is austerity-like policies during the upturn when the economy is strong enough to handle paying down the debt incurred dealing with a downturn.
My point is that austerity during a recession may not be the lol retarded that some people are making it out to be. I'm sure proponents of a heyekian economy would say that it is perfectly logical, sense it leads you to a more stable economy, even though you pay the price of an extended recession now. There's no great time to switch.
But... It is "lol retarded"
Look at every single situation where it's being implemented.
Look, I'm way out of my depth. I'm not at all an economics guru. So whatever you win. I find it hard to believe that a dude who won the nobel prize in economics doesn't understand it as well as you, but ok. Austerity during a recession is stupid.
"The world is a mess, and I just need to rule it" - Dr Horrible
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AtomikaLive fast and get fucked or whateverRegistered Userregular
In fact, a core tenet of Keynesianism is austerity-like policies during the upturn when the economy is strong enough to handle paying down the debt incurred dealing with a downturn.
My point is that austerity during a recession may not be the lol retarded that some people are making it out to be. I'm sure proponents of a heyekian economy would say that it is perfectly logical, sense it leads you to a more stable economy, even though you pay the price of an extended recession now. There's no great time to switch.
Let's take a look at an economy that choose austerity (The UK, the Eurozone) as a response to the recession and let's take a look at one that didn't (the US).
One of these things is not like the others...
But Mitt Romney assured me Obama was all about turning us into Greece? Are you saying it's actually the other way around?
For this, we can thank the party that proudly allowed Rick Santorum to take the stage to mock people for going to college and detract the president for surrounding himself with representatives and surrogates actually knowledgeable in the subjects they're responsible for.
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AManFromEarthLet's get to twerk!The King in the SwampRegistered Userregular
In fact, a core tenet of Keynesianism is austerity-like policies during the upturn when the economy is strong enough to handle paying down the debt incurred dealing with a downturn.
My point is that austerity during a recession may not be the lol retarded that some people are making it out to be. I'm sure proponents of a heyekian economy would say that it is perfectly logical, sense it leads you to a more stable economy, even though you pay the price of an extended recession now. There's no great time to switch.
But... It is "lol retarded"
Look at every single situation where it's being implemented.
Look, I'm way out of my depth. I'm not at all an economics guru. So whatever you win. I find it hard to believe that a dude who won the nobel prize in economics doesn't understand it as well as you, but ok. Austerity during a recession is stupid.
The purpose of all science and research is to get closer to the truth and/or facts. It doesn't mean you're infallible.
Austerity during a recession, if your goal is to spur recovery, is stupid.
If your goal is to simply reduce the debt (which is a stupid goal in tough economic times) then it's a great plan.
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ChanusHarbinger of the Spicy Rooster ApocalypseThe Flames of a Thousand Collapsed StarsRegistered Userregular
In fact, a core tenet of Keynesianism is austerity-like policies during the upturn when the economy is strong enough to handle paying down the debt incurred dealing with a downturn.
My point is that austerity during a recession may not be the lol retarded that some people are making it out to be. I'm sure proponents of a heyekian economy would say that it is perfectly logical, sense it leads you to a more stable economy, even though you pay the price of an extended recession now. There's no great time to switch.
But... It is "lol retarded"
Look at every single situation where it's being implemented.
Look, I'm way out of my depth. I'm not at all an economics guru. So whatever you win. I find it hard to believe that a dude who won the nobel prize in economics doesn't understand it as well as you, but ok. Austerity during a recession is stupid.
Paul Krugman has a Nobel as well and he pretty handily disagrees with austerity during a recession.
The Nobel award doesn't make your word the final authority.
Allegedly a voice of reason.
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ChanusHarbinger of the Spicy Rooster ApocalypseThe Flames of a Thousand Collapsed StarsRegistered Userregular
And, I mean... Austerity has failed handily during this recession. It has resulted in (apparently) permanently suppressed growth.
Suppressed growth makes it more difficult to deal with debt.
the "expansionary austerity" types are generally real-business-cycle theorists; the central mechanism is that anticipations of future tax reductions drive current private demand
this is not a typically Hayekian idea; Hayek's business cycle theory is heavily driven by skepticism over the ease of long-term economic coordination at all. briefly, the central mechanism of the Hayekian business cycle is the revelation of incompatible intertemporal intentions. austerity, in this framework, is always contractionary in the short run. the sole contention is that it is less contractionary in the long run than alternative unsustainable fiscal stances. in Hayek's universe, the state's main priority is not altering anything that influences prices at all, because anything that does would make the economy explode when the plans fail to encounter their expected conditions.
ronya on
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AtomikaLive fast and get fucked or whateverRegistered Userregular
ChanusHarbinger of the Spicy Rooster ApocalypseThe Flames of a Thousand Collapsed StarsRegistered Userregular
So, anyway.
