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If all you care about is the short-term, then forget about austerity. Juice things up a bit. Throw some borrowed money at it. Alleviate some economic misery. Bu

If all you care about is the short-term, then forget about austerity. Juice things up a bit. Throw some borrowed money at it. Alleviate some economic misery. But long-term, living within your means leads to greater stability, a market where prices reflect reality, and people that save are rewarded. This is a far greater payoff in exchange for some potential short-term pain. The worst part is that many governments claiming “austerity” are just playing accounting tricks and not really moving towards solvency. The solution for having spent too much and distoring the economy is not to continue to do the same. We’ll never know who is right, though. Most of the world has been following the recommendations of this “economist” for decades. Maybe only indirectly because I’m not sure how many people pay attention to him. Spending massively is popular with the public because they get all the benefits, but will be 6 feet under when the bill comes due. Just because it’s a government instead of a household or a business does not making borrowing against your future when you have no capability to pay it back a good idea. This guy is the same type of person that thinks that companies carrying a lot of debt is a good idea. The sign of a healthy business. Bunk.

jhugg 11y ago
The proper time for austerity is when things are good. When things are bad, juice it up, especially if you can borrow at rates that are negative when inflation adjusted. The problem with austerity now to make the long term better is that it's not a zero sum game. Austerity lowers GDP growth, which can offset any move toward solvency. You spend less and surprise, you also take in less. Eventually you recover, but poorer than if you had juiced things a bit and no less in debt.
- dageshi 11y ago
  Had the government in the UK run a surplus prior to the financial crisis I suspect the case for a larger Keynesian response from the UK public would have been better received. That is afterall what Keynes originally proposed. Modern Keynesians have disproved it's necessity and yet... public opinion ultimately drives policy, perhaps Keynes requirement of running a surplus in the good times in order to run a deficit in the bad was more about satisfying the psychology of the general public than anything else.
  - sjg007 11y ago
    The UK will have a big problem in 10 years when there are still no jobs for young adults.
- pbreit 11y ago
  Austerity in good times? Good luck with that!
  - MaysonL 11y ago
    Especially with presidents like W – remember the Clinton surpluses? They were austerity in good times.
- dragonwriter 11y ago
  > The proper time for austerity is when things are good. Arguably, government fiscal restraint in strong economic times isn't "austerity" in any meaningful sense, but I'd agree that that countercyclical approach is right -- you want the government spending less (as a share of GDP) when the private sector economy is strong, and more when it is weak.
Mikeb85 11y ago
Think about it from a business perspective. What makes you more money? Cutting costs, or increasing revenues? And what is a more sustainable practice to increase revenues: price gouging, or increasing volume/sales? Now replace these business terms with economic terms. Cutting costs = austerity. Price gouging = raising taxes. What you want is more people working, more people paying taxes, but keeping taxes at a low enough rate that people still benefit from working, increasing productivity, and keeping their money in the country. It's a maximization curve... The main problem with austerity is that often the first thing to get slashed is government labour and infrastructure projects, which drastically cuts the size of the workforce, and immediately reduces the amount of taxes coming in, leading to a tax raise, capital flight, and the downward spiral that all economists warn about. Just like in business there's a certain rate at which loans make sense and a certain rate where they don't. As long as the cost of the loan is less than the interest you'll receive from your investment on said loan (and inflation helps reduce the cost of the loan), you may as well borrow. "Austerity" in most cases is just a way for predatory lenders to ensure quicker payment, it's by far the worst economic policy.
- JonFish85 11y ago
  "Think about it from a business perspective. What makes you more money? Cutting costs, or increasing revenues? And what is a more sustainable practice to increase revenues: price gouging, or increasing volume?" That assumes you want to run the country/government like a business. I think that's a fairly large assumption.
  - Mikeb85 11y ago
    > That assumes you want to run the country/government like a business. I think that's a fairly large assumption. The main difference between running a country and a business, is values and also means. Countries value certain qualitative indicators more than a typical business would (quality of life, crime, safety, etc...), and countries have more means to balance the books (things like printing money, ownership of resources, etc...). Talking about money at small-business scale is more about simplifying the concepts, but to a certain degree, it applies.
aaronbrethorst 11y ago
Given the authoritative way in which you say: [L]iving within your means leads to greater stability, a market where prices reflect reality, and people that save are rewarded. I'm guessing you can back this up with a few modern examples of where austerity programs have been successful, right?
- ancap 11y ago
  How about in the U.S. in the past couple years[1]? [1] http://www.forbes.com/sites/johngoodman/2015/01/13/voodoo-economics-paul-krugman-rejected-by-his-peers/ http://www.forbes.com/sites/johngoodman/2015/01/13/voodoo-ec...
  - Nimitz14 11y ago
    QE is the opposite of austerity. That's what the US is still doing since god knows when.
    - ancap 11y ago
      I certainly agree with you. I'm providing an example that fits Paul Krugman's narrow definition of the word.
    - mdemare 11y ago
