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Pretty good analysis (for an infographic). They correctly show that government debt did not cause the current crisis but total debt did. By stating that the in

by gizmo 15y ago

Pretty good analysis (for an infographic). They correctly show that government debt did not cause the current crisis but total debt did. By stating that the increase in private sector debt caused it they almost (incorrectly) imply that therefore the private sector (and the people) are to blame. Of course it's the responsibility of the government to take corrective measures to ensure long term financial stability. The European governments were completely negligent in that regard. Note also that the financial sector is not mentioned at all in this analysis. The nasty dilemma offered at the end is a false one. First the article observes that government spending was not the cause of the crisis, and then the solution revolves around government spending? The current eurozone debates are about politics: the people in western Europe want to punish the countries they see as irresponsible. That's why we have all the talk about austerity measures. Austerity will only further cripple the economies of the GIPS countries as we've seen during the Great Depression in the 30s. Austerity doesn't work: it leads to criminal levels of capital waste: high unemployment, low standards of living, poor liquidity, and so on. So the question isn't "Should the GIPS countries spend money to prevent a worse recession?" the real question is "How can the GIPS countries get the money to prevent a crushing depression and a lost generation?". There are a number of options: ECB bailout. Eurobonds. Bailout by the richer part of the eurozone. Various forms of quantitative easing. Unfortunately this is difficult as long as the people in Europe are angry at the GIPS countries. No politician is going to support a bailout at the expense of the richer countries if the people want to see blood.

