18 ms·

The plot against France

140 points by galactus 13y ago

TsiCClawOfLight 13y ago
Americans should read this.
beedogs 13y ago
If these tax-less spend-less austerity morons were right about their ideology, you'd think it might have worked once in a while. But it never has, nor will it ever. Instead they've taken to punishing the nations that prove them wrong. Same thing is going on now in Australia.
- noonespecial 13y ago
  I suspect austerity does work but has an inflection point. It can (theoretically) be used to cut outright government waste. On a personal level, you might stop paying for your cable TV when money gets tight and have it make you better off. Not paying for your car and finding yourself unable to get to work would make you worse off despite the "savings". The trouble with politics and austerity is they always seem to end up missing the car payments and keeping the cable on.
  - gaius 13y ago
    Term you are looking for is Laffer Curve. http://en.wikipedia.org/wiki/Laffer_curve http://en.wikipedia.org/wiki/Laffer_curve
    - noonespecial 13y ago
      The Laffer Curve suggests that there is a maximum level of taxation beyond which increases in the tax rate do not generate additional revenue. (Also sometimes called the "Sheriff of Nottingham paradox": raising taxes on people with nothing does not yield more money) I was suggesting that there are certain government programs that incur a cost to operate incur a greater cost to cease operating. They generate a net positive on the money spent. Cutting them for "austerity" is foolish.
      - np422 13y ago
        One must remember that the Laffer curve is a theoretical discussion that can help to explain economic phenomenons. It's not a law of nature. Laffer curve may point us towards the general direction, but real world observation have showed that there is no simple, smooth curve that predicts tax income versus tax rate - human behaviour is far to much stochastic for that.
        prostoalex 13y ago
        Not that theoretical http://www.objectobot.com/wp-content/uploads/2012/12/ADavies-marginal-income-tax-rates-5-PDF.jpg http://www.objectobot.com/wp-content/uploads/2012/12/ADavies...
  - freshhawk 13y ago
    > I suspect austerity does work but has an inflection point. It can (theoretically) be used to cut outright government waste. So that makes intuitive sense, but a lot of things in economics (and everything else complex) make intuitive sense but turn out to be completely wrong. The problem is that while we both "suspect" that this is true or close to true, all that really means is that our gut says it must be and we're smart enough to know about a mechanism like inflection points that can be used to rationalize it.
    - noonespecial 13y ago
      Or, since we have an intuitive hunch and we know about things like inflection points, we might go and investigate more carefully doing our best to find out how it works in the wild. Until then, I'll admit, it is much fun to "Gladwell" it over drinks, no?
      - rhizome 13y ago
        I suspect people are less likely to investigate things that make intuitive sense, due to confirmation bias.
      - freshhawk 13y ago
        More fun? Definitely, especially with someone who just used the phrase "to Gladwell it", which I love and really hope I remember to start using regularly to describe this kind of thing.
  - gohrt 13y ago
    wasted spending is not a social problem in itself -- it just moves wealth around, but doesn't destroy wealth. Wasted production -- on stuff no one wants (like wartime destruction), is a problem. Opportunity cost is wasted production (paying people to lay bricks instead of building efficient brick-building machines, say), and that's the motivation for "free market instead of central planning", but that's what austerity means. Austerity means cutting government spending to raise the government's bottom line -- but the government's bottom line isn't like yours. If the country owes its own citizens money, it won't go bankrupt -- that's just taxation under a different name
  - api 13y ago
    If Austerity cut waste, it would probably work. The problem is that in government waste usually stems from bureaucratic calcification and corruption. Calcified and corrupt bureaucracies are highly resistant to change and have the system "wired" to defeat it, so they don't generally get hit much. Austerity's cuts fall disproportionately upon social safety nets and productive activities, hence the result. I've been of the impression for a while that government waste and corruption grows without bound until it destroys the host, resulting in a revolution or some other kind of "reboot," and then repeat. There appears to be no way of actually cutting it without setting fire to the entire thing. Few things in nature are as tenacious as a parasite.
    - rhizome 13y ago
      See: http://en.wikipedia.org/wiki/Iron_law_of_oligarchy http://en.wikipedia.org/wiki/Iron_law_of_oligarchy
  - moocowduckquack 13y ago
    State austerity during a market recession makes no sense because the state is one of the few participants who is still able to borrow at reasonable rates. The borrowing will still have to occur, because people need to eat, however it is paid back at Wonga rates of six squillion APR, rather than at the government bond level.
- daniel-cussen 13y ago
  They did it in Chile after the coup (1973) and it worked...so...well. Overnight, we went from masses of public servants endlessly on strike, 400% inflation, and halfway-to-Cuba socialism to tons of public servants getting fired (none of this furlough with back pay business) and the remainder shutting up and doing their work. There was a small downtick in the economy, shortly, not unlike the downtick in US after WWI that ushered in the roaring twenties. Naturally, the economy changed drastically because of the dictatorship and foreign loans make it slightly harder to analyze, and in 1982 the economy got hit badly for pegging the currency, which is a different story. But they cut spending, lowered taxes, and it worked fantastically. Ultimately, if, as a country, you're thinking of going down the tax-less spend-more road, you have to amass enough power in the hands of the people that will carry it out (in this case a dictator) that the public sector can't go on an endless tirade of strikes and sabotage. If not, guess what'll happen? The essentials from among the things the government provides will be the first to go in an attempt to rile the public up. But how many cushy do-nothing bureaucrats will get fired? That's where government spending is, in its vast majority—in the salaries of government employees. If you want to tax less and spend more, keep in mind that you'll be going toe-to-toe with the people that run government (more-so than politicians) and that it's a serious political battle for the country to take on. So in that sense you're right--expecting to politically shift over to tax-less spend-less policy may be fruitless and unrealistic, if only because the people one is trying to lay off will always sabotage the effort.
