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Somehow we went from "the state should be financed from taxes" to "in hard times the state should spend more than it has to quickly get back to the good times w

Somehow we went from "the state should be financed from taxes" to "in hard times the state should spend more than it has to quickly get back to the good times where it can pay back its debts" to "the state should spend to stimulate the economy in both good times and bad times, and as long as the economy grows fast enough it doesn't matter that this spending isn't covered by taxes". This is in effect an infinite-money glitch, until you overplay your hand and a market upset bankrupts the state (or the state triggers hyper-inflation in an attempt to prevent bankruptcy). Austerity is just a roundabout way of saying "let's get more breathing room by abusing this infinite-money glitch less". In an ideal world any country would go through periods of austerity to get rid of wasteful spending, before increasing spending again. But of course this is not how politics works: it's hard to sell to voters, and the things that get cut in "austerity" are often not the most wasteful things.

lambda_garden 3y ago
An important factor is which country we are talking about. Only the US really has access to this "glitch" by being the world's reserve currency. UK austerity was so brutal because there's no real demand for GBP, outside of trading with the UK.
- ben_w 3y ago
  I met someone in Berlin who told me that he was a member of the UK Conservative party, and that he was on-course to become a Conservative party councillor before also leaving the country. He made at least four testable false statements in that discussion (I made notes, one was for how long Cameron had been prime minister), so take this with a pinch of salt: He openly admitted that the Conservative party manifesto of 2010 was a lie. That it was totally impossible to do what they promised about the deficit. Now, I'm not sure I remembered the manifesto pledge correctly, but even with that caveat, he still insisted that lying was absolutely acceptable. He refused to accept that normalising lies in this fashion is a problem (I wish I'd asked him about the Boy Who Cried Wolf, but I didn't) and then promptly changed the topic.
- BoxOfRain 3y ago
  I think a lot of the problem with the UK is that the housing market eats the wind out of everything else's sails too. This has both the economic effect of reducing the amount people have to spend on non-housing things and also it creates the psychological malaise of 'why should I work harder just so I can pay off some random baby boomer's mortgage instead of my own?'. If we can fix housing we can fix a lot of what's wrong the UK I think.
- waveofthehand 3y ago
  This isn't true. The UK can spend as freely as the US. Being the reserve currency has nothing to do with it. Demand for the currency is unrelated to how much a sovereign state can spend.
  - lambda_garden 3y ago
    It is related to how much the country can spend through borrowing and printing. Very few counties spend less than they raise through taxation.
mjburgess 3y ago
Its better to see gov debt in cost-of-repayment terms rather than an absolute figure. The total is really irrelevant. Atm in the US, it's 16% of the budget goes on repayments, or ~3.5% of GDP. Likewise in the UK, it's ~12% at ~3.5% GDP I suspect it's fairly easy for a society to this level
- hef19898 3y ago
  From my limited understanding of how nationap debt works, it also matters a lot whom the money is owned to. If it is mainly citizens of said country, the situation is very different from foreign investors holding the bonds. Just ask Greece (which, surprisingly, wasn't mentioned in the summary, and I assume the book, as a poster child of austerity going wrong).
  - mjburgess 3y ago
    greece defaulted on some of its debts -- it's more about whether that's happened. To my knowledge the UK has never in its history defaulted on its debts, and I'd imagine neither has the US since at least the civil war (but i assume never). The debts of governments of this type is about the lowest risk investments its possible to make, and they're treated that way. But that also means severe economic crises in those countries has an outsized impact. If the US debt were to increase 12.5% of GDP YoY for years, the entire global financial system would melt down -- as US debt is basically the baseline of the entire system
    - lotsofpulp 3y ago
      A country that issues its own currency never has to default. The only question is does the country produce enough goods/services that the rest of the world wants such that the currency (or its debt) stays in sufficient demand. The above goods and services can simply be “stability” relative to the rest of the world, such that wealth seeking a safe haven continues to choose assets denominated in they nation’s currency.
      - 3y ago
epups 3y ago
When do you think this switch has occurred, though? I mean, British debt-to-GDP ratio was 200% in 1815 [1], for example, and there are several other examples that suggest that most countries had their national debts peak before the past 10 years [2]. Ironically one major contributor to government debt today and 200 years ago were war expenses. [1] https://en.wikipedia.org/wiki/History_of_the_British_national_debt https://en.wikipedia.org/wiki/History_of_the_British_nationa... [2] https://data.imf.org/?sk=806ed027-520d-497f-9052-63ec199f5e63 https://data.imf.org/?sk=806ed027-520d-497f-9052-63ec199f5e6...
- gilleain 3y ago
