Austerity

[Jamie_B]

Since this is being disucssed here, it's important to look at the implications abroad. I've said this before, austerity isnt going to fix this mess, Europe has been proving this.

[url="http://www.npr.org/2012/05/13/152627865/eus-financial-crisis-doesnt-end-at-nations-borders"]http://www.npr.org/2012/05/13/152627865/eus-financial-crisis-doesnt-end-at-nations-borders[/url]
[quote]

[size=5][color=#333333][font=arial, sans-serif][font=georgia, sans-serif]Voters, Economists Agree: Austerity Not The Answer[/font][/font][/color][/size]

[color=#333333][font=arial, sans-serif][size=1][size=4]In the streets and public squares across Spain on Saturday night, the cries of a mass movement calling itself the [i]Indignados[/i] rang out, railing against austerity measures imposed by the European Union.[/size][/size][/font][/color]
[color=#333333][font=arial, sans-serif][size=1][size=4]In Greece the next morning, Alexis Tsipras, the head of a far-left opposition party, held a news conference to say he wouldn't join a coalition government that continued the path of austerity.[/size][/size][/font][/color]
[color=#333333][font=arial, sans-serif][size=1][size=4]"The people who have run the country for two years and have signed on to a program that has destroyed the Greek economy and society have not heard the message of the people," Tsipras said.[/size][/size][/font][/color]
[color=#333333][font=arial, sans-serif][size=1][size=4]"Blackmail," he called the European bailout plan for Greece.[/size][/size][/font][/color]
[color=#333333][font=arial, sans-serif][size=1][size=4]Of the 17 countries that use the euro, eight are now in recession and more are expected to go into recession this year. Europe's economic implosion is now poised to eventually affect the U.S.'s own economic recovery if a solution cannot be found.[/size][/size][/font][/color]
[color=#333333][font=arial, sans-serif][size=1][size=4][b]The German Solution For A Greek Problem[/b][/size][/size][/font][/color]
[color=#333333][font=arial, sans-serif][size=1][size=4]Greece is in its fifth year of recession with no relief in sight. The nation has borrowed 240 billion euros to keep its economy afloat, but as a result, the government has had to slash pensions, government salaries and public services along with raising taxes. More than half of all young Greeks are unemployed.[/size][/size][/font][/color]
[color=#333333][font=arial, sans-serif][size=1][size=4]Last week, angry voters threw their support behind far left and far right parties that oppose the terms of the European bailout. This week, those parties failed to form a coalition government.[/size][/size][/font][/color]
[color=#333333][font=arial, sans-serif][size=1][size=4]A growing chorus of economists and politicians in Europe are now blaming one thing: a strict austerity regime engineered by Germany. Martin Wolf, chief economics commentator for the[i]Financial Times[/i], told weekends on [i]All Things Considered[/i] host Guy Raz why the Germans have been so rigid in their demand for fiscal discipline.[/size][/size][/font][/color]
[color=#333333][font=arial, sans-serif][size=1][size=4]"To them, economics is a branch of moral philosophy," Wolf says, "and [to them] it's immoral to promote growth by increasing fiscal deficits."[/size][/size][/font][/color]
[color=#333333][font=arial, sans-serif][size=1][size=4]Germany also opposes using their economy — which is doing OK but not great — to support the borrowing by the weaker countries who, Germans feel, mismanaged their affairs.[/size][/size][/font][/color]
[color=#333333][font=arial, sans-serif][size=1][size=4][b]No One Solution Fits All[/b][/size][/size][/font][/color]
[color=#333333][font=arial, sans-serif][size=1][size=4]Some argue that nations can't cut their way to economic growth, but Wolf says that's not the problem. There is no catch-all solution for what is happening, he says, and trying to apply one is "nonsense economics."[/size][/size][/font][/color]
[color=#333333][font=arial, sans-serif][size=1][size=4]"We seem to have [gotten] ourselves in a way of thinking about economics, that there are permanent, eternal truths which apply to all circumstances irrespective of precisely what's happened and why you are where you are," he says.[/size][/size][/font][/color]
[color=#333333][font=arial, sans-serif][size=1][size=4]There are circumstances, he says, in which cutting the fiscal deficit sharply is fully compatible with recovery.[/size][/size][/font][/color]
[color=#333333][font=arial, sans-serif][size=1][size=4]"But in the current circumstances in Europe, I do not expect these programs to generate a significant recovery," he says.[/size][/size][/font][/color]
[color=#333333][font=arial, sans-serif][size=1][size=4]There's been some talk of Greece simply pulling out of the euro, but Wolf says that would present its own challenges, like introducing a new currency and banking system. They would also run the risk of ending up in a period of hyperinflation, he says.[/size][/size][/font][/color]