  - AlexanderDhoore 13y ago
    You need some serious balls to defend Pinochet and his criminal gang. "Immediately after the coup the junta moved to crush their left-wing opposition. In addition to pursuing armed revolutionary groups it embarked on a campaign against opponents and perceived leftists in the country. As a result, according to the Rettig Commission, approximately 3,000 people are known to have been killed, 27,000[1] were incarcerated and in a great many cases tortured." [1] Reading "The Shock doctrine" by Naomi Klein opened my eyes. She would disagree with you on the "halfway-to-Cuba socialism": "As for the argument that Friedmanite policies are the reason Chileans live in "houses of brick" instead of "straw", it's clear that Stephens knows nothing of pre-coup Chile. The Chile of the 1960s had the best health and education systems on the continent, as well as a vibrant industrial sector and a rapidly expanding middle class." [2] [1] http://en.wikipedia.org/wiki/Government_Junta_of_Chile_(1973) http://en.wikipedia.org/wiki/Government_Junta_of_Chile_(1973... [2] http://www.theguardian.com/commentisfree/cifamerica/2010/mar/03/chile-earthquake http://www.theguardian.com/commentisfree/cifamerica/2010/mar...
- raverbashing 13y ago
  Because spending more than you earn is such a good idea, no? That's the real problem, and it's going to stop working eventually (even for the US) Yes, pushing an agenda through ratings is bad. (But even worse is the mandatory obedience to ratings).
  - svachalek 13y ago
    To put this on topic for HN, how many startups strive to spend less than they earn? Governments are not lemonade stands either.
  - nhaehnle 13y ago
    You're attempting to transfer your intuitive, everyday understanding of the situation of an individual household to the situation of an entire country or its government. In doing so, you are making a mistake, especially when you apply it to the US. Think about it: Why is spending more than you earn bad for a household? Because according to the rules of society you will eventually not be able to spend anymore. The rules of society are different for the US government, and therefore your conclusion about spending vs. earning does not apply.
- JRobertson 13y ago
  This reply should be downvoted into gray. It includes a direct insult, and strong claims with no proof behind them. There is no logic in this post, only pure bitter emotion. I believe in the principles involved in austerity, but would argue that those using that word in government are "doing it wrong". - Do you believe the government is inefficient with its money? ( public school system) - Do you believe that the government has its hands in too many pies and should be doing less? (NSA) - Do you approve of the cost of the ACA website? What about the value we're getting for our money? - How about Mr Presidents Million dollar golf trips while he shuts down the White House? - How much good could be done with the $420 billion in interest payment we paid last year alone on our debt [1]? There are many reasons to try to be more efficient/austere with our money. I personally strive to be debt free and self sufficient, and I would like my country to be the same. I don't think the power our foreign lenders have over us is a good thing. [1] - http://www.pewresearch.org/fact-tank/2013/10/09/5-facts-about-the-national-debt-what-you-should-know/ http://www.pewresearch.org/fact-tank/2013/10/09/5-facts-abou...
  - nhaehnle 13y ago
    I gave you an upvote even though you're factually wrong/misguided, because you don't deserve to be in the gray. > I personally strive to be debt free and self sufficient, and I would like my country to be the same. First of all, you are conflating country and government. Most of a government's debt is typically held by the country's citizen, so government debt is in fact private wealth. Second, think about why you strive to be debt free and self sufficient, and then think about whether the same logic applies to a government that issues its own currency and is indebted only in that currency. A government that is monetarily sovereign is subject to different rules than private households and must therefore follow different strategies. If you transfer the guidelines you have developed for your own personal dealings directly onto the government, you're making a mistake. It may feel good and morally right, but it's still wrong from a logical and rational perspective.
- enraged_camel 13y ago
  Austerity is the pinnacle of FYGM (fuck you, got mine) politics. It is almost always lobbied for and driven by the financial elite, and their reasoning behind it is that if government spends less, it needs less taxes, which means rich people get to keep more of their wealth to themselves. Those poor people over there though? Fuck 'em. If they worked hard like us they would be rich, too! Of course, this wouldn't be politically correct to say outright. So instead, they disguise it under things like "fiscal responsibility." But underneath the rhetoric you can almost taste the hatred and contempt they feel towards poor people.
- jacques_chester 13y ago
  Australia is a good example of the fruits of fiscal discipline. The Howard government paid off our long term debt entirely, allowing the Rudd and Gillard governments enormous scope for borrowing. We'd be borrowing at a much higher interest rate otherwise. Of course, as in many cases, there are confounding factors. Australia's is being a major supplier of iron ore and coal.
mathieuh 13y ago
Austerity: when the state breaks your legs and gets really stingy with the crutches.
smoorman1024 13y ago
Although sovereign credit ratings by the big Credit Rating Agencies do have a small impact on borrowing cost, their ratings should still be taken with a grain of salt. Take a look at this study by the New York Fed. http://www.newyorkfed.org/research/epr/96v02n2/9610cant.pdf http://www.newyorkfed.org/research/epr/96v02n2/9610cant.pdf In particular on page 10 table 8 you can see the additional impact that a credit rating upgrade or downgrade has on borrowing cost. You could also read throughout the paper and in the conclusion that a lot of what determines a sovereign credit rating is correlated with publicly available macro indicators (i.e. the market was already moving in that direction anyways). Take a look at page 9 chart 2 to see the direction that spreads are moving before an after a ratings announcement. My point is that Ratings agencies don't swing a huge sledgehammer; its more like a small mallet. The author of the article is right you should be skeptical of the incentives behind these ratings decisions but you also shouldn't fear them.
