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Yea but its gonna work here

Posted by david52 z5CO (My Page) on
Fri, Dec 7, 12 at 16:58

"With all the theatrics going on in Washington, you might well have missed the most important political and economic news of the week: an official confirmation from the United Kingdom that austerity policies don't work.

In making his annual Autumn Statement to the House of Commons on Wednesday, George Osborne, the Chancellor of the Exchequer, was forced to admit that his government has failed to meet a series of targets it set for itself back in June of 2010, when it slashed the budgets of various government departments by up to thirty per cent. Back then, Osborne said that his austerity policies would cut his country's budget deficit to zero within four years, enable Britain to begin relieving itself of its public debt, and generate healthy economic growth. None of these things have happened. Britain's deficit remains stubbornly high, its people have been suffering through a double-dip recession, and many observers now expect the country to lose its "AAA" credit rating.

One of the frustrations of economics is that it is hard to carry out scientific experiments and prove things beyond reasonable doubt. But not in this case. Thanks to Osborne's stubborn refusal to change course- "Turning back would be a disaster," he told Parliament - what has been happening in Britain amounts to a "natural experiment" to test the efficacy of austerity economics. For the sixty-odd million inhabitants of the U.K., living through it hasn't been a pleasant experience - no university institutional-review board would have allowed this kind of brutal human experimentation. But from a historical and scientific perspective, it is an invaluable case study.

At every stage of the experiment, critics (myself included) have warned that Osborne's austerity policies would prove self-defeating. Any decent economics textbook will tell you that, other things being equal, cutting government spending causes the economy's overall output to fall, tax revenues to decrease, and spending on benefits to increase. Almost invariably, the end result is slower growth (or a recession) and high budget deficits. Osborne, relying on arguments about restoring the confidence of investors and businessmen that his forebears at the U.K. Treasury used during the early nineteen-thirties against Keynes, insisted (and continues to insist) otherwise, but he has been proven wrong.

With Republicans in Congress still intent on pursuing a strategy similar to the failed one adopted by the Brits, this is a story that needs trumpeting. Austerity policies are self-defeating: they cripple growth and reduce tax revenues. The only way to bring down the U.S. government's deficit in a sustainable manner, and put the nation's finances on a firmer footing, is to keep the economy growing. Spending cuts and tax increases can also play a role, but they need to be introduced gradually.

- snip

A comparison with what has happened on this side of the Atlantic is illuminating. For the purposes of the natural experiment, the U.S. can be thought of as the control. In adopting a fiscal stimulus of gradually declining magnitude over the past four years, the Obama Administration has administered what was, until recently, the standard medicine for a sick economy.

As one would have expected on the basis of the textbooks, the American economy, while hardly racing ahead, has fared considerably better than its British counterpart. Between 2010 and 2012, G.D.P. growth here has averaged about 2.1 per cent. For the U.K., the figure is 0.9 per cent. What may be more surprising -- "at least to those of you who have been listening to the deficit hawks -- "is that the United States, while sticking with Keynesian stimulus policies, has also managed to bring down the size of its deficit, relative to G.D.P., almost as rapidly as hairshirt Britain has. - snip-

Let’s go over that one more time. Having adopted the policies of Keynes in response to a calamitous recession, the United States has grown more than twice as fast during the past three years as Britain, which adopted the economics of Hoover (and Paul Ryan). Meanwhile, the gaping hole in the two countries’ budgets has declined at roughly the same rate, and next year the U.S. will be in better fiscal shape than its old ally."

end quote
Nobody wants to admit that the government is an integral part of the economy, and if you intentionally and drastically cut it, you cut a big piece out of the economy. Just as nobody wants to admit that it isn't so much Obama spending thats run up the deficit, its the trashed economy inherited from Bush and the drastically lowered revenues.

Duh.

Here is a link that might be useful: link


Follow-Up Postings:

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RE: Yea but its gonna work here

As in Well Duh! When people quit thinking that the economy is about money and the deficit is about money and any of it bears any resemblence to someone's family budget or some business then things will go better for everyone. Economies are a virtual life form.


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RE: Yea but its gonna work here

Duh is right!

And yet another reason to thank our lucky stars that Romney lost and Obama won.

Oh, I really love the sound of that...Romney lost and Obama won. Yes, I am still giddy.


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RE: Yea but its gonna work here

Here it is in a nutshell:
Austerity policies are self-defeating: they cripple growth and reduce tax revenues. The only way to bring down the U.S. government's deficit in a sustainable manner, and put the nation's finances on a firmer footing, is to keep the economy growing. Spending cuts and tax increases can also play a role, but they need to be introduced gradually.

Yes, jill, thank our lucky stars--Romney lost and Obama won.

Now you got me all giddy again also!

Kate


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RE: Yea but its gonna work here

Y=C+I+G+NX

Econ 101


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RE: Yea but its gonna work here

I find it interesting that Obama wanted to lower the corporate income tax rate to 25 percent which is just what McCain wanted to do when he was running. Somehow, when Obama says it, it's not "tax cuts for the rich". :)


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RE: Yea but its gonna work here

Yes he's tried to adopt a number of Republican Conservative ideas just when he does fools turn the other direction.
How long till you post about Michigan's UNIONS?