[size=1][size=4][b]The Trouble With Austerity[/b][/size][/size]
[size=1][size=4]Many believe Germany's austerity plan will ultimately fail in Europe. Mark Blyth, a professor of international political economy at Brown University, tells NPR's Raz that austerity hasn't worked at all and that it was quite predictable that it wouldn't work.[/size][/size]
[size=1][size=4]"You can't cure debt with more debt," Blyth says. "If everyone tries to pay back the debt all at the [same] time, all you end up doing is shrinking the economy."[/size][/size]
[size=1][size=4]When you shrink the economy, you end up reducing the amount of taxation that you can collect — thus the amount of debt you can pay back. Over time, this causes the debt-to-GDP ratio to get worse rather than better, he says.[/size][/size]
[size=1][size=4]"All of the countries that have [gone] on austerity programs over the last two years — they now have more debt rather than less," he says.[/size][/size]
[size=1][size=4]If Europe sticks with its austerity regime, Blyth says those countries will not recover. He calls the euro zone a "doomsday device" because its massive banks are full of bad assets and incredible vulnerabilities.[/size][/size]
[size=1][size=4]"What they've built is the gold standard," he says. "And the last time we tried to run a gold standard in a democracy in Europe in the 1920s and 1930s ... it didn't end very well."[/size][/size]
[size=1][size=4][b]Effects On The U.S. Economy[/b][/size][/size]
[size=1][size=4]Christina Romer was once President Obama's top economic adviser and is now an economics professor at the University of California, Berkeley. She tells NPR's Raz that the ripples felt in the U.S. from Europe's economic implosion could be significant.[/size][/size]
[size=1][size=4]"Europe is one of our biggest trading partners, so when they fall back into recession they're buying less from us," Romer says. "That means less demand for American businesses."[/size][/size]
[size=1][size=4]Many economists are predicting that U.S. economic growth will be about 3 percent this year. What worries many of those economists, Romer says, is if the economic and political instability in Europe gets worse.[/size][/size]
[size=1][size=4]"If you have a true financial crisis in Europe, if you have countries starting to leave the euro [and] if you have a much more severe recession, then it is a whole new ballgame," she says.[/size][/size]
[size=1][size=4]While the instability in Europe won't completely hinder growth in the U.S., Romer says it will slow it down significantly. President Obama has stressed the [url="http://www.npr.org/2012/04/21/151117449/the-export-boom-whos-buying-american"]importance of exports[/url] in helping the U.S. recover. If low economic growth in Europe shrinks demand for American goods, however, it's going to make America's own economic recovery difficult.[/size][/size]
[size=1][size=4]"Until everybody starts growing again, it's going to be hard to see the really strong kind of growth," Romer says.[/size][/size]

[/quote]

[CincyInDC]

Greek austerity is popular among German voers/taxpayers because they are who are bailing the Greeks out, and they are pissy about the whole situation because the tax, pension, and retirement structure in Greece is much more attractive than that in Germany. The attitude can be summed up thusly: "fuck 'em."

An English freind of mine said the real reason Great Britain didn't join the Eurozone was not pride in the Pound (although let's not fool ourselves here -- it played a big role), rather they knew it would lead to a situation like this, where one population gets a free ride on the back(s) of another due to uneven tax burdens.