jonnathanson 15y ago
At the end of the day, the Europeans can't have their cake and it eat, too. Either the Eurozone is a truly integrated, multinational superentity, or it's a meaningless construct on top of a group of wholly independent nations. It can't be the former when things are going well, and the latter when things are going poorly. A fairweather EU / economic zone doesn't work, because it's built on a foundation of quicksand. How can these countries rely on a cooperative economic superstructure when, beneath it all, they still see each other as competitors? Transnationalism doesn't work when you're secretly a nationalist.
- gizmo 15y ago
  I agree that a fairweather Eurozone is not sustainable and that at least a fiscal union is needed (through good times and bad times, till war do us part). Luckily, many young people like the idea of a stronger united Europe, so hopefully it's just a matter of time until the public perception shifts. If the Euro just survives for another decade or two it's probably going to turn out OK.
  - cynicalkane 15y ago
    The idea of a united Europe scares me, actually. Whenever there is fiscal union comes the notion that there should be some control over how money is spent. Germany and Greece and Spain and Sweden and Italy and every EU country will want a say. After all, it's "their" money. So there are going to be fundamental game theory problems unless all these different places can agree how money should be spent--and ideas about how money should be spent are a big, deeply embedded part of culture. If a fiscal union happens I would venture to guess one of the following will happen: one, eternal squabbling; or two, a partial homogenizing of European culture. I don't like either outcome. Differences are good. No, no amount of high hopes or good feelings will save you from this. I don't understand the urge to yoke societies together in unhelpful ways any more than I get why incompatible people enter bad marriages. It's always been obvious to me that takes more than love to work together, and often people work better together if they intentionally keep their independence.
    - jsnell 15y ago
      I doubt that Norway wants or has any chance of getting a say, due to minor reasons like not being a member of the EU.
      - cynicalkane 15y ago
        Thanks, edited. Not sure why I said Norway... probably was thinking of Sweden. Actually, they'd hopefully be smart enough to step out of a fiscal union. Edit: to downvoters: Sweden is part of the EU and so far has been avoiding monetary union through a loophole.
onemoreact 15y ago
Government spending has a wide range of benefits. Unfortunately once the private debt load get's that high is simply more rational for individuals to default vs trying to maintain that debt load. Because of the Euro that private borrowing involved international lenders private defaults help that country in the long term. In which case a deeper recession and some polices that caused more borrowers to default would actually help Spain recover at the cost of it's banking sector. The short term alternative is to prop up it's private sector for a few years in the hope that the world economy improves and they avoid a deep recession at the cost of a crushing public debt load.
- gizmo 15y ago
  There's a big difference how the US and Europe deals with default. People don't default in Europe even when it's clearly in their best interest to do so. NPR did a great piece about it: http://www.npr.org/blogs/money/2011/03/01/134168778/the-tuesday-podcast-discipline-and-forgiveness http://www.npr.org/blogs/money/2011/03/01/134168778/the-tues...
bsaunder 15y ago
I'm continually frustrated by the false dichotomy presented by the mainstream media between "government cut spending"/"government spend more/go into debt". Clearly another option is central bank bail out. I can accept that some people don't like that option, but it almost seems manipulative by the media to consistently not mention it and call it for what it is. Quantitative Easing = Printing Money. Have a public discussion of its merits. If a problem seems hard, its because you don't have enough information or aren't seeing all possible solutions. (someone famous must have said this).
- anamax 15y ago
  > If a problem seems hard, its because you don't have enough information or aren't seeing all possible solutions. How does the halting problem, or even NP complete, factor into this "theory"? You also seem to be assuming that there's always a "good" solution. That's clearly not true.
- fauigerzigerk 15y ago
  The reason why this option isn't mentioned may be that the Lisbon treaty doesn't permit it. I think, if that infamous article 123 didn't exist, the current panic wouldn't even be possible, because the ECB, like every other central bank in the world, would be a potential buyer of last resort (at least in countries that can borrow in their own currency).
- drcube 15y ago
  >If a problem seems hard, its because you don't have enough information or aren't seeing all possible solutions. Unfortunately, you are incorrect. There are problems that are impossible to solve, simply because there exist mutually incompatible definitions of "solve" among interested parties. ""Wicked problem" is a phrase originally used in social planning to describe a problem that is difficult or impossible to solve because of incomplete, contradictory, and changing requirements that are often difficult to recognize. Moreover, because of complex interdependencies, the effort to solve one aspect of a wicked problem may reveal or create other problems." http://en.wikipedia.org/wiki/Wicked_problem http://en.wikipedia.org/wiki/Wicked_problem
