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The cost of austerity

Posted by david52 z5CO (My Page) on
Mon, Sep 23, 13 at 18:00

At the link is an analysis of the devastating effects from famous Excel spread sheet mistake, leading the authors to conclude that austerity in the time of serious economic depression is the best way to go, and deficit spending would worsen things. And off they went, particularly in Europe, slashing spending during the economic crisis.

And later, some other researchers discovered the mistake, but by then it was too late.

some excerpts:

None of this means that countries can simply pile on as much debt as they want. Kimball and Wang, for example, warned that "unless the borrowed money is spent in ways that foster economic growth in a big way, paying it back or paying interest on it forever will mean future pain in the form of higher taxes or lower spending." In other words, if borrowed money is spent wisely - for example, on roads or electric grids - then it will promote future growth, which makes paying down the debt manageable. If it's not, high debt might indeed cause future pain.

But that's a mere caveat. Within reason, what these new studies tell us is that increased national debt simply isn't likely to cause growth to slow down. In fact, it might be just the opposite. Increasing the debt in a situation like the one we face now might, by spurring a faster recovery, produce lower debt in the long run."

snip

In some cases it can be even worse. Thanks to massive austerity forced on Spain by the European Union, the unemployment rate there stands at 27 percent. That's higher than what the United States suffered even in the depths of the Great Recession. Nearly 10 percent of the country has been without work for more than two years. And among the young, the unemployment rate is 57 percent.

Let that sink in for a minute. More than half of the young people in Spain are out of work. The figures are just as bad in Greece, and only modestly less catastrophic in Ireland, Italy, and Portugal. Countries have succumbed to armed revolution - and dragged the world into crisis - for less.

snip

Our obsession with austerity has hurt us in other ways, too. Interest rates, for example, have been at historic lows for the past four years. Until recently, in fact, real interest rates were actually negative, which means the federal government could have spent money and then paid back less than it borrowed in the first place. This was a once-in-a-generation opportunity to repair our decaying infrastructure at bargain rates: roads, bridges, airports, rail lines, local transit, electrical grids, gas pipelines, internet backbones, and much more.

And doing so would have been a twofer: These are all projects that employ workers now and contribute to higher economic growth in the future. We're still going to have to perform all this maintenance eventually, but we've missed our chance to do it on the cheap.

And that's not the worst of it. David Stuckler and Sanjay Basu, of Oxford University and Stanford, respectively, have studied austerity episodes both in the past and in other countries, and their conclusion is grim: "Recessions can hurt, but austerity kills." During the Great Depression, they found, states that implemented New Deal programs most quickly saw significant declines in infectious diseases, child mortality, and suicides. snip

end quotes

And we poured borrowed money into Iraq and Afghanistan, wonderful economic investments in the future, well before the Great Recession hit. The article sorta passes over that aspect......

Here is a link that might be useful: link


Follow-Up Postings:

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RE: The cost of austerity

I was all for big business until they forgot their roots in r&d, and became so greedy for wages given NOT earned...


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RE: The cost of austerity

Capitalism only works well if ethics and integrity are maintained... and clearly, there's an issue with greed and gluttony that's hurting the bottom line.


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RE: The cost of austerity

"Countries have succumbed to armed revolution - and dragged the world into crisis - for less."

Well, no, not really, because being unemployed in the developed world does not bring the kind of impoverishment that it used to. If you were an unemployed Irish farm-laborer in 1847 you watched your children die. Now you sip ale down at the pub and talk politics.


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RE: The cost of austerity

"Now you sip ale down at the pub and talk politics."

Yes, and here we are. What's your pleasure?

And if you get a hangover, remember that the best cure for a hangover is more drinking.

I love it that we keep hearing that the government should be taking advantage of all these low interest rates to do this and that. Fact is, the rates are so low because it's the government doing the lending. Bernanke keeps those presses running day and night.

Will he sell these bonds that he's buying? Will he be able to sell them? Will he just decide to leave all that money out there? What will happen then? I need a drink.