If Greece keeps this up (refusing austerity) there is going to be a really big *yoink* sound of them getting pulled from the Eurozone. The New Drachma would be pretty damn worthless pretty damn fast.

Tow benefits of the Greeks dragging the Euro down is 1) American tourists have a nice exchange rate and 2) German manufacturing gets a boost from the extra buying power of non-Eurozone customers.

[|Elflocko|]

[quote name='CincyInDC' timestamp='1337939464' post='1132522']
Greek austerity is popular among German voers/taxpayers because they are who are bailing the Greeks out, and they are pissy about the whole situation because the tax, pension, and retirement structure in Greece is much more attractive than that in Germany. The attitude can be summed up thusly: "fuck 'em."

An English freind of mine said the real reason Great Britain didn't join the Eurozone was not pride in the Pound (although let's not fool ourselves here -- it played a big role), rather they knew it would lead to a situation like this, where one population gets a free ride on the back(s) of another due to uneven tax burdens.

If Greece keeps this up (refusing austerity) there is going to be a really big *yoink* sound of them getting pulled from the Eurozone. The New Drachma would be pretty damn worthless pretty damn fast.

Tow benefits of the Greeks dragging the Euro down is 1) [b]American tourists have a nice exchange rate[/b] and 2) German manufacturing gets a boost from the extra buying power of non-Eurozone customers.
[/quote]

'Bout damn time, too. We've gotten absolutely raped on the exchange rate the last two times we've been over there. Hopefully we'll get a break this fall on the Euro. We'll already be saving some money as the Czech Koruna is worth about a nickel...

[Jamie_B]

I agree with the Brits. The entire idea of a combined currency was set up to fail because all the different countries have different cultures/values that effect their way of life, trying to have one currency under that was a bad bad idea.

[|Elflocko|]

[quote name='Jamie_B' timestamp='1337960951' post='1132572']
I agree with the Brits. The entire idea of a combined currency was set up to fail because all the different countries have different cultures/values that effect their way of life, trying to have one currency under that was a bad bad idea.
[/quote]

They did that to tie their economies together so every country would have a vested interest in [b]not [/b]bombing the fuck out of each other. It was a great idea from a base intention standpoint, but the path to hell and all that...

[Jamie_B]

[url="http://www.dailykos.com/story/2011/12/18/1045041/-The-failure-of-Austerity"]http://www.dailykos.com/story/2011/12/18/1045041/-The-failure-of-Austerity[/url]


[quote]

[b] [url="http://www.dailykos.com/story/2011/12/18/1045041/-The-failure-of-Austerity"]The failure of Austerity[/url][/b]