yummyfajitas 15y ago
Austerity doesn't work: it leads to criminal levels of capital waste: high unemployment, low standards of living, poor liquidity, and so on. No, austerity + nominal wage stickiness is claimed to do this. Since austerity seems more or less a given, why not try to increase wage flexibility? I think that "Greeks/Italians need a cut in their real wages" would be a very easy sell to Germany right now.
- gizmo 15y ago
  Wage stickiness is definitely[1] a problem: when you have 20% unemployment (40%+ youth unemployment) wages simply have to drop. Otherwise wages only go up in good times and stay stagnant in bad times. Austerity may be a given politically, but economically speaking it doesn't make much sense, and it's definitely not in the best interest of the EU (or the world) as a whole. [1] Not definitely, as some people pointed out below.
  - justincormack 15y ago
    As the other posters here were saying, wages for the young are already very low. The problems are more structural, as technological change is changing what skills are needed, and some countries like Spain just had a huge property boom so everyone was trained for the construction business, which was a complete waste of resources. Existing businesses may never hire these people, so a lot of new businesses are needed, which takes time and capital, and a startup culture that much of southern europe does not have much of. Emigration is the current solution for many people instead.
  - yummyfajitas 15y ago
    Again, economically speaking, the problem is austerity and wage stickiness put together. Austerity with nominal wage flexibility is fine - real wages will drop, employers will hire cheap employees, and there will be no unemployment or recession. Since austerity seems unavoidable, why aren't you and other people who buy into Keynesian theory pushing for wage flexibility?
    - 15y ago
mchusma 15y ago
Major fact check needed regarding your assessment of the 30s. Govt spending increased dramatically during that time. The "austerity" of the great depression was caused by economic ruin, not govt cuts. A good analysis is here: http://www.cato.org/pubs/journal/cj16n2-2.html http://www.cato.org/pubs/journal/cj16n2-2.html
- gizmo 15y ago
  The Keynesian viewpoint is that the government should have used stimulus, printed money to spur moderate inflation, and so on. Essentially very aggressive action by the government to encourage economic growth. The US government didn't cause the great depression, but they didn't prevent it either. Ultimately, as the US government started preparing for war spending increased massively and the economy recovered as a result, as Keynesian economics would predict. But even in the late 30s there were periods where the US government tried to balance the budget (and cut spending) and unemployment rose and and the economy got worse as a result.
  - anamax 15y ago
    Govt spending isn't the only factor. Starting with Hoover and continuing with Roosevelt (until the run-up to WWII), the US govt introduced significant production restrictions in an attempt to boost prices. http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonge...
brohee 15y ago
What it doesn't say is that the private debt was mostly contracted to fuel the real estate bubble, thus artificially increasing the price of existing goods, but not being actually invested in competitive gain. Germany not having had a real estate bubble, for many reasons (population contraction being one) is likely to be a better explanation than German virtue to their debt level being so much better.
chernevik 15y ago
But it misses other issues: - No discussion of "off balance" sheet government obligations, like pensions and entitlements. These don't count as "debt", as they aren't bonds, but they are long-term cash flow obligations that reduce resources available for debt service - Likewise, no discussion of public sector compensation in excess of a position's productivity - No discussion of economic growth rates, which expand the amount of debt a country can sustain - No discussion of the role of low euro rates in private sector debt expansion. Markets presumed governments could and would bail out their banks, and thus didn't scrutinize bank assets for recovery values. (The graphic ignores financial sector debt, but that's debt _of_ the banks, not debt _to_ the banks.) The conflation of bank and government debt is a running theme in the euro crisis, see Sarkozy's remark that though the ECB wouldn't lend to governments it would lend to banks, and the banks would lend to governments, problem solved. The graphic thus understates the sovereign obligations. By ignoring growth, it ignores the key variable driving differences in perceived debt sustainability. And by ignoring market preconceptions of government backstops for banks, it misses the role of the euro in those private sector debt levels. The clue is this: why doesn't the graphic explain sovereign difficulties borrowing, evident in their rising yields? Bond buyers are saying that _governments_ won't be able to sustain their debts. That might reflect an opinion that governments will borrow unsustainably to bail out their banks. But then the solution would be to let the banks collapse and remove that possibility. But the governments can't do that because their economies are dependent on excess bank leverage for the growth they do have, and for the one source of financing they do have. So if we agree the wicked bankers did it, we're saying that governments have been using excess bank leverage to hide the lack of fundamental growth, and extent of structural problems. The truth is that the problem is excess leverage and spending in both public and private sectors. P.S. It's the same story in the US, lagging by a few years and mitigated by our ability to print money.