humanrebar 13y ago
Leave this kind of political rant for /r/politics please. If someone wants to say something interesting about the downgrade of France, some actual analysis combined with numbers and graphs would be much more welcome than a linkbait title based on a column full of caricatures of political opponents.
- biehl 13y ago
  Did you not read the article? It has plenty of relevant numbers and relevant comparisons.
  - humanrebar 13y ago
    I read the column (it's not factual enough to be an article). It has numbers, but it reads like the numbers follow the conclusion, not the other way around. Krugman ignores some very sophisticated discussions to be had on many issues. For example, will the aging population in developed countries affect their medium-term ability to repay their debts? Krugman doesn't say anything on this topic other than to say the problem isn't unique to France. Graphs and numbers on how aging affects productivity is very germane but absent in his analysis. I actually don't blame Krugman here. Let's be honest, in this article, Krugman is a political columnist. He basically admits that this is a political rant in his second paragraph. And the thesis of the column is that some people did something he disagrees with so they must be bad people with bad motives. I just don't like that this was posted and upvoted here. I like when HackerNews has better content than this. I can read this sort of thing in /r/politics, The Huffington Post, or The New York Times. I come to HackerNews for tech, startup, futurism, science news, etc. Any political posts should at least have a tech or entrepreneurship bent and be based in rational argument, not political one-upsmanship.
    - sentenza 13y ago
      Aging will affect France less than most other EU countries, since it has relatively high birthrates. In particular, Germany and Italy have horribly low birthrates and should be affected much more by this. Since internal trade and capital flows are much more important for the EU economy than external trade and capital flows, what matters is the relative aging effect compared to other EU countries. So it was valid to discard that effect for a discussion of the broader dynamics.
balabaster 13y ago
I don't understand why anyone gives a shit about S&Ps ratings... they're the charlatans (along with Moody's and Fitch) who gave fuel to the whole economic crisis in the first place. They continually endorse toxic financial instruments that make the fat cats in the banks some of the richest people in the world in return for what? Well, the rating agencies are paid by the very companies they rate - anyone see a conflict of interest here? If they'd done their jobs properly in the first place and given an objective rating to collateralized debt, then it's entirely possible a large portion of the collapse could have been avoided. Not that I'm at all cynical (okay, you got me, I'm entirely cynical)... but really: 1). You run a company whose ratings are provided for profit - paid for by the companies that you rate, and you expect me to believe it's completely fair and unbiased? Do you think I'm that naive or stupid? 2). You can't knowingly endorse toxic financial instruments in one breath causing huge financial instability in financial markets all around the world and expect me to believe anything you have to say after that. Are you stupid? You might as well be saying: "You should invest all your money in This Guy, Inc., he's a fantastic risk! You shouldn't invest your money in the French, they're a terrible risk" Small Print: - "This Guy, Inc." is a known thief, embezzler and money launderer, but he pays us a tidy sum of a couple of billion dollars a year to look the other way, so we give him a good rating. - We haven't found a nice way of making tidy profit off the French, so we'll steer people towards other financial instruments that do bolster our profits. (The characters in this story are purely fictitious. Any resemblance between known thieves, embezzlers and money launderers and actual bankers is entirely coincidental.)
- smoorman1024 13y ago
  Although I do not disagree with the perverse incentives of ratings agencies, you have to consider that certain funds are required to hold certain levels of investment grade products. Ignoring the reason why they have to do this, if the rating changes they might be required to invest elsewhere. This is why people DO care about S&P ratings.
  - nhaehnle 13y ago
    Right. The question is, where do we get reliable ratings of the "safety" of investment products without the conflict of interest and the political biases of rating companies? It seems very difficult to impossible. An even more out-of-the-box way to approach the problem is to ask why funds with such investment grade requirements are so important in the first place. In part it is because the rich park their money there, and public discourse is overwhelmingly determined by what the rich (edit: make it the top quintile in terms of income or wealth, perhaps) care about. The other part is that retirement is largely organized privately via funds. I am increasingly of the opinion that that is a horrible idea. Note that it is still a somewhat nuanced position. Of course, everybody should have the right to invest their savings into whatever they like. However, the normative default ought to be that a comfortable retirement can come out of a direct distribution system financed by taxes. In the end, the real resources consumed by retirees come from the currently working population anyway. On that level, it does not matter how the necessary funds flow to the retirees. However, there is a big difference in stability between an intransparent system of privately run funds based on volatile financial markets vs. a stable and transparent system of direct, tax-funded distribution.
jypepin 13y ago