[color=#242424][font=Verdana, Arial, Helvetica, Geneva, sans-serif][size=3][left]Recently Paul Krugman pointed to this piece on Europe's current problems by [/left][/size][/font][/color][url="http://www.project-syndicate.org/commentary/orourke1/English"]Kevin O'Rourke[/url][color=#242424][font=Verdana, Arial, Helvetica, Geneva, sans-serif][size=3][left]:[/left][/size][/font][/color][indent]One lesson that the world has learned since the financial crisis of 2008 is that a contractionary fiscal policy means what it says: contraction. Since 2010, a Europe-wide experiment has conclusively falsified the idea that fiscal contractions are expansionary. August 2011 saw the largest monthly decrease in eurozone industrial production since September 2009, German exports fell sharply in October, and now-casting.com is predicting declines in eurozone GDP for late 2011 and early 2012.
A second, related lesson is that it is difficult to cut nominal wages, and that they are certainly not flexible enough to eliminate unemployment.[/indent]
[color=#242424][font=Verdana, Arial, Helvetica, Geneva, sans-serif][size=3][left]Of this, [url="http://krugman.blogs.nytimes.com/2011/12/10/lessons-from-europe/"]Krugman says[/url]:[/left][/size][/font][/color][indent]Basically, European experience is very consistent with a Keynesian view of the world, and radically inconsistent with various anti-Keynesian notions of expansionary austerity and flexible prices. [...]
The crisis really has settled some major issues in economics. Unfortunately, too many people — including many economists — won’t accept the answers.[/indent]
[color=#242424][font=Verdana, Arial, Helvetica, Geneva, sans-serif][size=3][left]This is a rather fundamental point. Not just economists, of course, but think-tank ideologues, politicians and general hangers on are awash with notions of how such-and-such will happen if you do such-and-such. The difference between evidence-based theories and hackish ones, however, is the part about being evidence-based. Any decent economist or policymaker will hungrily examine the real world results of their policy implementations and, if necessary, adapt their thinking in line with the evidence. Ideologues, however, will not, and that is the prime definition of a hack: someone whose theories never hold up to real world scrutiny or practice, but who nonetheless still vows in their efficacy because, damn it, it behooves them to do so.[/left][/size][/font][/color]
[color=#242424][font=Verdana, Arial, Helvetica, Geneva, sans-serif][size=3][left]The current fad is to declare that austerity, in the form of slashed budgets, slashed jobs, a slashed tax based and so on will magically produce the [i]opposite[/i] of all those things, as wealthy benefactors rush in to spend all the new money you have given them, create jobs creating new products nobody can afford to buy, and, I don't know, start rebuilding infrastructure out of the goodness of their hearts. It is never clear, and nor is it honest: it is predicated on the danger of the Scary Deficit Monster, who was not at all scary during the time he was being fed by these same politicians and think-tank prophets, but who, like any false god, just happens to hate all the same things that his worshippers do.[/left][/size][/font][/color]
[color=#242424][font=Verdana, Arial, Helvetica, Geneva, sans-serif][size=3][left]In this case, the Scary Deficit Monster hates helping unemployed people, hates regulations (regardless of whether or not they save money), hates government in every form save the military, and [i]especially[/i] hates it when well-off citizens are asked to pay the same rates they did a few decades ago, back during the dark, nearly apocalyptic 1980s or 1990s. That is damn nuanced policy for a mindless, frothing Deficit Monster, but it is consistent: the Deficit Monster hates anything Democrats might want and just happens to love all the ideas of the Heritage Foundation, etc., etc. And why not? Even a Deficit Monster ought to love its mother.[/left][/size][/font][/color]
[color=#242424][font=Verdana, Arial, Helvetica, Geneva, sans-serif][size=3][left]Europe, meanwhile, caught austerity fever early and with gusto, as O'Rourke says. The experiment was tried. It didn't work. It's still not working, and basic economic theory (of the non-silly variety) pretty much predicted that outcome. A rational approach would be to write the whole thing down in the notebook under [i]stuff we tried that didn't work[/i],and move on to something else. This, however, would require admitting that much-loved economic countertheories about how poor people are leeches, rich people gods, and government powerless saps have been rendered invalid, and at least two-thirds of the political and nine-tenths of the financial industries are devoted to propping up those notions, so that "invalidation" will never happen.[/left][/size][/font][/color]
[color=#242424][font=Verdana, Arial, Helvetica, Geneva, sans-serif][size=3][left]
[b]T[/b]his speaks to the very core of conservative distrust of science. A fundamental of science is that once something has been conclusively disproved, you ought to stop believing in it, and certainly ought to think twice about using it as the foundation for building your own supposedly "scientific" notions. You can [i]believe[/i] that if you feed a horse a penny, it will poop out a dime, but once the experiment has been tried and has failed you probably should cancel your plans for a horse-based retirement fund.[/left][/size][/font][/color]