- oelewapperke 15y ago
  'No discussion of "off balance" sheet government obligations, like pensions and entitlements.' That's because these have an NPV of 3-4 times the GDP but don't actually influence the situation yet. In America a similar situation exists, but less bad. And frankly, the shear size of these obligations plainly means that there is no western european country that actually intends to pay their people pensions. In western countries, "The working man" pays taxes to the government, thinking they are in fact a loan that will be repaid when said man crosses the age of 65. The government has no intention of repaying these people. So people, live with it : you won't have any pension after 65. You might as well lend 1000 dollars per month to a homeless guy who swears he'll pay 10x as much back to you. In fact, that would actually help the economy, unlike paying the same amount in tax. Given that they aren't planning to actually pay this money, you could easily make the point that the NPV cost of the pensions is zero. 'Likewise, no discussion of public sector compensation in excess of a position's productivity' All public sector productivity is, at the very best, zero. At worst, massively negative. This is an evident and well known economic fact. Government is a cost, that is extracted under threat. Whether this means to you "without government (and taxes) you'll get killed in the street" or "phone/roads/education/... service won't exist without govt + taxes" is up to you, but government is always a negative influence on the economy. Therefore, every government employee has a net-negative effect on the economy as a whole. So what is your suggestion ? Make people pay to be government employees ? The romans actually did that, which means there's a boatload of funny situations this causes. I doubt it was very funny for roman citizens though. "No discussion of economic growth rates, which expand the amount of debt a country can sustain" Real economic growth rates have been zero or near zero in most places for half a decennium now. Total amount lent, however, has not. In the end it's simple : people, in general, have been spending more than they earn. A LOT more. Like a factor 10. What banks do is that through leverage they allow these factors to increase, but the more increased the leverage factor, the more fragile the system. It is near, but still below, the breaking point.
anamax 15y ago
> Austerity will only further cripple the economies of the GIPS countries as we've seen during the Great Depression in the 30s. The US at least, didn't do austerity during the GD or even the run-up to the GD. No, Hoover didn't do austerity. He increased govt spending significantly and Roosevelt actually campaigned against that. The US did try to decrease production, believing that "excess supply" was the problem. Both Hoover (a "progressive Republican") and Roosevelt agreed on that. Roosevelt didn't change that policy until he figured out that an "arsenal of democracy" had to actually produce lots of stuff. And that's pretty much when the Great Depression ended. > Austerity doesn't work: it leads to criminal levels of capital waste: high unemployment, low standards of living, poor liquidity, and so on. Surely you're not arguing that modern govts make efficient capital spending decisions. In the US, govt spending goes to cronies.
- gizmo 15y ago
  Right, the GD was not caused by US fiscal policy. The US govt could have prevented the GD though, by spending aggressively (increase demand) and by increasing the money supply. > Surely you're not arguing that modern govts make efficient capital spending decisions. In the US, govt spending goes to cronies. I'm not arguing that the government is a paradigm of efficiency but cronyism is a huge problem in the public sector as well. So government programs can certainly be less inefficient than the private sector. Recessions and depressions destroy value, destroy capital. If interference by the government can reduce or prevent this, I'm all for it.
  - anamax 15y ago
    > I'm not arguing that the government is a paradigm of efficiency but cronyism is a huge problem in the public sector as well. It's not nearly as large a factor, and they're spending their own money, so there's a natural limit. > If interference by the government can reduce or prevent this, I'm all for it. The question is not "can reduce" because it's easy to argue that the "correct" govt action could help. The relevant question is whether the govt actions that are likely to happen will be helpful or harmful. Do you believe that govt actions in the recent past have helped more than they've hurt? If not, why do you think that the next actions will do better?