Why not just use this opportunity to push for permanently abolishing the debt ceiling? It went from being a procedural hand wave to a gun at our temple all at once. In the former incarnation it was useless and in the latter it has been outright dangerous.
Why not just get rid of it?
I mean... I know that would never pass the House... but still.
the "expansionary austerity" types are generally real-business-cycle theorists; the central mechanism is that anticipations of future tax reductions drive current private demand
this is not a typically Hayekian idea; Hayek's business cycle theory is heavily driven by skepticism over the ease of long-term economic coordination at all. briefly, the central mechanism of the Hayekian business cycle is the revelation of incompatible intertemporal intentions. austerity, in this framework, is always contractionary in the short run. the sole contention is that it is less contractionary in the long run than alternative unsustainable fiscal stances. in Hayek's universe, the state's main priority is not altering anything that influences prices at all, because anything that does would make the economy explode when the plans fail to encounter their expected conditions.
Whereas an uncoordinated economy always seems to gravitate towards abstracted (or lately pure) gambling because the margins and rewards will always be larger when your bet is on something insubstantial (so you can just make up how much to bet - the sky's the limit) as opposed to betting on something substantial (like what the price of frozen OJ will be in a week to steal from a great movie). And fuck the guy who doesn't have a chair when the music stops. Economic collapse, hole up with your wealth, rinse, repeat.
the serious answer is because the US constitution gives Congress that power:
The Congress shall have power
To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;
To borrow Money on the credit of the United States;
...
a sympathetic SCOTUS could be argued into entrenching, as a matter of jurisprudence, that the power is already invoked whenever a budget bill is passed
but I would not bet on SCOTUS accepting that
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ChanusHarbinger of the Spicy Rooster ApocalypseThe Flames of a Thousand Collapsed StarsRegistered Userregular
the serious answer is because the US constitution gives Congress that power:
The Congress shall have power
To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;
To borrow Money on the credit of the United States;
...
a sympathetic SCOTUS could be argued into entrenching, as a matter of jurisprudence, that the power is already invoked whenever a budget bill is passed
but I would not bet on SCOTUS accepting that
Congress has the power to spend and borrow, but it's arguably unconstitutional to not honor that debt (read: hit a debt ceiling after the spending has been passed and thus default) due to the 14th Amendment.
The current SCOTUS of course wouldn't probably rule this way because at least two members have no interest in objectivity and one, Scalia, doesn't even have any interest in his own jurisprudence so the idea that he even cares about what is and isn't constitutional is suspect at best.
the "expansionary austerity" types are generally real-business-cycle theorists; the central mechanism is that anticipations of future tax reductions drive current private demand
this is not a typically Hayekian idea; Hayek's business cycle theory is heavily driven by skepticism over the ease of long-term economic coordination at all. briefly, the central mechanism of the Hayekian business cycle is the revelation of incompatible intertemporal intentions. austerity, in this framework, is always contractionary in the short run. the sole contention is that it is less contractionary in the long run than alternative unsustainable fiscal stances. in Hayek's universe, the state's main priority is not altering anything that influences prices at all, because anything that does would make the economy explode when the plans fail to encounter their expected conditions.
Whereas an uncoordinated economy always seems to gravitate towards abstracted (or lately pure) gambling because the margins and rewards will always be larger when your bet is on something insubstantial (so you can just make up how much to bet - the sky's the limit) as opposed to betting on something substantial (like what the price of frozen OJ will be in a week to steal from a great movie). And fuck the guy who doesn't have a chair when the music stops. Economic collapse, hole up with your wealth, rinse, repeat.
well
hayek goes "intertemporal coordination is very important. but the market is also very fragile. can't interfere."
you could go the other route and say "intertemporal coordination is very important. but the market is also very fragile. we'd better conduct intertemporal coordination via the Gosplan instead"
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ChanusHarbinger of the Spicy Rooster ApocalypseThe Flames of a Thousand Collapsed StarsRegistered Userregular
I guess I'm just not willing to give up on ideas that are currently impossible just because the Republicans still cling desperately to a waning bit of power. Their party will be dead or transformed within two or three election cycles. I'm not going to be part of the country sliding the "middle" any further to the right.
I will counterbalance... and tilt at windmills, probably.
Allegedly a voice of reason.
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AManFromEarthLet's get to twerk!The King in the SwampRegistered Userregular
And, I mean... Austerity has failed handily during this recession. It has resulted in (apparently) permanently suppressed growth.
Suppressed growth makes it more difficult to deal with debt.
I heard we can fix that with more tax cuts.
What we have is a revenue problem.
Too much revenue.
I have $300 that says Bush 2 thought exactly that.
He damn near said it in those debates with Gore. That was the whole justification for the tax cut program. It was simplistic and incredibly shortsighted but it made people feel good at the time.
Not really a bad summation for President W. Bush's first term, actually.
