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Countries can run deficits. Countries can inflate away their debts. Countries can stimulate the economy to make it grow quickly enough to outpace the growth o

Countries can run deficits. Countries can inflate away their debts. Countries can stimulate the economy to make it grow quickly enough to outpace the growth of debt. I'd love someone who really believes in the theories behind austerity politics to explain to me how the postwar boom ever happened -- not just in the USA, but all across the Western world and the Asian Tigers.

protomyth 9y ago
Well, you are going to have a bit of trouble with the USA since the postwar budget and taxes corresponds to the start of the boom. President Truman wanted to keep the taxes and budget but the House wouldn't. 1946-48 were pretty interesting years in the US economy. You can also look at the difference between the US government response to 1920 crash and the 1929 crashes.
tonyedgecombe 9y ago
You can but you there are limits, if your debt is large enough then you can't outgrow it. Just printing money has it's problems, in this case inflation would make safe building materials more expensive to import. I know people like to bang on about running the economy being different from running your household finances but that only goes so far. The UK is already spending 8% of tax revenue just on servicing debt.
- rwmj 9y ago
  The UK could run a larger deficit. The source / sums are done here: http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2017/06/a-case-against-austerity.html http://stumblingandmumbling.typepad.com/stumbling_and_mumbli...
  - tonyedgecombe 9y ago
    Why would we, growth has been ticking along nicely for a developed country (apart from a blip in 2008/9 when the financial crisis hit). Also unemployment has been remarkably low over the last couple of years. The trouble is eventualy that debt needs to be paid off, either through raising taxes or monetisation. Monetisation is bad as it increases inflation. Increasing taxes lowers spending causing smaller economic activity. All we have done is passed a burden off to the next generation.
    - rwmj 9y ago
      Interest rates are negative in real terms - read the article I linked to. This means we could have free (in a very literal sense) infrastructure -- new railways, broadband, houses, etc. The second point is that infrastructure supports growth (if done right, there are of course many ways to do it wrong), so just because headline GDP was so-so over the last decade doesn't mean it couldn't be better. Compared to the US, UK growth was rather poor and recovery from the crash has taken forever.
      - tonyedgecombe 9y ago
        I did read the article. There is no free, that debt needs to be paid back at some point, passing that burden on to our children is irresponsible. It's rather silly to compare the US to the UK, financial services makes up a larger part of the UK economy than it does in the US so of course we had a greater impact from the financial crisis.
        rwmj 9y ago
        Debt at a negative real interest rate is literally free money. Investors are judging it's better to get a guarantee of slightly less value (slightly more nominal money), than invest it in riskier investments where they might lose a lot more. Furthermore investment in the right things (which I admitted above can be hard) should promote growth, thus growing away the debt even more as a % of GDP. This is all pretty basic economics.
bpodgursky 9y ago
The postwar boom was a demographic and economic situation that is not applicable today. The US had been in a depression for a decade, and then spent another 5 years producing nothing but military hardware. There were 15 years to catch up on -- all economic growth is faster when you're starting from a low state (see: China) Just as importantly, the demographic pyramid of the 50s looks absolutely NOTHING like today. The vast majority of the population was either working age or younger -- families had 3-4 kids average, we had no pension / medicare / SS liabilities to worry about (not to mention: end-of-life health care was incredibly cheap in comparison to today). Nobody would be crying for austerity politics if we didn't have a massive population of retirees supported by a wobbly 1.9 fertility rate. It is not comparable to the 50s.

protomyth 9y ago

Well, you are going to have a bit of trouble with the USA since the postwar budget and taxes corresponds to the start of the boom. President Truman wanted to keep the taxes and budget but the House wouldn't. 1946-48 were pretty interesting years in the US economy. You can also look at the difference between the US government response to 1920 crash and the 1929 crashes.

tonyedgecombe 9y ago

You can but you there are limits, if your debt is large enough then you can't outgrow it. Just printing money has it's problems, in this case inflation would make safe building materials more expensive to import. I know people like to bang on about running the economy being different from running your household finances but that only goes so far. The UK is already spending 8% of tax revenue just on servicing debt.

rwmj 9y ago
The UK could run a larger deficit. The source / sums are done here: http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2017/06/a-case-against-austerity.html http://stumblingandmumbling.typepad.com/stumbling_and_mumbli...
- tonyedgecombe 9y ago
  Why would we, growth has been ticking along nicely for a developed country (apart from a blip in 2008/9 when the financial crisis hit). Also unemployment has been remarkably low over the last couple of years. The trouble is eventualy that debt needs to be paid off, either through raising taxes or monetisation. Monetisation is bad as it increases inflation. Increasing taxes lowers spending causing smaller economic activity. All we have done is passed a burden off to the next generation.
  - rwmj 9y ago
    Interest rates are negative in real terms - read the article I linked to. This means we could have free (in a very literal sense) infrastructure -- new railways, broadband, houses, etc. The second point is that infrastructure supports growth (if done right, there are of course many ways to do it wrong), so just because headline GDP was so-so over the last decade doesn't mean it couldn't be better. Compared to the US, UK growth was rather poor and recovery from the crash has taken forever.
    - tonyedgecombe 9y ago
      I did read the article. There is no free, that debt needs to be paid back at some point, passing that burden on to our children is irresponsible. It's rather silly to compare the US to the UK, financial services makes up a larger part of the UK economy than it does in the US so of course we had a greater impact from the financial crisis.
      - rwmj 9y ago
        Debt at a negative real interest rate is literally free money. Investors are judging it's better to get a guarantee of slightly less value (slightly more nominal money), than invest it in riskier investments where they might lose a lot more. Furthermore investment in the right things (which I admitted above can be hard) should promote growth, thus growing away the debt even more as a % of GDP. This is all pretty basic economics.

bpodgursky 9y ago

The postwar boom was a demographic and economic situation that is not applicable today. The US had been in a depression for a decade, and then spent another 5 years producing nothing but military hardware. There were 15 years to catch up on -- all economic growth is faster when you're starting from a low state (see: China) Just as importantly, the demographic pyramid of the 50s looks absolutely NOTHING like today. The vast majority of the population was either working age or younger -- families had 3-4 kids average, we had no pension / medicare / SS liabilities to worry about (not to mention: end-of-life health care was incredibly cheap in comparison to today). Nobody would be crying for austerity politics if we didn't have a massive population of retirees supported by a wobbly 1.9 fertility rate. It is not comparable to the 50s.