      QE is definitely not the opposite of austerity. Fiscal stimulus is. QE means that the central bank buy up bonds. The hope is that this lowers interest rates on bonds, making it less attractive for banks to hoard bonds instead of lending money to companies wanting to invest.
      - Nimitz14 11y ago
        You're right, but I think you would yourself admit you're being pedantic, the great divide between policies in the US and EU was QE (until recently). It was wrong of the previous poster to paint the US as a country following austerity that was successful.
ebbv 11y ago
> Most of the world has been following the recommendations of this “economist” for decades. He's a Nobel Prize winner. You putting economist in quotes only reflects poorly on yourself. > Just because it’s a government instead of a household or a business does not making borrowing against your future when you have no capability to pay it back a good idea. He's not advising borrowing money you can't pay back. US, UK and other major economies absolutely can pay back the money they borrow. It's a ridiculous scare tactic that the far right has been pushing for the past 20 years to say that we are so far in debt we can never pay it back. That premise is only true if you adopt the ridiculous far right policy of lowering taxes to basically nothing on large corporations and ultra wealthy individuals.
- shit_parade2 11y ago
  And Obama won the Nobel Peace prize Krugman is a hired shill who no longer even professes his original economic thinking. But great job on your mindless obedience to authority and honors. Try studying economics and looking at the world instead.
Nimitz14 11y ago
> Most of the world has been following the recommendations of this “economist” for decades That's exactly what they have not been doing. > Just because it’s a government instead of a household or a business does not making borrowing against your future when you have no capability to pay it back a good idea. This guy is the same type of person that thinks that companies carrying a lot of debt is a good idea. The sign of a healthy business. Bunk. Extremely relevant. https://alvaroaltamirano.files.wordpress.com/2010/05/krugman_a-country-is-not-a-company.pdf https://alvaroaltamirano.files.wordpress.com/2010/05/krugman... HN may know programming but holy shit you're on the same level as the worst subs on reddit when it comes to economics and finance.
Amezarak 11y ago
> We’ll never know who is right, though. Most of the world has been following the recommendations of this “economist” for decades. No, they haven't. No country has passed the kind of budget-busting stimulus packages Krugman has said was necessary. The closest any country came was the US, which passed a stimulus package less than half the size of his recommendations and that consisted largely of tax breaks instead of spending increases. > Just because it’s a government instead of a household or a business does not making borrowing against your future when you have no capability to pay it back a good idea. This guy is the same type of person that thinks that companies carrying a lot of debt is a good idea No, he isn't. Unless those companies owe debt in currencies they control. I've noticed there's a bizarre phenomenon surrounding Krugman where people just refuse to read what he says and instead put all kinds of nonsense into his mouth. It happens to all public figures to some extent, but it just seems really next-level with Krugman (and these particular claims are pretty tame compared with the wild accusations you often see.)
- Mikeb85 11y ago
  > I've noticed there's a bizarre phenomenon surrounding Krugman where people just refuse to read what he says and instead put all kinds of nonsense into his mouth. It's because he writes like a Nobel award winning economist. Meaning a dry writing style, and advanced concepts. Most people hated economics in school (either because they don't understand it, or found it boring - it's basically math that most people see no practical outcomes for) or just strait up don't get it.
  - douglasisshiny 11y ago
    He often tries to communicate in layman's terms on his blog.
  - Amezarak 11y ago
    See, though, I don't think that's at all the case. Krugman isn't a dry writer at all, at least when it comes to his blog posts and political and economic commentary. To be sure, you find most of the more detail analyses on his blog (since the kind of posts he marks as "wonkish" would not be very popular in his column), but there's usually a lot of color to them and they're pretty accessible even to the layman. His blog (which leads you down a rabbit trail to other blogs written by all kinds of other economists) is what actually spurred my interest in economics. If anything, he gets in trouble for being too colorful. I disagree with Krugman almost totally politically, but I find his blog worthwhile reading and it's just stunning to see how many people have no understanding whatsoever of what he says and believes. There's a whole cottage industry involved in setting up straw-krugmen and knocking them down.
copsarebastards 11y ago
I agree that in the long term austerity is necessary. However, austerity as it’s used in politics[1] is little more than a talking point. The Republicans run on the austerity platform and yet Republicans increase deficits more than Democrats. The US deficit is caused largely by military spending and corporate welfare, and the Republican party refuses to cut military spending (unless it’s to helping veterans). The Democrats also increase deficits, but at least they don’t do so while running on an austerity platform. The few politicians who I would actually trust to be economically responsible are completely socially irresponsible. The fact is, whether or not austerity is the right way to go is completely irrelevant to how austerity is actually used in politics. So whether or not austerity is the right way to go is a moot point. [1] In the US—I don’t know enough about international economics to talk intelligently about them.
deleted 11y ago
[deleted]
dragonwriter 11y ago
> Most of the world has been following the recommendations of this “economist” for decades. Er, no, most of the world has not been following Krugman's advice for decades. In fact, pretty much none of it has.
- mpweiher 11y ago
  And the economies that have followed closer have overall done better than the ones that didn't. Go figure. I mean, we now have the actual evidence.