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AManFromEarthLet's get to twerk!The King in the SwampRegistered Userregular
the serious answer is because the US constitution gives Congress that power:
The Congress shall have power
To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;
To borrow Money on the credit of the United States;
...
a sympathetic SCOTUS could be argued into entrenching, as a matter of jurisprudence, that the power is already invoked whenever a budget bill is passed
but I would not bet on SCOTUS accepting that
Congress has the power to spend and borrow, but it's arguably unconstitutional to not honor that debt (read: hit a debt ceiling after the spending has been passed and thus default) due to the 14th Amendment.
The current SCOTUS of course wouldn't probably rule this way because at least two members have no interest in objectivity and one, Scalia, doesn't even have any interest in his own jurisprudence so the idea that he even cares about what is and isn't constitutional is suspect at best.
I must say I fell into the trap of thinking the 14th Amendment was preferable to Big Johnny (what I'll call TDC from now on, as I imagine it'll have a crying John Boehner on its face), even going so far as to make a thread about it.
But if you think about it, while I think a forward thinking court would agree with the interpretation that the debt ceiling is unconstitutional, I'm not sure this court, or any court the US has had or will have in the reasonable future would agree.
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ChanusHarbinger of the Spicy Rooster ApocalypseThe Flames of a Thousand Collapsed StarsRegistered Userregular
the serious answer is because the US constitution gives Congress that power:
The Congress shall have power
To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;
To borrow Money on the credit of the United States;
...
a sympathetic SCOTUS could be argued into entrenching, as a matter of jurisprudence, that the power is already invoked whenever a budget bill is passed
but I would not bet on SCOTUS accepting that
Congress has the power to spend and borrow, but it's arguably unconstitutional to not honor that debt (read: hit a debt ceiling after the spending has been passed and thus default) due to the 14th Amendment.
The current SCOTUS of course wouldn't probably rule this way because at least two members have no interest in objectivity and one, Scalia, doesn't even have any interest in his own jurisprudence so the idea that he even cares about what is and isn't constitutional is suspect at best.
I must say I fell into the trap of thinking the 14th Amendment was preferable to Big Johnny (what I'll call TDC from now on, as I imagine it'll have a crying John Boehner on its face), even going so far as to make a thread about it.
But if you think about it, while I think a forward thinking court would agree with the interpretation that the debt ceiling is unconstitutional, I'm not sure this court, or any court the US has had or will have in the reasonable future would agree.
I love TDC as the nuclear option.
I'm not sure I love the idea of it actually happening, but I want the Republicans know that's the inevitable result of them being obstructionist dicks.
I'm sorry, but there's NO WAY the Supreme Court would rule we have to default.
Best case scenario would be them greenlighting Obama, but more than likely they'd call it a political question and tell congress and Obama to figure it out.
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ChanusHarbinger of the Spicy Rooster ApocalypseThe Flames of a Thousand Collapsed StarsRegistered Userregular
Yeah, I think the more likely result with this court is they'd decline to hear the case.
In fact, a core tenet of Keynesianism is austerity-like policies during the upturn when the economy is strong enough to handle paying down the debt incurred dealing with a downturn.
My point is that austerity during a recession may not be the lol retarded that some people are making it out to be. I'm sure proponents of a heyekian economy would say that it is perfectly logical, sense it leads you to a more stable economy, even though you pay the price of an extended recession now. There's no great time to switch.
But... It is "lol retarded"
Look at every single situation where it's being implemented.
Look, I'm way out of my depth. I'm not at all an economics guru. So whatever you win. I find it hard to believe that a dude who won the nobel prize in economics doesn't understand it as well as you, but ok. Austerity during a recession is stupid.
Paul Krugman has a Nobel as well and he pretty handily disagrees with austerity during a recession.
The Nobel award doesn't make your word the final authority.
Yeah, arguing along the grounds of a pissing match over who has bigger credentials is stupid, and an appeal to authority. Especially when you consider that the Nobels can and were given for economic insights that weren't directly related to macroeconomic world views. Krugman's Nobel was due to his work in trade theory.
The real test is how well your models match up with what actually happens in reality, and whether their predictions hold up or not. This is where the Austrians and austerity cheerleaders have been shown to be true failures. A big one is that they've been predicting that the stimulative efforts of the government and Federal Reserve and the massive expansion of the monetary base in the aftermath of the financial crisis would lead to runaway inflation and large spikes in interest rates. They kept saying that would happen repeatedly in the past few years, any day now, and nope, did not happen. Another big one is that the pro-austerity folks predicted that the austerity measures in Europe wouldn't be as bad and contractionary to the economies of the countries forced into them, due to improvements in things like business confidence. Instead, we've faced the long, slow stagnation that the Keynesians had predicted ahead of time.