by gizmo 15y ago

jonnathanson 15y ago

At the end of the day, the Europeans can't have their cake and it eat, too. Either the Eurozone is a truly integrated, multinational superentity, or it's a meaningless construct on top of a group of wholly independent nations. It can't be the former when things are going well, and the latter when things are going poorly. A fairweather EU / economic zone doesn't work, because it's built on a foundation of quicksand. How can these countries rely on a cooperative economic superstructure when, beneath it all, they still see each other as competitors? Transnationalism doesn't work when you're secretly a nationalist.

gizmo 15y ago
I agree that a fairweather Eurozone is not sustainable and that at least a fiscal union is needed (through good times and bad times, till war do us part). Luckily, many young people like the idea of a stronger united Europe, so hopefully it's just a matter of time until the public perception shifts. If the Euro just survives for another decade or two it's probably going to turn out OK.
- cynicalkane 15y ago
  The idea of a united Europe scares me, actually. Whenever there is fiscal union comes the notion that there should be some control over how money is spent. Germany and Greece and Spain and Sweden and Italy and every EU country will want a say. After all, it's "their" money. So there are going to be fundamental game theory problems unless all these different places can agree how money should be spent--and ideas about how money should be spent are a big, deeply embedded part of culture. If a fiscal union happens I would venture to guess one of the following will happen: one, eternal squabbling; or two, a partial homogenizing of European culture. I don't like either outcome. Differences are good. No, no amount of high hopes or good feelings will save you from this. I don't understand the urge to yoke societies together in unhelpful ways any more than I get why incompatible people enter bad marriages. It's always been obvious to me that takes more than love to work together, and often people work better together if they intentionally keep their independence.
  - jsnell 15y ago
    I doubt that Norway wants or has any chance of getting a say, due to minor reasons like not being a member of the EU.
    - cynicalkane 15y ago
      Thanks, edited. Not sure why I said Norway... probably was thinking of Sweden. Actually, they'd hopefully be smart enough to step out of a fiscal union. Edit: to downvoters: Sweden is part of the EU and so far has been avoiding monetary union through a loophole.

onemoreact 15y ago

Government spending has a wide range of benefits. Unfortunately once the private debt load get's that high is simply more rational for individuals to default vs trying to maintain that debt load. Because of the Euro that private borrowing involved international lenders private defaults help that country in the long term. In which case a deeper recession and some polices that caused more borrowers to default would actually help Spain recover at the cost of it's banking sector. The short term alternative is to prop up it's private sector for a few years in the hope that the world economy improves and they avoid a deep recession at the cost of a crushing public debt load.

gizmo 15y ago
There's a big difference how the US and Europe deals with default. People don't default in Europe even when it's clearly in their best interest to do so. NPR did a great piece about it: http://www.npr.org/blogs/money/2011/03/01/134168778/the-tuesday-podcast-discipline-and-forgiveness http://www.npr.org/blogs/money/2011/03/01/134168778/the-tues...

bsaunder 15y ago

I'm continually frustrated by the false dichotomy presented by the mainstream media between "government cut spending"/"government spend more/go into debt". Clearly another option is central bank bail out. I can accept that some people don't like that option, but it almost seems manipulative by the media to consistently not mention it and call it for what it is. Quantitative Easing = Printing Money. Have a public discussion of its merits. If a problem seems hard, its because you don't have enough information or aren't seeing all possible solutions. (someone famous must have said this).

anamax 15y ago
> If a problem seems hard, its because you don't have enough information or aren't seeing all possible solutions. How does the halting problem, or even NP complete, factor into this "theory"? You also seem to be assuming that there's always a "good" solution. That's clearly not true.
fauigerzigerk 15y ago
The reason why this option isn't mentioned may be that the Lisbon treaty doesn't permit it. I think, if that infamous article 123 didn't exist, the current panic wouldn't even be possible, because the ECB, like every other central bank in the world, would be a potential buyer of last resort (at least in countries that can borrow in their own currency).
drcube 15y ago
>If a problem seems hard, its because you don't have enough information or aren't seeing all possible solutions. Unfortunately, you are incorrect. There are problems that are impossible to solve, simply because there exist mutually incompatible definitions of "solve" among interested parties. ""Wicked problem" is a phrase originally used in social planning to describe a problem that is difficult or impossible to solve because of incomplete, contradictory, and changing requirements that are often difficult to recognize. Moreover, because of complex interdependencies, the effort to solve one aspect of a wicked problem may reveal or create other problems." http://en.wikipedia.org/wiki/Wicked_problem http://en.wikipedia.org/wiki/Wicked_problem

yummyfajitas 15y ago

Austerity doesn't work: it leads to criminal levels of capital waste: high unemployment, low standards of living, poor liquidity, and so on. No, austerity + nominal wage stickiness is claimed to do this. Since austerity seems more or less a given, why not try to increase wage flexibility? I think that "Greeks/Italians need a cut in their real wages" would be a very easy sell to Germany right now.