  Not just 200 years ago ... English kings had a tendency to spend all the money on foreign wars. Take Henry VIII for example: > Henry inherited a vast fortune and a prosperous economy from his father, who had been frugal. This fortune is estimated at £1,250,000 (the equivalent of £375 million today). By comparison, Henry VIII's reign was a near disaster financially. He augmented the royal treasury by seizing church lands, but his heavy spending and long periods of mismanagement damaged the economy. > Henry VII had not involved Parliament in his affairs very much, but Henry VIII had to turn to Parliament during his reign for money, in particular for grants of subsidies to fund his wars. https://en.wikipedia.org/wiki/Henry_VIII#Finances https://en.wikipedia.org/wiki/Henry_VIII#Finances Hmmm, having said that, the section mentions he spent a lot of money on tapestries, so maybe it was not all war.
ThrustVectoring 3y ago
In economic terms, bond-buying and tax-paying are the exact same thing, real consumption forgone by current workers. IMO, the profligate deficit spending of the baby boomer generation's prime working years is a symptom of massive demand for government bonds rather than the cause of some moral failure by leadership. Like, it is true that oversupplying government bonds creates some really nasty economic effects, but so does undersupply. The government budget is not a household budget, and it's simply not true that their debts can or should be paid back.
- xyzzy123 3y ago
  Selling bonds produce future obligations whereas raising taxes doesn't. Is that not a meaningful difference?
- injeolmi_love 3y ago
  > bond-buying and tax-paying are the exact same thing, real consumption forgone by current workers No. US Treasuries are one of the most liquid and easy to borrow against assets in the world. When institutions buy Treasuries, they use them as collateral to borrow against with new money created by the banking system. This money is then spent in the real economy. That’s very different from taxes.
gadders 3y ago
>>the things that get cut in "austerity" are often not the most wasteful things. That's how bureaucrats play the game. When an organisation gets their budget cut, they don't immediately look through the services they provide to see which ones can be cut or delivered at a lower cost. The first move is to float stories about cutting their most popular services to generate adverse press for the budget cuts. c.f. local councils in the UK threatening libraries whenever they get a budget reduction (or not as much of an increase as they would like).
- ernst_klim 3y ago
  Right. In Berlin, we have a district called Neukölln, a poor district accumulated a lot of social and economic problems, such as high levels of violent crimes, drug abuse, a lot of homeless, gang wars etc. The solutions for Neukölln problems devised by left-leaning municipal and city govs were absolutely fabulous, such as public swimming pools. At some point when it became clear that the district (or rather Berlin in general) is an eternal money pit, it was decided to cut its funding. What was the response of local gov? Cut unnecessary and redundant services (sarcasm) like school security, drug addiction helping centers among others. Basically what they do is an open blackmailing, "you cut the funds, we are fucking things up", but that's how political blanket-pulling game works. Nobody likes funding cuts, so it's not uncommon that executives, local governments and various institutions sabotaging such initiatives.
  - ilikerashers 3y ago
    What should they have cut in your opinion?
    - Jensson 3y ago
      Bureaucrats, there are too much of them almost everywhere so they could probably cut their own numbers. Instead they choose to cut the workers, which is why it is so hard to do anything about them and why we have too many of them everywhere.
      - 3y ago
fallingknife 3y ago
> as long as the economy grows fast enough it doesn't matter that this spending isn't covered by taxes Which is technically true, but impossible over the long run for the levels of deficits the US is running now.
- waveofthehand 3y ago
  It is not "impossible" at all. The US cannot run out of its own currency. It controls the currency. It can run whatever deficits it wishes to.
jltsiren 3y ago
Sometimes the austerity is ideologically motivated rather than pragmatic. The goal is to reduce public spending, and it's often combined with tax cuts for the well-off. Public finances don't get any better, but the income/wealth distribution will change. And sometimes austerity means stupid spending reductions that would not even qualify as cost savings under any meaningful accounting scheme. You save money on infrastructure maintenance, education, preventative healthcare, mental health services, and youth work, and you don't see any changes in the short term. But in the long term, you get failing infrastructure, a less productive workforce, higher healthcare costs, mental health issues, and more crime. Instead of cutting fixed spending, it would often be less harmful to cut discretionary spending – the programs the current government uses to achieve its policy goals. But of course no government wants to do that. People get into politics to change something, not to manage the existing system.
waveofthehand 3y ago
It isn't a glitch, it is simply how the modern monetary system works. States can spend as much as they would like to. The issue for a state is what is available to buy, not whether the money is there to buy it with. Austerity is therefore a self-defeating strategy. It does not remove wasteful spending, rather it creates more of it. What states should focus on is what are the best resources to purchase and how that spending should be apportioned, not whether there is money to spend with.