Disclaimer: I am French, live now in SF because the rent price and everything else, life is better here. I wish I could say this post is 100% true, but here my thoughts about some invalid points; France is not only "experiencing economic difficulties". France has never experienced such difficulties. I'm not talking numbers, S&P ratings, or else, but as the population's feeling, buying power and general happiness. I think that something was forgotten here, and it's the environment in which you cut spendings/raise taxes. Cutting spendings in the USA, where the policies are already ultra-capitalistic and spendings and small, it might be bad - In a country like France, with a left tendency (even when right is governing, it's way more socialist than the USA), cutting spendings sometimes doesn't hurt - and it's hard to justify more spendings. When Sarkozy (right) was governing and the crisis started, he adopted a "cut spendings" policy, as criticized so much in this article, and well, it was obviously not welcomed by the people, but it allowed the country to get through the crises better than most other european countries. A lot of things seemed really bad and implemented, mostly because of the newspapers being biased and wanting to sell. e.g. a big scandal when he raised the age limit for retirement. It was only for one or two years on average, and a lot of "dangerous" and "hard" jobs categories were not touched. There were simply no more money in the bank, and paying was just impossible unless raising debt and printing money. No thanks. And when you compare, the retirement system in France was the more generous in Europe, with average retirement age often lower of 5+ years. This is just an example amongst others. Now Hollande is governing (left). For the quick background, he is the complete opposite of Sarkozy. Sarkozy was the "bling bling" president, loving America and capitalism, etc. Hollande said on television he hates rich people, and does everything to be the poor class, normal, president. Robin Hood in a sense. Higher taxes (75% for one million revenue), more taxes if your net worth is high (even if no income), to the point that every rich known personality from France (actors, businessmen, etc.) are leaving and getting other nationalities, to not have to pay those taxes, because too high. When you are in your 20s, and get out of school a Master, or 2, which is the norm now if you want to be able to hope to find a job, there is an all-time high unemployment rate. Opportunities are rare, etc. And now, Hollande is the less-appreciated president of all time for France. His popularity was the lowest a president ever had after only a few months of presidency. So, I am no politics analyst, or whatever, but this is a feeling as a person from France, seeing my country getting worse and worse because everything done is against entrepreneurship and lowering workers motivations. Seeing all my fellow french moving to the US, Canada, Argentina, Asia, and after only a few weeks, being so glad to call those places home, and saying they would never go back to France, because anywhere they are, it's so much better. I'm not saying we should always cut taxes and never spend more, but this article misses a lot of point and is not really objective - "France’s remarkable health care system, which delivers high quality at low cost"- Yes it's remarkable, but it costs A LOT. Just my 2cents :)
deleted 13y ago
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BenderV 13y ago
The article just say that S&P punish France rating for their political choice without proof of it's economic impact. But, for what is worth : richs are leaving the country, young educated dream to leave, less educated want to work for the gouvernement, tv, radio, newspapers talk about gouvernement. And gouvernement only create new taxes and stupid debate (See leonarda...) People are all about gouvernement spending, without a care for the debt. It's not signs of a bright future... [disclaimer : I'm French]
copx 13y ago
If S&P had an agenda against high taxes and extensive welfare states they would downgrade the Scandinavians first. The vikings easily beat France in those categories yet they all have triple-A ratings. These ratings are supposed to indicate "the capacity to meet financial commitments". I have read articles fearing a French collapse even in left-liberal newspapers here in Germany. Meanwhile nobody worries about Sweden or Denmark not being able to pay their bills.
mgleason_3 13y ago
Anecdotes, anecdotes, anecdotes - they don't prove anything (remember statistics 101?). It's a sleazy political tactic, a cheap plot twist, a joke. The whole article is one poorly supported anecdote: France. These articles and comments are like watching a Monte Python Witch lynching. The mob agrees - tax and spends the way to go. "Ooh, no it's the rich they're the ones." Mob: "Yea, it's the richies fault. Burn them!". "Wait, wait, it's the poor - they're not working." Mob: "Burn them!" If we're just going to support "our guys" "Democrats" or the "Republicans". Or are we going to have some actual discourse? If it's just "our guys" then "Hey if a little's good, a lot is better!" So, let's take these good ideas to the limit!!! Why not cut government completely? Ooh, that might be dangerous - imagine mayhem as we start fighting amongst ourselves to protect our property or as our defenseless borders are attached. We might end up being run by a repressive communist regime. OK, forget that. Let's go the other way - let's tax income at 100% and let the government spend it all! Hmm, it's hard to imagine why anyone would bother to work in that situation, could millions end up desperately poor like in Russia? But OK, let's keep going... Do we like the way the government spends money? That's an awful lot of power in very few hands. Some of it will go for good (programs for the poor). But some of it's going to end up in places where it harms the poor - i.e. the war on Drugs where police in Texas are using forfeiture laws to take property (like cars) from the poor. And, if you clench your butt at a traffic stop, O_O, yikes, well... Hmm, not good - course both are pure anecdotes. In reality, we're gonna be somewhere in between. And that's the rub isn't it? Because I suspect it actually depends. There are times when either can help and times when either can hurt. Right now, we're running up an ungodly deficit, which might be OK, if it seemed like all that spending was actually helping. But it doesn't feel like it is. Personally, I don't like where the country is today. We work way to hard, there are too few jobs and I'm so disappointed in Obama. I truly believed he was going to try to make things better, more transparent more fair. Instead, it feels like he's laying the foundation of a massive federal spy state. Where the only good job will government ones and you'll only get those by owing someone a huge favor. It all feels very sleazy to me.