gizmo 15y ago
Wage stickiness is definitely[1] a problem: when you have 20% unemployment (40%+ youth unemployment) wages simply have to drop. Otherwise wages only go up in good times and stay stagnant in bad times. Austerity may be a given politically, but economically speaking it doesn't make much sense, and it's definitely not in the best interest of the EU (or the world) as a whole. [1] Not definitely, as some people pointed out below.
- justincormack 15y ago
  As the other posters here were saying, wages for the young are already very low. The problems are more structural, as technological change is changing what skills are needed, and some countries like Spain just had a huge property boom so everyone was trained for the construction business, which was a complete waste of resources. Existing businesses may never hire these people, so a lot of new businesses are needed, which takes time and capital, and a startup culture that much of southern europe does not have much of. Emigration is the current solution for many people instead.
- yummyfajitas 15y ago
  Again, economically speaking, the problem is austerity and wage stickiness put together. Austerity with nominal wage flexibility is fine - real wages will drop, employers will hire cheap employees, and there will be no unemployment or recession. Since austerity seems unavoidable, why aren't you and other people who buy into Keynesian theory pushing for wage flexibility?
  - 15y ago

mchusma 15y ago

Major fact check needed regarding your assessment of the 30s. Govt spending increased dramatically during that time. The "austerity" of the great depression was caused by economic ruin, not govt cuts. A good analysis is here: http://www.cato.org/pubs/journal/cj16n2-2.html http://www.cato.org/pubs/journal/cj16n2-2.html

gizmo 15y ago
The Keynesian viewpoint is that the government should have used stimulus, printed money to spur moderate inflation, and so on. Essentially very aggressive action by the government to encourage economic growth. The US government didn't cause the great depression, but they didn't prevent it either. Ultimately, as the US government started preparing for war spending increased massively and the economy recovered as a result, as Keynesian economics would predict. But even in the late 30s there were periods where the US government tried to balance the budget (and cut spending) and unemployment rose and and the economy got worse as a result.
- anamax 15y ago
  Govt spending isn't the only factor. Starting with Hoover and continuing with Roosevelt (until the run-up to WWII), the US govt introduced significant production restrictions in an attempt to boost prices. http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonge...

brohee 15y ago

What it doesn't say is that the private debt was mostly contracted to fuel the real estate bubble, thus artificially increasing the price of existing goods, but not being actually invested in competitive gain. Germany not having had a real estate bubble, for many reasons (population contraction being one) is likely to be a better explanation than German virtue to their debt level being so much better.

chernevik 15y ago

But it misses other issues: - No discussion of "off balance" sheet government obligations, like pensions and entitlements. These don't count as "debt", as they aren't bonds, but they are long-term cash flow obligations that reduce resources available for debt service - Likewise, no discussion of public sector compensation in excess of a position's productivity - No discussion of economic growth rates, which expand the amount of debt a country can sustain - No discussion of the role of low euro rates in private sector debt expansion. Markets presumed governments could and would bail out their banks, and thus didn't scrutinize bank assets for recovery values. (The graphic ignores financial sector debt, but that's debt _of_ the banks, not debt _to_ the banks.) The conflation of bank and government debt is a running theme in the euro crisis, see Sarkozy's remark that though the ECB wouldn't lend to governments it would lend to banks, and the banks would lend to governments, problem solved. The graphic thus understates the sovereign obligations. By ignoring growth, it ignores the key variable driving differences in perceived debt sustainability. And by ignoring market preconceptions of government backstops for banks, it misses the role of the euro in those private sector debt levels. The clue is this: why doesn't the graphic explain sovereign difficulties borrowing, evident in their rising yields? Bond buyers are saying that _governments_ won't be able to sustain their debts. That might reflect an opinion that governments will borrow unsustainably to bail out their banks. But then the solution would be to let the banks collapse and remove that possibility. But the governments can't do that because their economies are dependent on excess bank leverage for the growth they do have, and for the one source of financing they do have. So if we agree the wicked bankers did it, we're saying that governments have been using excess bank leverage to hide the lack of fundamental growth, and extent of structural problems. The truth is that the problem is excess leverage and spending in both public and private sectors. P.S. It's the same story in the US, lagging by a few years and mitigated by our ability to print money.