lambda_garden 3y ago

An important factor is which country we are talking about. Only the US really has access to this "glitch" by being the world's reserve currency. UK austerity was so brutal because there's no real demand for GBP, outside of trading with the UK.

ben_w 3y ago
I met someone in Berlin who told me that he was a member of the UK Conservative party, and that he was on-course to become a Conservative party councillor before also leaving the country. He made at least four testable false statements in that discussion (I made notes, one was for how long Cameron had been prime minister), so take this with a pinch of salt: He openly admitted that the Conservative party manifesto of 2010 was a lie. That it was totally impossible to do what they promised about the deficit. Now, I'm not sure I remembered the manifesto pledge correctly, but even with that caveat, he still insisted that lying was absolutely acceptable. He refused to accept that normalising lies in this fashion is a problem (I wish I'd asked him about the Boy Who Cried Wolf, but I didn't) and then promptly changed the topic.
BoxOfRain 3y ago
I think a lot of the problem with the UK is that the housing market eats the wind out of everything else's sails too. This has both the economic effect of reducing the amount people have to spend on non-housing things and also it creates the psychological malaise of 'why should I work harder just so I can pay off some random baby boomer's mortgage instead of my own?'. If we can fix housing we can fix a lot of what's wrong the UK I think.
waveofthehand 3y ago
This isn't true. The UK can spend as freely as the US. Being the reserve currency has nothing to do with it. Demand for the currency is unrelated to how much a sovereign state can spend.
- lambda_garden 3y ago
  It is related to how much the country can spend through borrowing and printing. Very few counties spend less than they raise through taxation.

mjburgess 3y ago

Its better to see gov debt in cost-of-repayment terms rather than an absolute figure. The total is really irrelevant. Atm in the US, it's 16% of the budget goes on repayments, or ~3.5% of GDP. Likewise in the UK, it's ~12% at ~3.5% GDP I suspect it's fairly easy for a society to this level

hef19898 3y ago
From my limited understanding of how nationap debt works, it also matters a lot whom the money is owned to. If it is mainly citizens of said country, the situation is very different from foreign investors holding the bonds. Just ask Greece (which, surprisingly, wasn't mentioned in the summary, and I assume the book, as a poster child of austerity going wrong).
- mjburgess 3y ago
  greece defaulted on some of its debts -- it's more about whether that's happened. To my knowledge the UK has never in its history defaulted on its debts, and I'd imagine neither has the US since at least the civil war (but i assume never). The debts of governments of this type is about the lowest risk investments its possible to make, and they're treated that way. But that also means severe economic crises in those countries has an outsized impact. If the US debt were to increase 12.5% of GDP YoY for years, the entire global financial system would melt down -- as US debt is basically the baseline of the entire system
  - lotsofpulp 3y ago
    A country that issues its own currency never has to default. The only question is does the country produce enough goods/services that the rest of the world wants such that the currency (or its debt) stays in sufficient demand. The above goods and services can simply be “stability” relative to the rest of the world, such that wealth seeking a safe haven continues to choose assets denominated in they nation’s currency.
    - 3y ago

epups 3y ago

When do you think this switch has occurred, though? I mean, British debt-to-GDP ratio was 200% in 1815 [1], for example, and there are several other examples that suggest that most countries had their national debts peak before the past 10 years [2]. Ironically one major contributor to government debt today and 200 years ago were war expenses. [1] https://en.wikipedia.org/wiki/History_of_the_British_national_debt https://en.wikipedia.org/wiki/History_of_the_British_nationa... [2] https://data.imf.org/?sk=806ed027-520d-497f-9052-63ec199f5e63 https://data.imf.org/?sk=806ed027-520d-497f-9052-63ec199f5e6...

gilleain 3y ago
Not just 200 years ago ... English kings had a tendency to spend all the money on foreign wars. Take Henry VIII for example: > Henry inherited a vast fortune and a prosperous economy from his father, who had been frugal. This fortune is estimated at £1,250,000 (the equivalent of £375 million today). By comparison, Henry VIII's reign was a near disaster financially. He augmented the royal treasury by seizing church lands, but his heavy spending and long periods of mismanagement damaged the economy. > Henry VII had not involved Parliament in his affairs very much, but Henry VIII had to turn to Parliament during his reign for money, in particular for grants of subsidies to fund his wars. https://en.wikipedia.org/wiki/Henry_VIII#Finances https://en.wikipedia.org/wiki/Henry_VIII#Finances Hmmm, having said that, the section mentions he spent a lot of money on tapestries, so maybe it was not all war.