jhugg 11y ago

The proper time for austerity is when things are good. When things are bad, juice it up, especially if you can borrow at rates that are negative when inflation adjusted. The problem with austerity now to make the long term better is that it's not a zero sum game. Austerity lowers GDP growth, which can offset any move toward solvency. You spend less and surprise, you also take in less. Eventually you recover, but poorer than if you had juiced things a bit and no less in debt.

dageshi 11y ago
Had the government in the UK run a surplus prior to the financial crisis I suspect the case for a larger Keynesian response from the UK public would have been better received. That is afterall what Keynes originally proposed. Modern Keynesians have disproved it's necessity and yet... public opinion ultimately drives policy, perhaps Keynes requirement of running a surplus in the good times in order to run a deficit in the bad was more about satisfying the psychology of the general public than anything else.
- sjg007 11y ago
  The UK will have a big problem in 10 years when there are still no jobs for young adults.
pbreit 11y ago
Austerity in good times? Good luck with that!
- MaysonL 11y ago
  Especially with presidents like W – remember the Clinton surpluses? They were austerity in good times.
dragonwriter 11y ago
> The proper time for austerity is when things are good. Arguably, government fiscal restraint in strong economic times isn't "austerity" in any meaningful sense, but I'd agree that that countercyclical approach is right -- you want the government spending less (as a share of GDP) when the private sector economy is strong, and more when it is weak.

Mikeb85 11y ago

Think about it from a business perspective. What makes you more money? Cutting costs, or increasing revenues? And what is a more sustainable practice to increase revenues: price gouging, or increasing volume/sales? Now replace these business terms with economic terms. Cutting costs = austerity. Price gouging = raising taxes. What you want is more people working, more people paying taxes, but keeping taxes at a low enough rate that people still benefit from working, increasing productivity, and keeping their money in the country. It's a maximization curve... The main problem with austerity is that often the first thing to get slashed is government labour and infrastructure projects, which drastically cuts the size of the workforce, and immediately reduces the amount of taxes coming in, leading to a tax raise, capital flight, and the downward spiral that all economists warn about. Just like in business there's a certain rate at which loans make sense and a certain rate where they don't. As long as the cost of the loan is less than the interest you'll receive from your investment on said loan (and inflation helps reduce the cost of the loan), you may as well borrow. "Austerity" in most cases is just a way for predatory lenders to ensure quicker payment, it's by far the worst economic policy.

JonFish85 11y ago
"Think about it from a business perspective. What makes you more money? Cutting costs, or increasing revenues? And what is a more sustainable practice to increase revenues: price gouging, or increasing volume?" That assumes you want to run the country/government like a business. I think that's a fairly large assumption.
- Mikeb85 11y ago
  > That assumes you want to run the country/government like a business. I think that's a fairly large assumption. The main difference between running a country and a business, is values and also means. Countries value certain qualitative indicators more than a typical business would (quality of life, crime, safety, etc...), and countries have more means to balance the books (things like printing money, ownership of resources, etc...). Talking about money at small-business scale is more about simplifying the concepts, but to a certain degree, it applies.

aaronbrethorst 11y ago

Given the authoritative way in which you say: [L]iving within your means leads to greater stability, a market where prices reflect reality, and people that save are rewarded. I'm guessing you can back this up with a few modern examples of where austerity programs have been successful, right?

ancap 11y ago
How about in the U.S. in the past couple years[1]? [1] http://www.forbes.com/sites/johngoodman/2015/01/13/voodoo-economics-paul-krugman-rejected-by-his-peers/ http://www.forbes.com/sites/johngoodman/2015/01/13/voodoo-ec...
- Nimitz14 11y ago
  QE is the opposite of austerity. That's what the US is still doing since god knows when.
  - ancap 11y ago
    I certainly agree with you. I'm providing an example that fits Paul Krugman's narrow definition of the word.
  - mdemare 11y ago
    QE is definitely not the opposite of austerity. Fiscal stimulus is. QE means that the central bank buy up bonds. The hope is that this lowers interest rates on bonds, making it less attractive for banks to hoard bonds instead of lending money to companies wanting to invest.
    - Nimitz14 11y ago
      You're right, but I think you would yourself admit you're being pedantic, the great divide between policies in the US and EU was QE (until recently). It was wrong of the previous poster to paint the US as a country following austerity that was successful.