When the IMF made their big reversal earlier, it was so important because they were one of the key institutional cheerleaders of the austerity side of the argument for a very long time. Then they looked at the numbers, and rather surprisingly said "oops, never mind." Most of the folks in that camp have just dug their heels deeper when faced with evidence that contradicts their theory. The problem is that we haven't bled the patient enough, and so forth.
Do note that this doesn't line up exactly with the partisan struggle in DC right now, because most of the Republicans have a worldview that is no where near as coherent as the Austrians. The congressional Republicans, outside of true believers like Ron Paul, mostly just pick and choose what reinforces their preexisting prejudices. There are the Republican Keynesian economists who are welcomed on board when the discussion is just about cutting taxes, but now they turn to the austerity-is-best folks because they love the whole shrinking government part of their argument. Pay no attention to when the Keynesians would suggest raising spending on something other than defense, or the coherent members of the austerity crew would want to raise taxes to balance the budget.
In fact, a core tenet of Keynesianism is austerity-like policies during the upturn when the economy is strong enough to handle paying down the debt incurred dealing with a downturn.
My point is that austerity during a recession may not be the lol retarded that some people are making it out to be. I'm sure proponents of a heyekian economy would say that it is perfectly logical, sense it leads you to a more stable economy, even though you pay the price of an extended recession now. There's no great time to switch.
Let's take a look at an economy that chose austerity (The UK, the Eurozone) as a response to the recession and let's take a look at one that didn't (the US).
One of these things is not like the others...
The UK is the real comparison to us, since they were not strongarmed into choosing austerity by a debt crisis. They just choose to do so for political reasons. Last I checked it did not work out as advertised for them.
The Euro is, quite frankly, a giant mess, and I'm a bit amazed that it has puttered along as long as it has. The big problem with the US and the dollar in the financial discussions right now is a dysfunctional political system, whereas for the Eurozone and the Euro they actually have fundamental problems with how their currency is set up. Namely, they were rather shortsighted in adopting a shared currency in the wide variety of countries with rather different cultures, languages, and budgetary outlooks without tying them together with stronger fiscal integration. They don't have the central government that the US has that is able to smooth out asymmetrical shocks, and the way we funnel money from one state to another in the US would be politically untenable for shifting funds from one country to another in Europe. Consider that all the efforts to prop up the insolvent and collapsing Greece were focused on giving them bridge loans and writing down some of the debt, rather than outright handing them direct aid from gifted money.
Earlier there were arguments over how bad a default on the US debt would be, and part of the problem is that we really don't know exactly what would happen because it would be so chaotic. It would be a completely unforced collapse of what was supposed to be the safe world currency, so it is hard to imagine how that wouldn't take out tons of other things with it. The Euro is in terrible enough shape as it is, I don't see how it could weather that sort of a calamity and continue to exist in its current form. China's currency has been maintaining a peg to the dollar, and while they could try to jump overboard in a crisis I don't see how it would be anything but way too late due to how interconnected the US and Chinese economies have become.
The reason why so many people are taking such absurd things as the trillion dollar coin so seriously is because contemplating the alternative requires peering into the void. We would be lucky if it turns out to only be as bad as a government shutdown.
Savant on
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DynagripBreak me a million heartsHoustonRegistered User, ClubPAregular
In fact, a core tenet of Keynesianism is austerity-like policies during the upturn when the economy is strong enough to handle paying down the debt incurred dealing with a downturn.
My point is that austerity during a recession may not be the lol retarded that some people are making it out to be. I'm sure proponents of a heyekian economy would say that it is perfectly logical, sense it leads you to a more stable economy, even though you pay the price of an extended recession now. There's no great time to switch.
But... It is "lol retarded"
Look at every single situation where it's being implemented.
Look, I'm way out of my depth. I'm not at all an economics guru. So whatever you win. I find it hard to believe that a dude who won the nobel prize in economics doesn't understand it as well as you, but ok. Austerity during a recession is stupid.
The purpose of all science and research is to get closer to the truth and/or facts. It doesn't mean you're infallible.
Austerity during a recession, if your goal is to spur recovery, is stupid.
If your goal is to simply reduce the debt (which is a stupid goal in tough economic times) then it's a great plan.
not necessarily. in greece the austerity measures have kneecapped GDP so they're still hemorraghing money as a result of reduced tax revenue on the drastically reduced income.
AstaerethIn the belly of the beastRegistered Userregular
I will point out two things:
1. Much of the current deficit is due to the recession itself, because it increases earned benefit payments (more people need unemployment) and decreases revenues (fewer people have jobs, those with jobs earn less or miss raises, therefore incomes and the tax base shrink, therefore income tax revenues shrink overall). Here's Krugman on that:
For starters, we need to be aware that we don’t need a balanced budget to have a stable fiscal situation; all we need is for debt to grow no faster than GDP. At the beginning of fiscal 2012, federal debt in the hands of the public was $10 trillion. Meanwhile, most estimates of long-run growth and inflation put them at a bit more than 2 and 2 respectively; so we can reasonably say that nominal GDP growth can be expected to be more than 4 percent per year. If debt grew at 4 percent, it would grow by $400 billion. So the deficit should be scaled down by that much.