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RE: Yea but its gonna work here

david52 said

"Nobody wants to admit that the government is an integral part of the economy, and if you intentionally and drastically cut it, you cut a big piece out of the economy."

This is so true. I work with a lot of the VA hospitals in the Midwest and I can tell you that they are a big player in the economy of the communities they are based in. Decent jobs for the residents in the community, restaurants and other small businesses exist because of the high traffic created from the VA. Local vendors supply the VA�s with everything from staples to prosthetic legs. Cut backs would not be beneficial to the communities which support these hospitals.


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RE: Yea but its gonna work here

"Let's get one thing straight: America is not facing a fiscal crisis. It is, however, still very much experiencing a job crisis.

It's easy to get confused about the fiscal thing, since everyone's talking about the "fiscal cliff." Indeed, one recent poll suggests that a large plurality of the public believes that the budget deficit will go up if we go off that cliff.

In fact, of course, it's just the opposite: The danger is that the deficit will come down too much, too fast. And the reasons that might happen are purely political; we may be about to slash spending and raise taxes not because markets demand it, but because Republicans have been using blackmail as a bargaining strategy, and the president seems ready to call their bluff.

Moreover, despite years of warnings from the usual suspects about the dangers of deficits and debt, our government can borrow at incredibly low interest rates - interest rates on inflation-protected U.S. bonds are actually negative, so investors are paying our government to make use of their money. And don't tell me that markets may suddenly turn on us. Remember, the U.S. government can't run out of cash (it prints the stuff), so the worst that could happen would be a fall in the dollar, which wouldn't be a terrible thing and might actually help the economy.

Yet there is a whole industry built around the promotion of deficit panic. Lavishly funded corporate groups keep hyping the danger of government debt and the urgency of deficit reduction now now now - except that these same groups are suddenly warning against too much deficit reduction. No wonder the public is confused.

Meanwhile, there is almost no organized pressure to deal with the terrible thing that is actually happening right now - namely, mass unemployment. Yes, we've made progress over the past year. But long-term unemployment remains at levels not seen since the Great Depression: as of October, 4.9 million Americans had been unemployed for more than six months, and 3.6 million had been out of work for more than a year.

When you see numbers like those, bear in mind that we're looking at millions of human tragedies: at individuals and families whose lives are falling apart because they can't find work, at savings consumed, homes lost and dreams destroyed. And the longer this goes on, the bigger the tragedy.

There are also huge dollars-and-cents costs to our unmet jobs crisis. When willing workers endure forced idleness society as a whole suffers from the waste of their efforts and talents. The Congressional Budget Office estimates that what we are actually producing falls short of what we could and should be producing by around 6 percent of G.D.P., or $900 billion a year.

Worse yet, there are good reasons to believe that high unemployment is undermining our future growth as well, as the long-term unemployed come to be considered unemployable, as investment falters in the face of inadequate sales.

So what can be done? The panic over the fiscal cliff has been revelatory. It shows that even the deficit scolds are closet Keynesians. That is, they believe that right now spending cuts and tax hikes would destroy jobs; it's impossible to make that claim while denying that temporary spending increases and tax cuts would create jobs. Yes, our still-depressed economy needs more fiscal stimulus.

And, to his credit, President Obama did include a modest amount of stimulus in his initial budget offer; the White House, at least, hasn't completely forgotten about the unemployed. Unfortunately, almost nobody expects those stimulus plans to be included in whatever deal is eventually reached.

So why aren't we helping the unemployed? It's not because we can't afford it. Given those ultralow borrowing costs, plus the damage unemployment is doing to our economy and hence to the tax base, you can make a pretty good case that spending more to create jobs now would actually improve our long-run fiscal position.

Nor, I think, is it really ideology. Even Republicans, when opposing cuts in defense spending, immediately start talking about how such cuts would destroy jobs - and I'm sorry, but weaponized Keynesianism, the assertion that government spending creates jobs, but only if it goes to the military, doesn't make sense.

No, in the end it's hard to avoid concluding that it's about class. Influential people in Washington aren't worried about losing their jobs; by and large they don't even know anyone who's unemployed. The plight of the unemployed simply doesn't loom large in their minds - and, of course, the unemployed don't hire lobbyists or make big campaign contributions.

So the unemployment crisis goes on and on, even though we have both the knowledge and the means to solve it. It's a vast tragedy - and it's also an outrage."

Here is a link that might be useful: link


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RE: Yea but its gonna work here

Krugman should be Obama's financial adviser.

Look how Greece is suffering under the austerity mandated by its lenders. Aren't the rich educated in history?


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RE: Yea but its gonna work here

The govt of Greece is causing Greece to self-destruct. Years and years of increased govt spending and regulation has taken its toll. It always does. Any country that is free, will prosper. That is what history teaches us. Govts destroy countries and create misery.


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RE: Yea but its gonna work here

Such a cynic. And much too broad a generalization to mean much of anything--except as a political sign slogan for a T-Party or libertarian conference, perhaps.

Perhaps if you said bad government can destroy a country, more people could agree with you. But that all governments in all cases have destroyed their countries--no, most thoughtful people will not agree with that grossly overstated point.

Kate


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