oelewapperke 15y ago
'No discussion of "off balance" sheet government obligations, like pensions and entitlements.' That's because these have an NPV of 3-4 times the GDP but don't actually influence the situation yet. In America a similar situation exists, but less bad. And frankly, the shear size of these obligations plainly means that there is no western european country that actually intends to pay their people pensions. In western countries, "The working man" pays taxes to the government, thinking they are in fact a loan that will be repaid when said man crosses the age of 65. The government has no intention of repaying these people. So people, live with it : you won't have any pension after 65. You might as well lend 1000 dollars per month to a homeless guy who swears he'll pay 10x as much back to you. In fact, that would actually help the economy, unlike paying the same amount in tax. Given that they aren't planning to actually pay this money, you could easily make the point that the NPV cost of the pensions is zero. 'Likewise, no discussion of public sector compensation in excess of a position's productivity' All public sector productivity is, at the very best, zero. At worst, massively negative. This is an evident and well known economic fact. Government is a cost, that is extracted under threat. Whether this means to you "without government (and taxes) you'll get killed in the street" or "phone/roads/education/... service won't exist without govt + taxes" is up to you, but government is always a negative influence on the economy. Therefore, every government employee has a net-negative effect on the economy as a whole. So what is your suggestion ? Make people pay to be government employees ? The romans actually did that, which means there's a boatload of funny situations this causes. I doubt it was very funny for roman citizens though. "No discussion of economic growth rates, which expand the amount of debt a country can sustain" Real economic growth rates have been zero or near zero in most places for half a decennium now. Total amount lent, however, has not. In the end it's simple : people, in general, have been spending more than they earn. A LOT more. Like a factor 10. What banks do is that through leverage they allow these factors to increase, but the more increased the leverage factor, the more fragile the system. It is near, but still below, the breaking point.

anamax 15y ago

> Austerity will only further cripple the economies of the GIPS countries as we've seen during the Great Depression in the 30s. The US at least, didn't do austerity during the GD or even the run-up to the GD. No, Hoover didn't do austerity. He increased govt spending significantly and Roosevelt actually campaigned against that. The US did try to decrease production, believing that "excess supply" was the problem. Both Hoover (a "progressive Republican") and Roosevelt agreed on that. Roosevelt didn't change that policy until he figured out that an "arsenal of democracy" had to actually produce lots of stuff. And that's pretty much when the Great Depression ended. > Austerity doesn't work: it leads to criminal levels of capital waste: high unemployment, low standards of living, poor liquidity, and so on. Surely you're not arguing that modern govts make efficient capital spending decisions. In the US, govt spending goes to cronies.

gizmo 15y ago
Right, the GD was not caused by US fiscal policy. The US govt could have prevented the GD though, by spending aggressively (increase demand) and by increasing the money supply. > Surely you're not arguing that modern govts make efficient capital spending decisions. In the US, govt spending goes to cronies. I'm not arguing that the government is a paradigm of efficiency but cronyism is a huge problem in the public sector as well. So government programs can certainly be less inefficient than the private sector. Recessions and depressions destroy value, destroy capital. If interference by the government can reduce or prevent this, I'm all for it.
- anamax 15y ago
  > I'm not arguing that the government is a paradigm of efficiency but cronyism is a huge problem in the public sector as well. It's not nearly as large a factor, and they're spending their own money, so there's a natural limit. > If interference by the government can reduce or prevent this, I'm all for it. The question is not "can reduce" because it's easy to argue that the "correct" govt action could help. The relevant question is whether the govt actions that are likely to happen will be helpful or harmful. Do you believe that govt actions in the recent past have helped more than they've hurt? If not, why do you think that the next actions will do better?