'The Austerity Trap'

[midcan5]

When you consider some of the best times in America, think of FDR spending on Infrastructure, WWII spending and building, Eisenhower's Interstate Highway system, and then think of this crazy idea that austerity works wonders. Article below graphic.

"The Eurozone is in a deep recession. Some members even face conditions not seen since the Great Depression. Spanish unemployment tops 27 percent, with half of its youth unemployed. Not to worry, say the elites of the European Central Bank. Spain, Italy, Ireland, Portugal, and Greece, aptly abbreviated as the PIIGS, are getting what they deserve. They have spent beyond their means. Once they reduce their deficits—preferably by cutting benefits and services—confidence in the markets will increase and investments will flow in. Swallow your medicine, eat your vegetables, and all will be okay. Here in the US, despite persistent unemployment, budget deficits remain an obsession, at least with the elites. This conventional wisdom now has a new name, expansionary austerity. Austerity in its various forms and guises is the subject of a comprehensive and provocative new study, Austerity: The History of a Dangerous Idea by Brown University political economist Mark Blyth."

The Contemporary Condition: The Austerity Trap

'John Buell is a columnist for The Progressive Populist and a faculty adjunct at Cochise College. His most recent book is Politics, Religion, and Culture in an Anxious Age.'

And this. How the Case for Austerity Has Crumbled by Paul Krugman | The New York Review of Books

http://www.usmessageboard.com/clean-debate-zone/294225-censorship-in-america.html#post7249479

 

[martybegan]

The opposite of austerity is just as bad when governments don't follow the rules keyes himself set up. The idea of excess government spending during periods of economic recession was orginally paired with said government paying off the debt it aquired during periods of economic recovery/expansion.

When we perform deficit spending now, we ignore the 2nd part. So when the economy recovers and government revenue increases, the people in power, instead of paying down the debt, use the revenue for all sorts of new spending, much of it becoming permanent, so when the next recession cycle hits, we increase spending again to deficit level, but now at a higher overall amount, and the debt does not get repaid.

 

[itfitzme]

The opposite of austerity is just as bad when governments don't follow the rules keyes himself set up. The idea of excess government spending during periods of economic recession was orginally paired with said government paying off the debt it aquired during periods of economic recovery/expansion.

When we perform deficit spending now, we ignore the 2nd part. So when the economy recovers and government revenue increases, the people in power, instead of paying down the debt, use the revenue for all sorts of new spending, much of it becoming permanent, so when the next recession cycle hits, we increase spending again to deficit level, but now at a higher overall amount, and the debt does not get repaid.

Agree with most of it. *Not in agreement with the "Just as bad" part.

It may be a more resolved scale proper fiscal popicy being best, austerity during recession is the worst, and constant debt level spending somewhere in between. *

Monetary hypothesis suggest that the economic downturn following the Clinton era deficit reduction may have been caused by the deficit reduction. *As the monetary model goes, public debt equals private savings and paying down public debt reduces private savings. Though not explicitly stated in the article, paying down the public debt can also just shift it to the private markets.


Just a consideration.

 

[Staidhup]

Once upon a time $1,000,000 meant something, today its a fraction of the value, tomorrow it will be the cost of a loaf of bread. The problem with government spending is the amount the government thinks it should spend.

 

[itfitzme]

Once upon a time $1,000,000 meant something, today its a fraction of the value, tomorrow it will be the cost of a loaf of bread. The problem with government spending is the amount the government thinks it should spend.

What fraction? *The formula is FV = PV*(1+r)^n where PV is present value, FV is future value, r is interest *rate (in this case the average rate of inflation), and n is the number of periods (years in this case).

So, we expect that $1 mil does not mean the same. *At 3.5% inflation (r=.035), n=10 years would result in needing FV= $1.4 mil to have the same real value as PV=$1 mil.

The fraction would then be PV/FV = 1/(1+r)^n which *is about 71% or 7/10ths as a fraction.

This is, of course, this is why we use real vs nominal dollars. *In theory, as the CPI rises, incomes also rise. *Of course, income for people at middle income levels has not kept up with inflation. *On the other hand, people in the upper income levels has risen higher then inflation.