Does a drink come with the free lunch?

All that stimulating? I know, I know, it just wasn't enough.

I've decided not to work. Creates more work for the ones who really need it. If we were all as kind and compassionate as I am, this country would have put this recession far behind us a long time ago.

Hay


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RE: The cost of austerity

It would help if we Americans would at least bring out money back home to help our own, rather than squandering it on foreign nations who have no love for us at all, and rather than attempting useless "regime changes" and involving ourselves in civil wars of other nations. Wouldn't that at least be a beginning?


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RE: The cost of austerity

We're still left today with an infrastructure that needs serious upgrades and reinvestment - roads, bridges, schools, power grid, etc.

In fact, many have gotten far worse because of the recession.

So instead of repairing all this when interest rates are near zero, we can wait until they're much higher, and the repairs are far more expensive.

Let alone all those jobs that would have been created.

However, as I said above, the huge amount of money squandered with Iraq and Afghanistan has no future economic benefit for the US - there are no new schools here, no high speed internet everywhere in rural America, no new bridges and so on that would increase our future efficiency.

"Bilmes said the United States has spent almost $2 trillion already for the military campaigns in Afghanistan and Iraq. Those costs, she said, are only a fraction of the ultimate price tag. The biggest ongoing expense will be providing medical care and disability benefits to veterans of the two conflicts.

“Historically, the bill for these costs has come due many decades later,” the report says, noting that the peak disbursement of disability payments for America’s warriors in the last century came decades after the conflicts ended. “Payments to Vietnam and first Gulf War veterans are still climbing.”

Spending borrowed money to pay for the wars has also made them more expensive, the study noted. The conflicts have added $2 trillion to America’s debt, representing roughly 20 percent of the debt incurred between 2001 and 2012.

Bilmes’s estimate provides a higher range than another authoritative study on the same issue by Brown University’s Eisenhower Research Project. Brown researchers put the price tag at roughly $4 trillion."

Here is a link that might be useful: link


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RE: The cost of austerity

I couldn't get David's original link to work... but this one does...

And... Oops...

Here is a link that might be useful: Coding Error...


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RE: The cost of austerity

"We're still left today with an infrastructure that needs serious upgrades and reinvestment - roads, bridges, schools, power grid, etc

I just drove about 700 miles or so in the past couple of days. Wonderful travel. Tooling along at 70 MPH with nary a problem. Bridges and tunnels all held up, thank goodness.

One nice bonus: None of those god awful "construction delays". Nothing but smooth sailing the whole way.

"So instead of repairing all this when interest rates are near zero, we can wait until they're much higher, and the repairs are far more expensive.

So I just took a hundred dollars out of my left pocket and put it in my right pocket. A loan. I'm not going to charge myself one penny in interest. (That way I won't have to pay income tax on the earnings.) Going on a spending binge for the day. With rates that low, how could I resist?

"However, as I said above, the huge amount of money squandered with Iraq and Afghanistan has no future economic benefit for the US - there are no new schools here, no high speed internet everywhere in rural America, no new bridges and so on that would increase our future efficiency."

Oh, you silly boy. Did you forget that magic "multiplier effect". Remember, most of that money got spent right here in the USA. It's been multiplying like crazy. The more we spend, the more we multiply.

And don't worry about all that money that we take overseas. It just means it won't be competing for the goods and services that the poor need here in the USA.

Naive Economics 101. We don't need to be spending any more money educating ourselves about economics. What else you want to know?

Now I'm off. Driving around. Drive by the old sweetheart's house on my way to Memory Lane.

$100 in my pocket to spend. Yehaw!!

Hay


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RE: The cost of austerity

Not much multiplier effect here in the US from spending billions so that trucks made in Pakistan filled with fuel from Saudi Arabia can get across the Kyber Pass without being torched by the Taliban.