140 points by galactus 13y ago

Americans should read this.

If these tax-less spend-less austerity morons were right about their ideology, you'd think it might have worked once in a while. But it never has, nor will it ever. Instead they've taken to punishing the nations that prove them wrong. Same thing is going on now in Australia.

noonespecial 13y ago
I suspect austerity does work but has an inflection point. It can (theoretically) be used to cut outright government waste. On a personal level, you might stop paying for your cable TV when money gets tight and have it make you better off. Not paying for your car and finding yourself unable to get to work would make you worse off despite the "savings". The trouble with politics and austerity is they always seem to end up missing the car payments and keeping the cable on.
- gaius 13y ago
  Term you are looking for is Laffer Curve. http://en.wikipedia.org/wiki/Laffer_curve http://en.wikipedia.org/wiki/Laffer_curve
  - noonespecial 13y ago
    The Laffer Curve suggests that there is a maximum level of taxation beyond which increases in the tax rate do not generate additional revenue. (Also sometimes called the "Sheriff of Nottingham paradox": raising taxes on people with nothing does not yield more money) I was suggesting that there are certain government programs that incur a cost to operate incur a greater cost to cease operating. They generate a net positive on the money spent. Cutting them for "austerity" is foolish.
    - np422 13y ago
      One must remember that the Laffer curve is a theoretical discussion that can help to explain economic phenomenons. It's not a law of nature. Laffer curve may point us towards the general direction, but real world observation have showed that there is no simple, smooth curve that predicts tax income versus tax rate - human behaviour is far to much stochastic for that.
      - prostoalex 13y ago
        Not that theoretical http://www.objectobot.com/wp-content/uploads/2012/12/ADavies-marginal-income-tax-rates-5-PDF.jpg http://www.objectobot.com/wp-content/uploads/2012/12/ADavies...
- freshhawk 13y ago
  > I suspect austerity does work but has an inflection point. It can (theoretically) be used to cut outright government waste. So that makes intuitive sense, but a lot of things in economics (and everything else complex) make intuitive sense but turn out to be completely wrong. The problem is that while we both "suspect" that this is true or close to true, all that really means is that our gut says it must be and we're smart enough to know about a mechanism like inflection points that can be used to rationalize it.
  - noonespecial 13y ago
    Or, since we have an intuitive hunch and we know about things like inflection points, we might go and investigate more carefully doing our best to find out how it works in the wild. Until then, I'll admit, it is much fun to "Gladwell" it over drinks, no?
    - rhizome 13y ago
      I suspect people are less likely to investigate things that make intuitive sense, due to confirmation bias.
    - freshhawk 13y ago
      More fun? Definitely, especially with someone who just used the phrase "to Gladwell it", which I love and really hope I remember to start using regularly to describe this kind of thing.
- gohrt 13y ago
  wasted spending is not a social problem in itself -- it just moves wealth around, but doesn't destroy wealth. Wasted production -- on stuff no one wants (like wartime destruction), is a problem. Opportunity cost is wasted production (paying people to lay bricks instead of building efficient brick-building machines, say), and that's the motivation for "free market instead of central planning", but that's what austerity means. Austerity means cutting government spending to raise the government's bottom line -- but the government's bottom line isn't like yours. If the country owes its own citizens money, it won't go bankrupt -- that's just taxation under a different name
- api 13y ago
  If Austerity cut waste, it would probably work. The problem is that in government waste usually stems from bureaucratic calcification and corruption. Calcified and corrupt bureaucracies are highly resistant to change and have the system "wired" to defeat it, so they don't generally get hit much. Austerity's cuts fall disproportionately upon social safety nets and productive activities, hence the result. I've been of the impression for a while that government waste and corruption grows without bound until it destroys the host, resulting in a revolution or some other kind of "reboot," and then repeat. There appears to be no way of actually cutting it without setting fire to the entire thing. Few things in nature are as tenacious as a parasite.
  - rhizome 13y ago
    See: http://en.wikipedia.org/wiki/Iron_law_of_oligarchy http://en.wikipedia.org/wiki/Iron_law_of_oligarchy
- moocowduckquack 13y ago
  State austerity during a market recession makes no sense because the state is one of the few participants who is still able to borrow at reasonable rates. The borrowing will still have to occur, because people need to eat, however it is paid back at Wonga rates of six squillion APR, rather than at the government bond level.
daniel-cussen 13y ago
They did it in Chile after the coup (1973) and it worked...so...well. Overnight, we went from masses of public servants endlessly on strike, 400% inflation, and halfway-to-Cuba socialism to tons of public servants getting fired (none of this furlough with back pay business) and the remainder shutting up and doing their work. There was a small downtick in the economy, shortly, not unlike the downtick in US after WWI that ushered in the roaring twenties. Naturally, the economy changed drastically because of the dictatorship and foreign loans make it slightly harder to analyze, and in 1982 the economy got hit badly for pegging the currency, which is a different story. But they cut spending, lowered taxes, and it worked fantastically. Ultimately, if, as a country, you're thinking of going down the tax-less spend-more road, you have to amass enough power in the hands of the people that will carry it out (in this case a dictator) that the public sector can't go on an endless tirade of strikes and sabotage. If not, guess what'll happen? The essentials from among the things the government provides will be the first to go in an attempt to rile the public up. But how many cushy do-nothing bureaucrats will get fired? That's where government spending is, in its vast majority—in the salaries of government employees. If you want to tax less and spend more, keep in mind that you'll be going toe-to-toe with the people that run government (more-so than politicians) and that it's a serious political battle for the country to take on. So in that sense you're right--expecting to politically shift over to tax-less spend-less policy may be fruitless and unrealistic, if only because the people one is trying to lay off will always sabotage the effort.