That still leaves $700 billion. Where’s that coming from?
OK, revenues were $2.45 trillion, which was 15.7 percent of GDP, at $15.5 trillion. The CBO estimates, however, that potential GDP — what the economy would have produced at full employment — was $16.5 trillion over the same period. And if the economy had been at more or less full employment, we wouldn’t just have collected taxes on the additional income; historically, the tax share of GDP varies strongly with the business cycle. If the economy had been at potential and revenue had been a historically normal 18 percent of GDP, revenue would have been more than $500 billion more than it was; even if revenue had been only 17.5 percent, it would have been almost $450 billion more than it was.
[...]
Put these together: $400 billion that doesn’t increase the debt-GDP ratio; $450 billion or so in slump-related revenue loss; $150 billion or more in slump-related expenses; and guess what: the ONE TRILLION DOLLARS is basically just a depressed-economy story, having nothing to do with any fundamental mismatch between what we want and what we’re willing to pay.
And this makes a lot of sense! The budget wasn’t deep in the red in 2007, and there have been no fundamental increases in government responsibilities or cuts in taxes since then (Obamacare won’t kick in until 2014, and it’s paid for in any case).
2. What we've seen in recent years is that austerity in a recession merely kicks up this same cycle--the more you cut spending, the worse the recession gets, and the more your revenues go down. It's like the businessman who decides to stop cutting his hair and cleaning his suits in order to save money and then gets fired for having an unpresentable appearance.
In other words, you can't cut your way to fiscal stability; you can only grow your way there. And that means spending money, or at the very least not cutting expenses.
Nor can you use arbitrarily "necessary" cuts (like those a debt-ceiling default would entail) to do an end-run around decades of democratically-negotiated budgeting. Starving the beast doesn't work, because whether or not people are willing to pay their debts, they are always willing to incur them. To go back to the household metaphor, you can try quitting your high-paying job to go work at McDonalds as a self-encouragement to scale back your expenses, but it will turn out that your spouse won't let you pull the kids out of private school, your subscription to Steak of the Month can't be canceled without 90 days notice, and you can't bear to garage sale your home entertainment center with the 10.2 Surround Sound.
I think I got a little too deep into the metaphor there, but the point is, "painful austerity now, balanced budgets later" isn't a strategy we shouldn't pursue because it's too painful now; it's a strategy we shouldn't pursue because it won't work.
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JuliusCaptain of Serenityon my shipRegistered Userregular
In fact, a core tenet of Keynesianism is austerity-like policies during the upturn when the economy is strong enough to handle paying down the debt incurred dealing with a downturn.
My point is that austerity during a recession may not be the lol retarded that some people are making it out to be. I'm sure proponents of a heyekian economy would say that it is perfectly logical, sense it leads you to a more stable economy, even though you pay the price of an extended recession now. There's no great time to switch.
But... It is "lol retarded"
Look at every single situation where it's being implemented.
Look, I'm way out of my depth. I'm not at all an economics guru. So whatever you win. I find it hard to believe that a dude who won the nobel prize in economics doesn't understand it as well as you, but ok. Austerity during a recession is stupid.
The purpose of all science and research is to get closer to the truth and/or facts. It doesn't mean you're infallible.
Austerity during a recession, if your goal is to spur recovery, is stupid.
If your goal is to simply reduce the debt (which is a stupid goal in tough economic times) then it's a great plan.
not necessarily. in greece the austerity measures have kneecapped GDP so they're still hemorraghing money as a result of reduced tax revenue on the drastically reduced income.
Good point. But them having the Euro also prevents them from increasing inflation to reduce debt, so reducing debt is difficult anyway.
I personally think Obama should push for eliminating the debt ceiling. Not because it would pass but because it would be a (slight) political win for him. The public is generally slightly smarter than they get credit for, and the debt ceiling is a terrible brand at the moment. It produces a crisis every year and IMO the public (which in polls is consistently more concerned with unemployment than the deficit) would overall be for getting rid of it.
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spacekungfumanPoor and minority-filledRegistered User, __BANNED USERSregular
1. Much of the current deficit is due to the recession itself, because it increases earned benefit payments (more people need unemployment) and decreases revenues (fewer people have jobs, those with jobs earn less or miss raises, therefore incomes and the tax base shrink, therefore income tax revenues shrink overall). Here's Krugman on that:
For starters, we need to be aware that we don’t need a balanced budget to have a stable fiscal situation; all we need is for debt to grow no faster than GDP. At the beginning of fiscal 2012, federal debt in the hands of the public was $10 trillion. Meanwhile, most estimates of long-run growth and inflation put them at a bit more than 2 and 2 respectively; so we can reasonably say that nominal GDP growth can be expected to be more than 4 percent per year. If debt grew at 4 percent, it would grow by $400 billion. So the deficit should be scaled down by that much.