The recent floods in Colorado destroyed over 100 miles of highway and 50 bridges, and the estimates of damaged roads (versus destroyed) will take months to determine. That would be the hundreds of miles of county and state roads that need to be repaired and resurfaced, culverts replaced, the powerlines replaced, the sewage and water treatment, all the irrigation canals full of silt, and so on.

Similar to the damage from Hurricane Irene up in Vermont and New England - small stuff, but it matters if you live there, eh?

Congress won't vote on any relief bill what with the teabaggers and their mindless fetish with obamacare.


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RE: The cost of austerity

"As historic floods of “biblical” proportions continue to ravage Colorado, President Obama signed an emergency declaration on Sunday ��" a move that was encouraged by a bipartisan letter last week from the state’s nine-member Congressional delegation. But the four Republican Congressmen who are now supporting disaster relief for their own state were among those voting earlier this year against the emergency aid funding for Superstorm Sandy victims on the East Coast."

Here is a link that might be useful: Oh, Now They Want It...


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RE: The cost of austerity

Multiplier, schmultiplier.

The energy to make stuff to pay people has to exist. It's less every day, or if it isn't we can't withstand the damage from hydraulic fracturing for gas and strip-mining and processing tar sands for many more years.


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RE: The cost of austerity

The recent floods in Colorado destroyed over 100 miles of highway and 50 bridges, and the estimates of damaged roads (versus destroyed) will take months to determine. That would be the hundreds of miles of county and state roads that need to be repaired and resurfaced, culverts replaced, the powerlines replaced, the sewage and water treatment, all the irrigation canals full of silt, and so on.

Similar to the damage from Hurricane Irene up in Vermont and New England - small stuff, but it matters if you live there, eh?

New England? I've heard of that place.

Don't you wish that Obama hadn't spent so much of that "stimulus money" in my county on that road to nowhere? I haven't actually seen the improvement myself. Haven't had any need to get to nowhere. Even after they improved it.

Bet you could put that spent money to good use in Colorado now, eh? Too bad, it's all been spent. Sorry, Charlie.

We could always borrow some more, I guess. There's no limit to that. Hire more people to man those printing presses. Win-win.

"Not much multiplier effect here in the US from spending billions so that trucks made in Pakistan filled with fuel from Saudi Arabia can get across the Kyber Pass without being torched by the Taliban.

Relax, it'll pick up steam and by the time it hits here, you'll be simply amazed at the multiplication effect. Don't forget, we give the dollars for all those trucks and gasoline. If it stays there, we win and they get some cute green pictures of the Presidents. If they spent it here, well, the multiplication goes on and on and on. I don't think there's any limit to the bounty we can expect. Be patient.

Naive Economics 201.

And, we don't need more schools. Jodi barely got out of high school and she knows all anybody needs to know about economics.

Here in "Downtown Historic Area of My Home Town" at the public library. A town and a library that's got to be a hundred times bigger than when I grew up.

I personally wish they'd stop building things. I liked it just like it was.

Hay


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RE: The cost of austerity

Be patient, the check is in the mail...


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RE: The cost of austerity

"The energy to make stuff to pay people has to exist. It's less every day...

Ever hear of a guy named Einstein? E and MC squared and all that nonsense?

You need to rethink this notion that somehow we're going to be running out of energy. There's a lot of mass out there just waiting for some innovative greedy, gluttonous (economics as taught by Jodi), person to get inspired.


It'll happen.


Keep on pooping

Heard about that from my redneck brother-in-law last night.

Dumb Southerners, what do they know?

Hay


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RE: The cost of austerity

Go ahead and make fun, Hay... you know it's true.


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RE: The cost of austerity

Oh yes, the biomass business is so effective that we not only didn't need to bother with hydraulic fracturing or tar sands but we have quit offshore drilling and we're thinking about shutting down the high-quality crude oil wells.

Thank goodness, imagine all the damage that would have been done to the planet otherwise, if we weren't getting our energy to "grow the economy" from trash-heaps and shite-digesters.