- AlexanderDhoore 13y ago
  You need some serious balls to defend Pinochet and his criminal gang. "Immediately after the coup the junta moved to crush their left-wing opposition. In addition to pursuing armed revolutionary groups it embarked on a campaign against opponents and perceived leftists in the country. As a result, according to the Rettig Commission, approximately 3,000 people are known to have been killed, 27,000[1] were incarcerated and in a great many cases tortured." [1] Reading "The Shock doctrine" by Naomi Klein opened my eyes. She would disagree with you on the "halfway-to-Cuba socialism": "As for the argument that Friedmanite policies are the reason Chileans live in "houses of brick" instead of "straw", it's clear that Stephens knows nothing of pre-coup Chile. The Chile of the 1960s had the best health and education systems on the continent, as well as a vibrant industrial sector and a rapidly expanding middle class." [2] [1] http://en.wikipedia.org/wiki/Government_Junta_of_Chile_(1973) http://en.wikipedia.org/wiki/Government_Junta_of_Chile_(1973... [2] http://www.theguardian.com/commentisfree/cifamerica/2010/mar/03/chile-earthquake http://www.theguardian.com/commentisfree/cifamerica/2010/mar...
raverbashing 13y ago
Because spending more than you earn is such a good idea, no? That's the real problem, and it's going to stop working eventually (even for the US) Yes, pushing an agenda through ratings is bad. (But even worse is the mandatory obedience to ratings).
- svachalek 13y ago
  To put this on topic for HN, how many startups strive to spend less than they earn? Governments are not lemonade stands either.
- nhaehnle 13y ago
  You're attempting to transfer your intuitive, everyday understanding of the situation of an individual household to the situation of an entire country or its government. In doing so, you are making a mistake, especially when you apply it to the US. Think about it: Why is spending more than you earn bad for a household? Because according to the rules of society you will eventually not be able to spend anymore. The rules of society are different for the US government, and therefore your conclusion about spending vs. earning does not apply.
JRobertson 13y ago
This reply should be downvoted into gray. It includes a direct insult, and strong claims with no proof behind them. There is no logic in this post, only pure bitter emotion. I believe in the principles involved in austerity, but would argue that those using that word in government are "doing it wrong". - Do you believe the government is inefficient with its money? ( public school system) - Do you believe that the government has its hands in too many pies and should be doing less? (NSA) - Do you approve of the cost of the ACA website? What about the value we're getting for our money? - How about Mr Presidents Million dollar golf trips while he shuts down the White House? - How much good could be done with the $420 billion in interest payment we paid last year alone on our debt [1]? There are many reasons to try to be more efficient/austere with our money. I personally strive to be debt free and self sufficient, and I would like my country to be the same. I don't think the power our foreign lenders have over us is a good thing. [1] - http://www.pewresearch.org/fact-tank/2013/10/09/5-facts-about-the-national-debt-what-you-should-know/ http://www.pewresearch.org/fact-tank/2013/10/09/5-facts-abou...
- nhaehnle 13y ago
  I gave you an upvote even though you're factually wrong/misguided, because you don't deserve to be in the gray. > I personally strive to be debt free and self sufficient, and I would like my country to be the same. First of all, you are conflating country and government. Most of a government's debt is typically held by the country's citizen, so government debt is in fact private wealth. Second, think about why you strive to be debt free and self sufficient, and then think about whether the same logic applies to a government that issues its own currency and is indebted only in that currency. A government that is monetarily sovereign is subject to different rules than private households and must therefore follow different strategies. If you transfer the guidelines you have developed for your own personal dealings directly onto the government, you're making a mistake. It may feel good and morally right, but it's still wrong from a logical and rational perspective.
enraged_camel 13y ago
Austerity is the pinnacle of FYGM (fuck you, got mine) politics. It is almost always lobbied for and driven by the financial elite, and their reasoning behind it is that if government spends less, it needs less taxes, which means rich people get to keep more of their wealth to themselves. Those poor people over there though? Fuck 'em. If they worked hard like us they would be rich, too! Of course, this wouldn't be politically correct to say outright. So instead, they disguise it under things like "fiscal responsibility." But underneath the rhetoric you can almost taste the hatred and contempt they feel towards poor people.
jacques_chester 13y ago
Australia is a good example of the fruits of fiscal discipline. The Howard government paid off our long term debt entirely, allowing the Rudd and Gillard governments enormous scope for borrowing. We'd be borrowing at a much higher interest rate otherwise. Of course, as in many cases, there are confounding factors. Australia's is being a major supplier of iron ore and coal.

mathieuh 13y ago

Austerity: when the state breaks your legs and gets really stingy with the crutches.