That still leaves $700 billion. Where’s that coming from?
OK, revenues were $2.45 trillion, which was 15.7 percent of GDP, at $15.5 trillion. The CBO estimates, however, that potential GDP — what the economy would have produced at full employment — was $16.5 trillion over the same period. And if the economy had been at more or less full employment, we wouldn’t just have collected taxes on the additional income; historically, the tax share of GDP varies strongly with the business cycle. If the economy had been at potential and revenue had been a historically normal 18 percent of GDP, revenue would have been more than $500 billion more than it was; even if revenue had been only 17.5 percent, it would have been almost $450 billion more than it was.
[...]
Put these together: $400 billion that doesn’t increase the debt-GDP ratio; $450 billion or so in slump-related revenue loss; $150 billion or more in slump-related expenses; and guess what: the ONE TRILLION DOLLARS is basically just a depressed-economy story, having nothing to do with any fundamental mismatch between what we want and what we’re willing to pay.
And this makes a lot of sense! The budget wasn’t deep in the red in 2007, and there have been no fundamental increases in government responsibilities or cuts in taxes since then (Obamacare won’t kick in until 2014, and it’s paid for in any case).
2. What we've seen in recent years is that austerity in a recession merely kicks up this same cycle--the more you cut spending, the worse the recession gets, and the more your revenues go down. It's like the businessman who decides to stop cutting his hair and cleaning his suits in order to save money and then gets fired for having an unpresentable appearance.
In other words, you can't cut your way to fiscal stability; you can only grow your way there. And that means spending money, or at the very least not cutting expenses.
Nor can you use arbitrarily "necessary" cuts (like those a debt-ceiling default would entail) to do an end-run around decades of democratically-negotiated budgeting. Starving the beast doesn't work, because whether or not people are willing to pay their debts, they are always willing to incur them. To go back to the household metaphor, you can try quitting your high-paying job to go work at McDonalds as a self-encouragement to scale back your expenses, but it will turn out that your spouse won't let you pull the kids out of private school, your subscription to Steak of the Month can't be canceled without 90 days notice, and you can't bear to garage sale your home entertainment center with the 10.2 Surround Sound.
I think I got a little too deep into the metaphor there, but the point is, "painful austerity now, balanced budgets later" isn't a strategy we shouldn't pursue because it's too painful now; it's a strategy we shouldn't pursue because it won't work.
I disagree with Krugman on ACA costs (the government has already spent a lot, although it pales in comparison to what the premium subsidies will cost).
But more importantly, I disagree that we can't cut spending as a way out of the hole, it just requires us to accept fewer benefits. For example, we did not have to extend unemployment benefits as far as we did, but not doing so would have meant choosing to allow a lot of people to fall into abject poverty. This may make it harder to get out of the recession, but we would still do it, the resulting picture would just be one of more income inequality than before it started. So I don't think that the choice is austerity and perpetual recession or debt financed spending and recovery. It's austerity and a recession that lasts longer and hurts people more (and for a longer time) or spending and a faster recovery, at the cost of more debt. I think the latter is clearly preferable, but preferring the former is not incoherent.
Only in so far as you think preferring a more limited government and opposing redistribution are selfish. There is certainly and argument that both are, but there are also principled normative stands in support of both that can be made without regard to personal circumstances.
Only in so far as you think preferring a more limited government and opposing redistribution are selfish. There is certainly and argument that both are, but there are also principled normative stands in support of both that can be made without regard to personal circumstances.
It also depends on what your definition of redistribution is. Both plans offer redistribution, one up, one down.
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But you are, of course, correct.
But... It is "lol retarded"
Look at every single situation where it's being implemented.
Let's take a look at an economy that chose austerity (The UK, the Eurozone) as a response to the recession and let's take a look at one that didn't (the US).
One of these things is not like the others...
Look, I'm way out of my depth. I'm not at all an economics guru. So whatever you win. I find it hard to believe that a dude who won the nobel prize in economics doesn't understand it as well as you, but ok. Austerity during a recession is stupid.
But Mitt Romney assured me Obama was all about turning us into Greece? Are you saying it's actually the other way around?
For this, we can thank the party that proudly allowed Rick Santorum to take the stage to mock people for going to college and detract the president for surrounding himself with representatives and surrogates actually knowledgeable in the subjects they're responsible for.
The purpose of all science and research is to get closer to the truth and/or facts. It doesn't mean you're infallible.
Austerity during a recession, if your goal is to spur recovery, is stupid.
If your goal is to simply reduce the debt (which is a stupid goal in tough economic times) then it's a great plan.