ThrustVectoring 3y ago

In economic terms, bond-buying and tax-paying are the exact same thing, real consumption forgone by current workers. IMO, the profligate deficit spending of the baby boomer generation's prime working years is a symptom of massive demand for government bonds rather than the cause of some moral failure by leadership. Like, it is true that oversupplying government bonds creates some really nasty economic effects, but so does undersupply. The government budget is not a household budget, and it's simply not true that their debts can or should be paid back.

xyzzy123 3y ago
Selling bonds produce future obligations whereas raising taxes doesn't. Is that not a meaningful difference?
injeolmi_love 3y ago
> bond-buying and tax-paying are the exact same thing, real consumption forgone by current workers No. US Treasuries are one of the most liquid and easy to borrow against assets in the world. When institutions buy Treasuries, they use them as collateral to borrow against with new money created by the banking system. This money is then spent in the real economy. That’s very different from taxes.

gadders 3y ago

>>the things that get cut in "austerity" are often not the most wasteful things. That's how bureaucrats play the game. When an organisation gets their budget cut, they don't immediately look through the services they provide to see which ones can be cut or delivered at a lower cost. The first move is to float stories about cutting their most popular services to generate adverse press for the budget cuts. c.f. local councils in the UK threatening libraries whenever they get a budget reduction (or not as much of an increase as they would like).

ernst_klim 3y ago
Right. In Berlin, we have a district called Neukölln, a poor district accumulated a lot of social and economic problems, such as high levels of violent crimes, drug abuse, a lot of homeless, gang wars etc. The solutions for Neukölln problems devised by left-leaning municipal and city govs were absolutely fabulous, such as public swimming pools. At some point when it became clear that the district (or rather Berlin in general) is an eternal money pit, it was decided to cut its funding. What was the response of local gov? Cut unnecessary and redundant services (sarcasm) like school security, drug addiction helping centers among others. Basically what they do is an open blackmailing, "you cut the funds, we are fucking things up", but that's how political blanket-pulling game works. Nobody likes funding cuts, so it's not uncommon that executives, local governments and various institutions sabotaging such initiatives.
- ilikerashers 3y ago
  What should they have cut in your opinion?
  - Jensson 3y ago
    Bureaucrats, there are too much of them almost everywhere so they could probably cut their own numbers. Instead they choose to cut the workers, which is why it is so hard to do anything about them and why we have too many of them everywhere.
    - 3y ago

fallingknife 3y ago

> as long as the economy grows fast enough it doesn't matter that this spending isn't covered by taxes Which is technically true, but impossible over the long run for the levels of deficits the US is running now.

waveofthehand 3y ago
It is not "impossible" at all. The US cannot run out of its own currency. It controls the currency. It can run whatever deficits it wishes to.

jltsiren 3y ago

Sometimes the austerity is ideologically motivated rather than pragmatic. The goal is to reduce public spending, and it's often combined with tax cuts for the well-off. Public finances don't get any better, but the income/wealth distribution will change. And sometimes austerity means stupid spending reductions that would not even qualify as cost savings under any meaningful accounting scheme. You save money on infrastructure maintenance, education, preventative healthcare, mental health services, and youth work, and you don't see any changes in the short term. But in the long term, you get failing infrastructure, a less productive workforce, higher healthcare costs, mental health issues, and more crime. Instead of cutting fixed spending, it would often be less harmful to cut discretionary spending – the programs the current government uses to achieve its policy goals. But of course no government wants to do that. People get into politics to change something, not to manage the existing system.

waveofthehand 3y ago

It isn't a glitch, it is simply how the modern monetary system works. States can spend as much as they would like to. The issue for a state is what is available to buy, not whether the money is there to buy it with. Austerity is therefore a self-defeating strategy. It does not remove wasteful spending, rather it creates more of it. What states should focus on is what are the best resources to purchase and how that spending should be apportioned, not whether there is money to spend with.