A better measure is spending power. *This is some income index divided by the cost of living. For wage earners, there is a standard wage index. *

Last I looked, that one was stable.

For middle and upper incomes, we would have to come up with one, perhaps by using income quintiles. *


When we do, though I cannot present the data, it is elsewhere, we will find that indeed, people making $1 mil have seen their income increase and "$1mil" is more. *On the other hand, for the middle class, spending power fell.

That said, what does any of it have to do with government spending? *Maybe you meant them to be two different paragraphs. *

The rate of inflation is controlled by the Federal Reserve. *Government spending is controlled by Congress and the Executive branch. *They have very little, if anything, to do with each other.

Simply put, government spending does not cause inflation. Inflation is intentially caused by the Federal Reserve.

"Inflation is always and everywhere a monetary problem"

 

[EdwardBaiamonte]

and then think of this crazy idea that austerity works wonders.

I don't think anyone said it works wonders, just that Germany won't provide desperately needed loans[ that it can make thanks to its own austerity] to Greece, for example, until Greece cuts other spending enough so that it can repay the loans!

The choice for Europe is austerity or anarchy, and of course austerity is far far better.

 

[EdwardBaiamonte]

[
Simply put, government spending does not cause inflation. Inflation is intentially caused by the Federal Reserve.

"Inflation is always and everywhere a monetary problem"

that was true but now that the Fed is buying 75% of the deficit, government spending and Fed are very closely linked.

 

[Rshermr]

Was that a sentence???? No, of course not. Did you think it was a sentence??

 

[Moonglow]

Once upon a time $1,000,000 meant something, today its a fraction of the value, tomorrow it will be the cost of a loaf of bread. The problem with government spending is the amount the government thinks it should spend.

Which has nothing to do with the price of bread.

 

[Moonglow]

Was that a sentence???? No, of course not. Did you think it was a sentence??

he left out vodka.

 

[itfitzme]

A loaf of bread cost approx $3.00, depending. How long will it take, at a 4% rate of inflation, for it to cost $1mil?

About 325 years.

 

[EdwardBaiamonte]

Simply put, government spending does not cause inflation. Inflation is intentially caused by the Federal Reserve.

now that the liberal Fed is dutifully printing money to pay for government deficit spending, inflation and government spending are very closely linked.

 

[boedicca]

A loaf of bread cost approx $3.00, depending. How long will it take, at a 4% rate of inflation, for it to cost $1mil?

About 325 years.

And in 10 years it will cost nearly 50% more than it does today. A great many people have not seen any increase in their incomes over the past decade...so trivializing the impact of inflation is both ignorant and cruel.

 

[EdwardBaiamonte]

A loaf of bread cost approx $3.00, depending. How long will it take, at a 4% rate of inflation, for it to cost $1mil?

About 325 years.

And in 10 years it will cost nearly 50% more than it does today. A great many people have not seen any increase in their incomes over the past decade...so trivializing the impact of inflation is both ignorant and cruel.

The liberal argument seems to be: they cut spending in Europe, it did not cause an economic boom, so we can feel free to spend like crazy liberals.

Too bad they really cut spending and that government spending is only one aspect of capitalism anyway.

 

[midcan5]

Proof positive of the failure of republican policies and austerity programs is the sinking ship named Wisconsin.

Republicans show they are tone deaf to Wisconsin's failing status with extreme budget - Scott Walker Watch

"In the earliest hours of June 5, the Joint Finance Committee (JFC) Republicans waited until 1AM to flail against the people of Wisconsin on a number of fronts. You would think they’d be more focused on trying to stop Wisconsin from being 49th in the nation in the most recent index from the Federal Reserve Bank of Philadelphia, which has an index rank of -0.74%. Wyoming is 50th with a rank of -1.29%. The “magic” of the last Walker budget passed by these Republicans has brought Wisconsin vying for last place while ALEC lobby money is padding Republican legislators’ wallets.

Instead of caring about the fact that the Walker agenda is failing, the Repubicans were focused on defunding public schools with unaccountable, corporatized voucher programs apparently outside of public scrutiny while taxpayers foot the bill."