Paul Krugman has a Nobel as well and he pretty handily disagrees with austerity during a recession.
The Nobel award doesn't make your word the final authority.
Suppressed growth makes it more difficult to deal with debt.
the "expansionary austerity" types are generally real-business-cycle theorists; the central mechanism is that anticipations of future tax reductions drive current private demand
this is not a typically Hayekian idea; Hayek's business cycle theory is heavily driven by skepticism over the ease of long-term economic coordination at all. briefly, the central mechanism of the Hayekian business cycle is the revelation of incompatible intertemporal intentions. austerity, in this framework, is always contractionary in the short run. the sole contention is that it is less contractionary in the long run than alternative unsustainable fiscal stances. in Hayek's universe, the state's main priority is not altering anything that influences prices at all, because anything that does would make the economy explode when the plans fail to encounter their expected conditions.
I heard we can fix that with more tax cuts.
What we have is a revenue problem.
Too much revenue.
Cutting spending and taxes is just dumb. In austerity, you're supposed to raise taxes.
I have $300 that says Bush 2 thought exactly that.
Newt Gingrich said raising taxes was unchristian.
I wish I was joking.
Why not just use this opportunity to push for permanently abolishing the debt ceiling? It went from being a procedural hand wave to a gun at our temple all at once. In the former incarnation it was useless and in the latter it has been outright dangerous.
Why not just get rid of it?
I mean... I know that would never pass the House... but still.
Whereas an uncoordinated economy always seems to gravitate towards abstracted (or lately pure) gambling because the margins and rewards will always be larger when your bet is on something insubstantial (so you can just make up how much to bet - the sky's the limit) as opposed to betting on something substantial (like what the price of frozen OJ will be in a week to steal from a great movie). And fuck the guy who doesn't have a chair when the music stops. Economic collapse, hole up with your wealth, rinse, repeat.
a sympathetic SCOTUS could be argued into entrenching, as a matter of jurisprudence, that the power is already invoked whenever a budget bill is passed
but I would not bet on SCOTUS accepting that
Congress has the power to spend and borrow, but it's arguably unconstitutional to not honor that debt (read: hit a debt ceiling after the spending has been passed and thus default) due to the 14th Amendment.
The current SCOTUS of course wouldn't probably rule this way because at least two members have no interest in objectivity and one, Scalia, doesn't even have any interest in his own jurisprudence so the idea that he even cares about what is and isn't constitutional is suspect at best.
well
hayek goes "intertemporal coordination is very important. but the market is also very fragile. can't interfere."
you could go the other route and say "intertemporal coordination is very important. but the market is also very fragile. we'd better conduct intertemporal coordination via the Gosplan instead"
I will counterbalance... and tilt at windmills, probably.
He damn near said it in those debates with Gore. That was the whole justification for the tax cut program. It was simplistic and incredibly shortsighted but it made people feel good at the time.
Not really a bad summation for President W. Bush's first term, actually.
I must say I fell into the trap of thinking the 14th Amendment was preferable to Big Johnny (what I'll call TDC from now on, as I imagine it'll have a crying John Boehner on its face), even going so far as to make a thread about it.
But if you think about it, while I think a forward thinking court would agree with the interpretation that the debt ceiling is unconstitutional, I'm not sure this court, or any court the US has had or will have in the reasonable future would agree.
I love TDC as the nuclear option.
I'm not sure I love the idea of it actually happening, but I want the Republicans know that's the inevitable result of them being obstructionist dicks.
Best case scenario would be them greenlighting Obama, but more than likely they'd call it a political question and tell congress and Obama to figure it out.
Yeah, arguing along the grounds of a pissing match over who has bigger credentials is stupid, and an appeal to authority. Especially when you consider that the Nobels can and were given for economic insights that weren't directly related to macroeconomic world views. Krugman's Nobel was due to his work in trade theory.
The real test is how well your models match up with what actually happens in reality, and whether their predictions hold up or not. This is where the Austrians and austerity cheerleaders have been shown to be true failures. A big one is that they've been predicting that the stimulative efforts of the government and Federal Reserve and the massive expansion of the monetary base in the aftermath of the financial crisis would lead to runaway inflation and large spikes in interest rates. They kept saying that would happen repeatedly in the past few years, any day now, and nope, did not happen. Another big one is that the pro-austerity folks predicted that the austerity measures in Europe wouldn't be as bad and contractionary to the economies of the countries forced into them, due to improvements in things like business confidence. Instead, we've faced the long, slow stagnation that the Keynesians had predicted ahead of time.
When the IMF made their big reversal earlier, it was so important because they were one of the key institutional cheerleaders of the austerity side of the argument for a very long time. Then they looked at the numbers, and rather surprisingly said "oops, never mind." Most of the folks in that camp have just dug their heels deeper when faced with evidence that contradicts their theory. The problem is that we haven't bled the patient enough, and so forth.