ebbv 11y ago

> Most of the world has been following the recommendations of this “economist” for decades. He's a Nobel Prize winner. You putting economist in quotes only reflects poorly on yourself. > Just because it’s a government instead of a household or a business does not making borrowing against your future when you have no capability to pay it back a good idea. He's not advising borrowing money you can't pay back. US, UK and other major economies absolutely can pay back the money they borrow. It's a ridiculous scare tactic that the far right has been pushing for the past 20 years to say that we are so far in debt we can never pay it back. That premise is only true if you adopt the ridiculous far right policy of lowering taxes to basically nothing on large corporations and ultra wealthy individuals.

shit_parade2 11y ago
And Obama won the Nobel Peace prize Krugman is a hired shill who no longer even professes his original economic thinking. But great job on your mindless obedience to authority and honors. Try studying economics and looking at the world instead.

Nimitz14 11y ago

> Most of the world has been following the recommendations of this “economist” for decades That's exactly what they have not been doing. > Just because it’s a government instead of a household or a business does not making borrowing against your future when you have no capability to pay it back a good idea. This guy is the same type of person that thinks that companies carrying a lot of debt is a good idea. The sign of a healthy business. Bunk. Extremely relevant. https://alvaroaltamirano.files.wordpress.com/2010/05/krugman_a-country-is-not-a-company.pdf https://alvaroaltamirano.files.wordpress.com/2010/05/krugman... HN may know programming but holy shit you're on the same level as the worst subs on reddit when it comes to economics and finance.

Amezarak 11y ago

> We’ll never know who is right, though. Most of the world has been following the recommendations of this “economist” for decades. No, they haven't. No country has passed the kind of budget-busting stimulus packages Krugman has said was necessary. The closest any country came was the US, which passed a stimulus package less than half the size of his recommendations and that consisted largely of tax breaks instead of spending increases. > Just because it’s a government instead of a household or a business does not making borrowing against your future when you have no capability to pay it back a good idea. This guy is the same type of person that thinks that companies carrying a lot of debt is a good idea No, he isn't. Unless those companies owe debt in currencies they control. I've noticed there's a bizarre phenomenon surrounding Krugman where people just refuse to read what he says and instead put all kinds of nonsense into his mouth. It happens to all public figures to some extent, but it just seems really next-level with Krugman (and these particular claims are pretty tame compared with the wild accusations you often see.)

Mikeb85 11y ago
> I've noticed there's a bizarre phenomenon surrounding Krugman where people just refuse to read what he says and instead put all kinds of nonsense into his mouth. It's because he writes like a Nobel award winning economist. Meaning a dry writing style, and advanced concepts. Most people hated economics in school (either because they don't understand it, or found it boring - it's basically math that most people see no practical outcomes for) or just strait up don't get it.
- douglasisshiny 11y ago
  He often tries to communicate in layman's terms on his blog.
- Amezarak 11y ago
  See, though, I don't think that's at all the case. Krugman isn't a dry writer at all, at least when it comes to his blog posts and political and economic commentary. To be sure, you find most of the more detail analyses on his blog (since the kind of posts he marks as "wonkish" would not be very popular in his column), but there's usually a lot of color to them and they're pretty accessible even to the layman. His blog (which leads you down a rabbit trail to other blogs written by all kinds of other economists) is what actually spurred my interest in economics. If anything, he gets in trouble for being too colorful. I disagree with Krugman almost totally politically, but I find his blog worthwhile reading and it's just stunning to see how many people have no understanding whatsoever of what he says and believes. There's a whole cottage industry involved in setting up straw-krugmen and knocking them down.

copsarebastards 11y ago

I agree that in the long term austerity is necessary. However, austerity as it’s used in politics[1] is little more than a talking point. The Republicans run on the austerity platform and yet Republicans increase deficits more than Democrats. The US deficit is caused largely by military spending and corporate welfare, and the Republican party refuses to cut military spending (unless it’s to helping veterans). The Democrats also increase deficits, but at least they don’t do so while running on an austerity platform. The few politicians who I would actually trust to be economically responsible are completely socially irresponsible. The fact is, whether or not austerity is the right way to go is completely irrelevant to how austerity is actually used in politics. So whether or not austerity is the right way to go is a moot point. [1] In the US—I don’t know enough about international economics to talk intelligently about them.

deleted 11y ago

[deleted]

dragonwriter 11y ago

> Most of the world has been following the recommendations of this “economist” for decades. Er, no, most of the world has not been following Krugman's advice for decades. In fact, pretty much none of it has.

mpweiher 11y ago
And the economies that have followed closer have overall done better than the ones that didn't. Go figure. I mean, we now have the actual evidence.