[color=#242424][font=Verdana, Arial, Helvetica, Geneva, sans-serif][size=3][left]This is roughly what has happened in Europe, as every nation that has attempted contractionary polices has found itself faced with, glory be, contraction. Austerity has resulted in austerity and has not magically morphed into expansion via the power of Told You So. We should probably stop expecting the horse to crap out dimes, at this point. We should also probably reflect on what this means for our own "austerity" policies here in this country, but that would require several hundred politicians, thousands of lobbyists, and a hundred thousand ideologues to cop to being proved wrong on something, which will never, ever happen. The mere suggestion is always met with fury. The point is not what reality proves or disproves, the point is the ideology, and if the reality conflicts with the ideology then it is reality that can go to hell.[/left][/size][/font][/color]
[color=#242424][font=Verdana, Arial, Helvetica, Geneva, sans-serif][size=3][left]You'll seldom see this in the hard sciences. Physics, chemistry, biology, fluid mechanics, you name it: everyone is allowed to have a theory that is wrong, but once you start asserting things that people know and have [i]proven[/i] to be wrong, you are labeled a crackpot and not taken very seriously after that. If the horse does not poop dimes, it does not poop dimes. If the world is not flat, or the moon is not made of cheese, or your attempts at transmuting lead into gold using nothing more than incantations borrowed from old nursery rhymes did not, in fact, result in gold, then continuing to vow it is true will not get you anywhere. Unless, of course, you work for a group whose funding is predicated on vowing it; then you're all set. Continue on![/left][/size][/font][/color]
[color=#242424][font=Verdana, Arial, Helvetica, Geneva, sans-serif][size=3][left]The notion of [i]expansionary austerity[/i] has been disproven. There's no evidence for it, and quite considerable real-world evidence against it. It is the economic equivalent of Cold Fusion claims, and if economics were treated like a hard science then the practitioners would now be laughed out of the room so that the serious folks could get on with doing more serious work. That, however, will not happen, which is about as discrediting a thing to tar the profession with as I can think of. Economics has long been smirked at as one of the few supposed sciences in which being disproven will not actually diminish your stature. Hell no—get disproven spectacularly enough, and Glenn Beck might even start promoting your books.[/left][/size][/font][/color]
[color=#242424][font=Verdana, Arial, Helvetica, Geneva, sans-serif][size=3][left]On the ideological front, we will keep hearing of magical ponies that are fed pennies and poop dimes; of regulations that, if repealed, will allow financial managers to transmute alcohol into gold during their lunch hours; and of job-creators that will create jobs just for the hell of the thing, whether they have any need for them or not. The Deficit Monster will continue to be very, very scary, and continue to hate all the same things Republicans hate. We will continue to be told that if we lower taxes on rich people, the rest of us will be better off, even after decade after decade of trying that exact goddamn thing to no such effect. It is not a science, it is a damn religion.[/left][/size][/font][/color]
[color=#242424][font=Verdana, Arial, Helvetica, Geneva, sans-serif][size=3][left]
[b]I[/b] said above that this speaks to the more general conservative distrust of science. For most people, it would be fairer to say that it speaks to a conservative [i]misunderstanding[/i] about the whole notion of science. My own hypothesis—and I would be happy to be proven wrong, since it seems easily testable—is that there are a great many people who have difficulty grasping the boundaries between [i]belief[/i] and [i]fact[/i], or between [i]supposed[/i] and [i]proven[/i]. This is why evolution drives them to fits: the Biblical version is presumed to be "fact" because it is in the [i]Bible[/i], case closed; the biological version, however, can never possibly be "proved" to satisfaction because you will never see a monkey with chicken wings, or because eyeballs are terribly complex, or countless other variations. It is an inability to parse out what constitutes evidence, and what does not, and to evaluate the relative strengths. At the extreme end is conspiracy theory.[/left][/size][/font][/color]
[color=#242424][font=Verdana, Arial, Helvetica, Geneva, sans-serif][size=3][left]The movers of policy, however, have no such excuses. If you are claiming expertise on a topic, you had better show some damn expertise, or be discredited. If you are claiming, as Paul Ryan loosely has, that your budget will work because the Magical Budget Fairy will float down and fix all the numbers afterward, you had better be prepared to produce evidence of said Fairy or be proven a hack.[/left][/size][/font][/color]
[color=#242424][font=Verdana, Arial, Helvetica, Geneva, sans-serif][size=3][left]A large segment of American political life is dedicated to the notion that wealthy Americans should be coddled, poor Americans should face austerity, and free-market magic will then fix all. There is certainly motive for rich Americans to make that entirely self-serving claim, and there is certainly a cash motive for lobbyists who work on their behalf to peddle it, and for "think tank" figures to pipe up with whatever bare-bones figures they can possibly come up with to defend it, but it is a tried idea. It failed. It [i]is[/i] failing, even now.[/left][/size][/font][/color]
[color=#242424][font=Verdana, Arial, Helvetica, Geneva, sans-serif][size=3][left]Any rational person would now discard those ideas. We, however, are not governed by rational people. We are governed by ideologues, grifters and children.[/left][/size][/font][/color]