smoorman1024 13y ago

Although sovereign credit ratings by the big Credit Rating Agencies do have a small impact on borrowing cost, their ratings should still be taken with a grain of salt. Take a look at this study by the New York Fed. http://www.newyorkfed.org/research/epr/96v02n2/9610cant.pdf http://www.newyorkfed.org/research/epr/96v02n2/9610cant.pdf In particular on page 10 table 8 you can see the additional impact that a credit rating upgrade or downgrade has on borrowing cost. You could also read throughout the paper and in the conclusion that a lot of what determines a sovereign credit rating is correlated with publicly available macro indicators (i.e. the market was already moving in that direction anyways). Take a look at page 9 chart 2 to see the direction that spreads are moving before an after a ratings announcement. My point is that Ratings agencies don't swing a huge sledgehammer; its more like a small mallet. The author of the article is right you should be skeptical of the incentives behind these ratings decisions but you also shouldn't fear them.

humanrebar 13y ago

Leave this kind of political rant for /r/politics please. If someone wants to say something interesting about the downgrade of France, some actual analysis combined with numbers and graphs would be much more welcome than a linkbait title based on a column full of caricatures of political opponents.

biehl 13y ago
Did you not read the article? It has plenty of relevant numbers and relevant comparisons.
- humanrebar 13y ago
  I read the column (it's not factual enough to be an article). It has numbers, but it reads like the numbers follow the conclusion, not the other way around. Krugman ignores some very sophisticated discussions to be had on many issues. For example, will the aging population in developed countries affect their medium-term ability to repay their debts? Krugman doesn't say anything on this topic other than to say the problem isn't unique to France. Graphs and numbers on how aging affects productivity is very germane but absent in his analysis. I actually don't blame Krugman here. Let's be honest, in this article, Krugman is a political columnist. He basically admits that this is a political rant in his second paragraph. And the thesis of the column is that some people did something he disagrees with so they must be bad people with bad motives. I just don't like that this was posted and upvoted here. I like when HackerNews has better content than this. I can read this sort of thing in /r/politics, The Huffington Post, or The New York Times. I come to HackerNews for tech, startup, futurism, science news, etc. Any political posts should at least have a tech or entrepreneurship bent and be based in rational argument, not political one-upsmanship.
  - sentenza 13y ago
    Aging will affect France less than most other EU countries, since it has relatively high birthrates. In particular, Germany and Italy have horribly low birthrates and should be affected much more by this. Since internal trade and capital flows are much more important for the EU economy than external trade and capital flows, what matters is the relative aging effect compared to other EU countries. So it was valid to discard that effect for a discussion of the broader dynamics.

balabaster 13y ago

I don't understand why anyone gives a shit about S&Ps ratings... they're the charlatans (along with Moody's and Fitch) who gave fuel to the whole economic crisis in the first place. They continually endorse toxic financial instruments that make the fat cats in the banks some of the richest people in the world in return for what? Well, the rating agencies are paid by the very companies they rate - anyone see a conflict of interest here? If they'd done their jobs properly in the first place and given an objective rating to collateralized debt, then it's entirely possible a large portion of the collapse could have been avoided. Not that I'm at all cynical (okay, you got me, I'm entirely cynical)... but really: 1). You run a company whose ratings are provided for profit - paid for by the companies that you rate, and you expect me to believe it's completely fair and unbiased? Do you think I'm that naive or stupid? 2). You can't knowingly endorse toxic financial instruments in one breath causing huge financial instability in financial markets all around the world and expect me to believe anything you have to say after that. Are you stupid? You might as well be saying: "You should invest all your money in This Guy, Inc., he's a fantastic risk! You shouldn't invest your money in the French, they're a terrible risk" Small Print: - "This Guy, Inc." is a known thief, embezzler and money launderer, but he pays us a tidy sum of a couple of billion dollars a year to look the other way, so we give him a good rating. - We haven't found a nice way of making tidy profit off the French, so we'll steer people towards other financial instruments that do bolster our profits. (The characters in this story are purely fictitious. Any resemblance between known thieves, embezzlers and money launderers and actual bankers is entirely coincidental.)

smoorman1024 13y ago
Although I do not disagree with the perverse incentives of ratings agencies, you have to consider that certain funds are required to hold certain levels of investment grade products. Ignoring the reason why they have to do this, if the rating changes they might be required to invest elsewhere. This is why people DO care about S&P ratings.
- nhaehnle 13y ago
  Right. The question is, where do we get reliable ratings of the "safety" of investment products without the conflict of interest and the political biases of rating companies? It seems very difficult to impossible. An even more out-of-the-box way to approach the problem is to ask why funds with such investment grade requirements are so important in the first place. In part it is because the rich park their money there, and public discourse is overwhelmingly determined by what the rich (edit: make it the top quintile in terms of income or wealth, perhaps) care about. The other part is that retirement is largely organized privately via funds. I am increasingly of the opinion that that is a horrible idea. Note that it is still a somewhat nuanced position. Of course, everybody should have the right to invest their savings into whatever they like. However, the normative default ought to be that a comfortable retirement can come out of a direct distribution system financed by taxes. In the end, the real resources consumed by retirees come from the currently working population anyway. On that level, it does not matter how the necessary funds flow to the retirees. However, there is a big difference in stability between an intransparent system of privately run funds based on volatile financial markets vs. a stable and transparent system of direct, tax-funded distribution.