Do note that this doesn't line up exactly with the partisan struggle in DC right now, because most of the Republicans have a worldview that is no where near as coherent as the Austrians. The congressional Republicans, outside of true believers like Ron Paul, mostly just pick and choose what reinforces their preexisting prejudices. There are the Republican Keynesian economists who are welcomed on board when the discussion is just about cutting taxes, but now they turn to the austerity-is-best folks because they love the whole shrinking government part of their argument. Pay no attention to when the Keynesians would suggest raising spending on something other than defense, or the coherent members of the austerity crew would want to raise taxes to balance the budget.
The UK is the real comparison to us, since they were not strongarmed into choosing austerity by a debt crisis. They just choose to do so for political reasons. Last I checked it did not work out as advertised for them.
The Euro is, quite frankly, a giant mess, and I'm a bit amazed that it has puttered along as long as it has. The big problem with the US and the dollar in the financial discussions right now is a dysfunctional political system, whereas for the Eurozone and the Euro they actually have fundamental problems with how their currency is set up. Namely, they were rather shortsighted in adopting a shared currency in the wide variety of countries with rather different cultures, languages, and budgetary outlooks without tying them together with stronger fiscal integration. They don't have the central government that the US has that is able to smooth out asymmetrical shocks, and the way we funnel money from one state to another in the US would be politically untenable for shifting funds from one country to another in Europe. Consider that all the efforts to prop up the insolvent and collapsing Greece were focused on giving them bridge loans and writing down some of the debt, rather than outright handing them direct aid from gifted money.
Earlier there were arguments over how bad a default on the US debt would be, and part of the problem is that we really don't know exactly what would happen because it would be so chaotic. It would be a completely unforced collapse of what was supposed to be the safe world currency, so it is hard to imagine how that wouldn't take out tons of other things with it. The Euro is in terrible enough shape as it is, I don't see how it could weather that sort of a calamity and continue to exist in its current form. China's currency has been maintaining a peg to the dollar, and while they could try to jump overboard in a crisis I don't see how it would be anything but way too late due to how interconnected the US and Chinese economies have become.
The reason why so many people are taking such absurd things as the trillion dollar coin so seriously is because contemplating the alternative requires peering into the void. We would be lucky if it turns out to only be as bad as a government shutdown.
1. Much of the current deficit is due to the recession itself, because it increases earned benefit payments (more people need unemployment) and decreases revenues (fewer people have jobs, those with jobs earn less or miss raises, therefore incomes and the tax base shrink, therefore income tax revenues shrink overall). Here's Krugman on that:
2. What we've seen in recent years is that austerity in a recession merely kicks up this same cycle--the more you cut spending, the worse the recession gets, and the more your revenues go down. It's like the businessman who decides to stop cutting his hair and cleaning his suits in order to save money and then gets fired for having an unpresentable appearance.
In other words, you can't cut your way to fiscal stability; you can only grow your way there. And that means spending money, or at the very least not cutting expenses.
Nor can you use arbitrarily "necessary" cuts (like those a debt-ceiling default would entail) to do an end-run around decades of democratically-negotiated budgeting. Starving the beast doesn't work, because whether or not people are willing to pay their debts, they are always willing to incur them. To go back to the household metaphor, you can try quitting your high-paying job to go work at McDonalds as a self-encouragement to scale back your expenses, but it will turn out that your spouse won't let you pull the kids out of private school, your subscription to Steak of the Month can't be canceled without 90 days notice, and you can't bear to garage sale your home entertainment center with the 10.2 Surround Sound.
I think I got a little too deep into the metaphor there, but the point is, "painful austerity now, balanced budgets later" isn't a strategy we shouldn't pursue because it's too painful now; it's a strategy we shouldn't pursue because it won't work.
Good point. But them having the Euro also prevents them from increasing inflation to reduce debt, so reducing debt is difficult anyway.
I disagree with Krugman on ACA costs (the government has already spent a lot, although it pales in comparison to what the premium subsidies will cost).
But more importantly, I disagree that we can't cut spending as a way out of the hole, it just requires us to accept fewer benefits. For example, we did not have to extend unemployment benefits as far as we did, but not doing so would have meant choosing to allow a lot of people to fall into abject poverty. This may make it harder to get out of the recession, but we would still do it, the resulting picture would just be one of more income inequality than before it started. So I don't think that the choice is austerity and perpetual recession or debt financed spending and recovery. It's austerity and a recession that lasts longer and hurts people more (and for a longer time) or spending and a faster recovery, at the cost of more debt. I think the latter is clearly preferable, but preferring the former is not incoherent.
Only in so far as you think preferring a more limited government and opposing redistribution are selfish. There is certainly and argument that both are, but there are also principled normative stands in support of both that can be made without regard to personal circumstances.
It also depends on what your definition of redistribution is. Both plans offer redistribution, one up, one down.