[/quote]

[Jamie_B]

[url="http://www.youtube.com/watch?feature=player_embedded&v=lPyaImDMBuc#!"]Round table discussion on Austerity[/url]

[Jamie_B]

http://www.youtube.com/watch?v=7s6ye-XrfeU

[big_dish]

[quote name='CincyInDC' timestamp='1337939464' post='1132522']
An English freind of mine said the real reason Great Britain didn't join the Eurozone was not pride in the Pound (although let's not fool ourselves here -- it played a big role), rather they knew it would lead to a situation like this, [b]where one population gets a free ride on the back(s) of another due to uneven tax burdens.[/b]

[/quote]

Sounds like a certain country I know.

Anyway... so what is the (ideal) solution to Greeks issues? Anyone think they know?

[Jamie_B]

[quote name='big_dish' timestamp='1344343427' post='1143809']
Sounds like a certain country I know.

Anyway... so what is the (ideal) solution to Greeks issues? Anyone think they know?
[/quote]

We can do a number of things to make sure we dont end up like Greece, I liked Homer and Sois' ideas in the OWS thread.


[quote name='Homer_Rice' timestamp='1343226762' post='1140627']
I've been an advocate for separating merchant and commercial banking for a long time. I was pissed that Glass-Stegall was repealed under Clinton via Rubin. But I personally do not think that will be enough to right the ship. I also advocate the following:

--closing offshore loopholes; not making them illegal necessarily, but being punitive towards those who exploit them.
--increasing the capital gains tax to the same levels as regular income is taxed, with the exception of a predefined long terms capital gains rate (1 yr?, 2 yr?, 5yr?) Most stock market transactions, by volume, are high frequency trades where automated processes are in and out of a trade in seconds (actually milliseconds in some cases.) This kind of arbitrage needs to be subordinate to actual investing in a real economy and not merely a casino bet.
--instituting a transaction tax on all derivatives.
--reining in private equity firms by forcing them be more transparent and subject to merchant banking rules.

One thing we have lost, but which was crucial to Hamilton's view as first SecTreas, was that we need to minimize raw speculation while at the same time allowing "moneyed interests" to assume an important role in nation-building. We need to do something along similar lines, though of course it would look much different than the late 1700s.
[/quote]
[quote name='sois' timestamp='1343230160' post='1140638']
I'd propose a graduated rate. Sell after 1 year: 75% tax on gains. Yr 2 65%, 3 50%, 4 30%, 5 20% 6 15%.
Eliminate gambling, reinstate investing.
No more day traders.
It would reduce volume of transactions possibly bringing down stock prices, but it would smooth out volatility.
Shareholders would be INVESTORS, not leeches who are looking to flip.

It would be about more than the bottom line, it would be about believing in what the company does.
[/quote]

[Jamie_B]

[b] [url="http://www.forbes.com/sites/rickungar/2012/05/24/who-is-the-smallest-government-spender-since-eisenhower-would-you-believe-its-barack-obama/"]Who Is The Smallest Government Spender Since Eisenhower? Would You Believe It's Barack Obama?[/url][/b]