jypepin 13y ago

Disclaimer: I am French, live now in SF because the rent price and everything else, life is better here. I wish I could say this post is 100% true, but here my thoughts about some invalid points; France is not only "experiencing economic difficulties". France has never experienced such difficulties. I'm not talking numbers, S&P ratings, or else, but as the population's feeling, buying power and general happiness. I think that something was forgotten here, and it's the environment in which you cut spendings/raise taxes. Cutting spendings in the USA, where the policies are already ultra-capitalistic and spendings and small, it might be bad - In a country like France, with a left tendency (even when right is governing, it's way more socialist than the USA), cutting spendings sometimes doesn't hurt - and it's hard to justify more spendings. When Sarkozy (right) was governing and the crisis started, he adopted a "cut spendings" policy, as criticized so much in this article, and well, it was obviously not welcomed by the people, but it allowed the country to get through the crises better than most other european countries. A lot of things seemed really bad and implemented, mostly because of the newspapers being biased and wanting to sell. e.g. a big scandal when he raised the age limit for retirement. It was only for one or two years on average, and a lot of "dangerous" and "hard" jobs categories were not touched. There were simply no more money in the bank, and paying was just impossible unless raising debt and printing money. No thanks. And when you compare, the retirement system in France was the more generous in Europe, with average retirement age often lower of 5+ years. This is just an example amongst others. Now Hollande is governing (left). For the quick background, he is the complete opposite of Sarkozy. Sarkozy was the "bling bling" president, loving America and capitalism, etc. Hollande said on television he hates rich people, and does everything to be the poor class, normal, president. Robin Hood in a sense. Higher taxes (75% for one million revenue), more taxes if your net worth is high (even if no income), to the point that every rich known personality from France (actors, businessmen, etc.) are leaving and getting other nationalities, to not have to pay those taxes, because too high. When you are in your 20s, and get out of school a Master, or 2, which is the norm now if you want to be able to hope to find a job, there is an all-time high unemployment rate. Opportunities are rare, etc. And now, Hollande is the less-appreciated president of all time for France. His popularity was the lowest a president ever had after only a few months of presidency. So, I am no politics analyst, or whatever, but this is a feeling as a person from France, seeing my country getting worse and worse because everything done is against entrepreneurship and lowering workers motivations. Seeing all my fellow french moving to the US, Canada, Argentina, Asia, and after only a few weeks, being so glad to call those places home, and saying they would never go back to France, because anywhere they are, it's so much better. I'm not saying we should always cut taxes and never spend more, but this article misses a lot of point and is not really objective - "France’s remarkable health care system, which delivers high quality at low cost"- Yes it's remarkable, but it costs A LOT. Just my 2cents :)

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BenderV 13y ago

The article just say that S&P punish France rating for their political choice without proof of it's economic impact. But, for what is worth : richs are leaving the country, young educated dream to leave, less educated want to work for the gouvernement, tv, radio, newspapers talk about gouvernement. And gouvernement only create new taxes and stupid debate (See leonarda...) People are all about gouvernement spending, without a care for the debt. It's not signs of a bright future... [disclaimer : I'm French]

copx 13y ago

If S&P had an agenda against high taxes and extensive welfare states they would downgrade the Scandinavians first. The vikings easily beat France in those categories yet they all have triple-A ratings. These ratings are supposed to indicate "the capacity to meet financial commitments". I have read articles fearing a French collapse even in left-liberal newspapers here in Germany. Meanwhile nobody worries about Sweden or Denmark not being able to pay their bills.

mgleason_3 13y ago

Anecdotes, anecdotes, anecdotes - they don't prove anything (remember statistics 101?). It's a sleazy political tactic, a cheap plot twist, a joke. The whole article is one poorly supported anecdote: France. These articles and comments are like watching a Monte Python Witch lynching. The mob agrees - tax and spends the way to go. "Ooh, no it's the rich they're the ones." Mob: "Yea, it's the richies fault. Burn them!". "Wait, wait, it's the poor - they're not working." Mob: "Burn them!" If we're just going to support "our guys" "Democrats" or the "Republicans". Or are we going to have some actual discourse? If it's just "our guys" then "Hey if a little's good, a lot is better!" So, let's take these good ideas to the limit!!! Why not cut government completely? Ooh, that might be dangerous - imagine mayhem as we start fighting amongst ourselves to protect our property or as our defenseless borders are attached. We might end up being run by a repressive communist regime. OK, forget that. Let's go the other way - let's tax income at 100% and let the government spend it all! Hmm, it's hard to imagine why anyone would bother to work in that situation, could millions end up desperately poor like in Russia? But OK, let's keep going... Do we like the way the government spends money? That's an awful lot of power in very few hands. Some of it will go for good (programs for the poor). But some of it's going to end up in places where it harms the poor - i.e. the war on Drugs where police in Texas are using forfeiture laws to take property (like cars) from the poor. And, if you clench your butt at a traffic stop, O_O, yikes, well... Hmm, not good - course both are pure anecdotes. In reality, we're gonna be somewhere in between. And that's the rub isn't it? Because I suspect it actually depends. There are times when either can help and times when either can hurt. Right now, we're running up an ungodly deficit, which might be OK, if it seemed like all that spending was actually helping. But it doesn't feel like it is. Personally, I don't like where the country is today. We work way to hard, there are too few jobs and I'm so disappointed in Obama. I truly believed he was going to try to make things better, more transparent more fair. Instead, it feels like he's laying the foundation of a massive federal spy state. Where the only good job will government ones and you'll only get those by owing someone a huge favor. It all feels very sleazy to me.