 

[Avorysuds]

I find it funny the OP says "when you," as if he is speaking on our behalf. FDR ran a depression, ruined peoples lives and impovrished tens of millions of people destroying opertunity for many peoples lives....

Maybe when YOU (the OP) think back on America's "best times" you think of FDR and his internment camps, 25% unemployment, mass amounts of poor sent to WWII and buring crops with the new deal while people literally starved to death in the streets... But then again, FDR was a Democrat so I understand how you think one of the worst recorded times in this countrys history is the best and prolly hate Harding for ending a depression and getting to 2% unemployment doing the opposite of FDR. Roaring 20's VS lost generation due to the longerst depression we have ever had.... And you end up supporting the closest thing this nation got to a king, fdr... not shocking at all really.

 

[Avorysuds]

Proof positive of the failure of republican policies and austerity programs is the sinking ship named Wisconsin.

Republicans show they are tone deaf to Wisconsin's failing status with extreme budget - Scott Walker Watch

"In the earliest hours of June 5, the Joint Finance Committee (JFC) Republicans waited until 1AM to flail against the people of Wisconsin on a number of fronts. You would think they’d be more focused on trying to stop Wisconsin from being 49th in the nation in the most recent index from the Federal Reserve Bank of Philadelphia, which has an index rank of -0.74%. Wyoming is 50th with a rank of -1.29%. The “magic” of the last Walker budget passed by these Republicans has brought Wisconsin vying for last place while ALEC lobby money is padding Republican legislators’ wallets.

Instead of caring about the fact that the Walker agenda is failing, the Repubicans were focused on defunding public schools with unaccountable, corporatized voucher programs apparently outside of public scrutiny while taxpayers foot the bill."

1920's depression took 18 months to end VS FDR dying and many of his distrctive policies being repealed before it ended.

 

[Grandma]

I find it funny the OP says "when you," as if he is speaking on our behalf. FDR ran a depression, ruined peoples lives and impovrished tens of millions of people destroying opertunity for many peoples lives....

Maybe when YOU (the OP) think back on America's "best times" you think of FDR and his internment camps, 25% unemployment, mass amounts of poor sent to WWII and buring crops with the new deal while people literally starved to death in the streets... But then again, FDR was a Democrat so I understand how you think one of the worst recorded times in this countrys history is the best and prolly hate Harding for ending a depression and getting to 2% unemployment doing the opposite of FDR. Roaring 20's VS lost generation due to the longerst depression we have ever had.... And you end up supporting the closest thing this nation got to a king, fdr... not shocking at all really.

The Depression was well underway before FDR took office. The Depression was compounded by the Dust Bowl, which he did not create. The Dust Bowl was a unique disaster that no one could fix in a short period of time. It wiped out a lot of farms, leaving the farmrs and their families homeless and destitute, and the country's food supply well short of demand.

 

[Old Rocks]

Just as the GOP is attempting to characterize the crash of 2008 as something President Obama created, they have also attempted to rewrite history to state that President Roosevelt created the First Great Republican Depression.

 

[midcan5]

1920's depression took 18 months to end VS FDR dying and many of his distrctive policies being repealed before it ended.

I'd suggest you read some real history for a change. Below is a timeline, and if you not a closed minded wingnut puppet, a few book are also noted.

Timeline of the Great Depression

[ame=http://www.amazon.com/Great-Depression-New-Deal-Introductions/dp/0195326342/ref=sr_1_8?ie=UTF8&qid=1230302046&sr=1-8]Amazon.com: The Great Depression and the New Deal: A Very Short Introduction (9780195326345): Eric Rauchway: Books[/ame]

[ame=http://www.amazon.com/Great-Crash-1929-Kenneth-Galbraith/dp/0547248164/ref=sr_1_1?s=books&ie=UTF8]The Great Crash 1929: John Kenneth Galbraith: 9780547248165: Amazon.com: Books[/ame]


Interesting for today: The Great Depression Analogy by Harold James - Project Syndicate


"What is called sound economics is very often what mirrors the needs of the respectably affluent." J. K. Galbraith


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