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RE: The cost of austerity

"Go ahead and make fun, Hay... you know it's true."

I don't even know what it means. It's just empty words.

Hay


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RE: The cost of austerity

Never mind, Hay... if I have to explain, you wouldn't understand.


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RE: The cost of austerity

Never mind, Hay... if I have to explain, you wouldn't understand.

Thanks for sparing me.

Time to go get my "free" continental breakfast. Free! And you want to call the corporations greedy?

Hay


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RE: The cost of austerity

  • Posted by kwoods Cold z7 Long Is (My Page) on
    Thu, Sep 26, 13 at 9:52

Why would you not invest in something you're going to need when it's cheap? Not only are costs of materials, production, labor relatively cheap right now, the cost of borrowing is ridiculously inexpensive.

A Haystory; I just hired a guy to repair my dilapidated front porch. The labor and materials were so inexpensive I took out a small loan and had him do some additional work. He took the money I paid him and bought my neighbor's used car so he could take his wife dancing on Saturday nights. My neighbor went dancing too.

My family saw the benefits of my investment immediately, we do love to sit on the front porch and watch the world go by..... and, when I sell the house we'll all go dancing with the additional profit from my shrewd investment!

Rudiments of Naive Economics.


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RE: The cost of austerity

"Why would you not invest in something you're going to need when it's cheap?"

Like another road to Nowhere? Who knows, we may want to live there someday.

Need? I'm going to be needing someone to take care of me when I'm old. I should go borrow some money and then....Kinda hard for me to figure out how I should do that.

Need? I may need another car some day. Should I go buy one now and park it out in my field, waiting for that day?

Need? Beer, wine and some food in my old age. Beer keeps for a short time unless it's properly cellared. Should I start buying some of that long term survival food?

I really don't know that I "need" much right now. Down the road, when I'm not making any money, I'm going to be needing a lot of money.

I'm going to be needing a lot of money just like this country as a whole is going to be needing a lot of money. Later on. Especially given the course we've set ourselves. Social Security, Medicare and Obamacare are going to push us even farther into debt than our already historic highs.

And you think we should go borrow some more to build something we might need? Like a porch to sit on in our old age? I hope you got a rocking chair out of the deal. I hope you're prepared to keep the porch in good shape. Porches rot, they don't sit there and grow like the investments we need.

And once again, rates are so low because it's the Fed that's doing the cheap "lending". It's as simple as printing paper.

Naive Economics 301.

Hay


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RE: The cost of austerity

Multipliers. Naive Macroeconomics 101

I decided to pay my cousin, Ethel, to wash my dishes. She comes over every day now.

Because she's so busy with that, she hires her niece, June, to do her dishes.

June, who used to do her own dishes, now hires the woman down the street, Lydia, to do her dishes.

Lydia hires Mary. Mary hires Ellen....

How much have we multiplied so far? Best idea I've had all morning.

Get Krugman on the phone.

Hay


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RE: The cost of austerity

  • Posted by kwoods Cold z7 Long Is (My Page) on
    Fri, Sep 27, 13 at 12:07

Ha! I'll take your whirling non-refutation as an admission you actually do see the light.

Investment in infrastructure is needed (required) to stage for future growth. We do this all the time in the private sector.... we call it "ramping up". Do it now while costs are cheap or do it later when you're getting crushed by growth, things start falling apart and costs are higher.

I think I'll call one of my vendors now and see if I can strike a deal that saves me money and puts food on his table.


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RE: The cost of austerity

"Ha! I'll take your whirling non-refutation as an admission you actually do see the light."

Fine with me.

" Do it now while costs are cheap or do it later when you're getting crushed by growth, things start falling apart and costs are higher."

Like I said, me, you and a huge percentage of the population is going to be needing food, beer, and someone to change our diapers in the future.

Tell me what I should do with my money now to ensure that I can afford that kind of care.

Build a new porch that will rot before I do?

Hay


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