5 ms·

The whole anti-austerity argument has always sounded to me like the left's version of "grow your way out of recession/depression" or "trickle down economics".

The whole anti-austerity argument has always sounded to me like the left's version of "grow your way out of recession/depression" or "trickle down economics". Doesn't wasteful central government stimulus always just enrich cronies and banksters? The whole shovel-ready jobs being nowhere to be found/summer of recovery thing was kindof laughed off by the president, but that obscene $500bil stimulus still got spent.

jbooth 11y ago
Sure, 'wasteful' anything is probably, uh, wasteful. But there's a long history of successfully executed stimulus, VERY MUCH INCLUDING the recent one which was supposed to lead to hyperinflation and the end of society as we know it, but actually was highly correlated with a very nice recovery from near total economic meltdown. Austerity has way better rhetoric, you can talk about wasteful spending and living within our means, blah blah, but the predictions have absolutely sucked compared to standard economics. Edit: other austerity greatest hits: * don't bail out detroit! * qe will lead to hyperinflation! * cancel infrastructure projects! * buy gold!
- wavefunction 11y ago
  Regarding quantitative easing, I would actually assign support for pursuing to the pro-austerity camp as it devalued the dollar and caused the average consumer's purchasing parity to decrease. It was austerity applied to the population at large to solve the problems caused by only a fractional portion of the population in the US.
  - jbooth 11y ago
    But it didn't devalue the dollar, inflation's been really low for the last 7 years. Honestly it doesn't make much sense, and should really make people hesitate to pursue deflationary measures. China's fiscal policy does serve to deflate the dollar, so that counterweights QE a little, but that much? Maybe, I guess?
- _yosefk 11y ago
  Erm... I think asset price inflation actually did happen. With stock prices (which anti-austerity economists say are "fair" in that you cannot expect P/Es around 15 under ZIRP, so get used to 20) the result is wealth redistribution from the majority of the population to the richest people, but since rich people don't typically increase consumption that much as a result of extra wealth, this does not affect things like food prices. However, housing, which is also one of the kinds of assets the rich buy as an investment (rather than to "consume" it/live there), had its prices increase around the world as well, which I think hurts most people really bad. Another big issue is all the stuff that got financed that normally couldn't be financed, with investors everywhere willing to buy junk bonds and any imaginable kind of stock. How that works out remains to be seen. (Personally I don't have a firm opinion on stimulus/austerity, apart from it being a far from obvious issue - that I believe rather firmly.)
  - jbooth 11y ago
    I'd agree with your first paragraph and disagree with your 2nd one with the exception of the tech bubble -- it's been really, really hard for normal businesses to get bank loans even when competing with 0.1% interest rates from the fed. My theory is that the administration wanted more stimulus, couldn't make it happen politically in useful ways (infrastructure projects, school building, new nuke plants etc), so the only outlet they had was QE, which did the job somewhat (we're not in a great depression), but did have the negative effects you highlighted. I think we'd be better off had the money been spent on infrastructure projects -- same sugar rush preventing a crash, plus we get a bunch of stuff afterwards. Right now we just have paper assets in the aftermath.
    - _yosefk 11y ago
      Just the tech bubble?.. I dunno. I'm not that good at these things, but fracking comes to mind, and subprime auto loans. "Couldn't make it happen politically?!" That part I don't get. You mean they couldn't just give everyone money so they spend it instead of giving money more or less directly to the richest people? You mean the citizens would revolt?! (Actually the possibility of QE on the scale we had in a bunch of democracies left me dumbfounded. Why do people put up with that shit?)
- ende 11y ago
  What stimulus? According to Krugman, fiscal policy in the US fell far short. In fact he classifies temporary decreases in spending -growth- as austerity. Frankly most developed economies have thrown the kitchen sink at their problems to the extent that its near impossible to disentangle policies that coherently resemble either strategy. That makes analysis difficult, but also means all the economics bloggers blog about how right they were. Such is the dismal science.
  - jbooth 11y ago
    Stimulus compared to what others wanted. Indeed since 2010 we've been cutting lots of domestic spending but you wouldn't know that watching TV talk about socialism, so people have been calling for crazier cuts while predicting doom. They've consistently been very very wrong and had no accountability for it.
- EdSharkey 11y ago
  I suppose 'wasteful' isn't descriptive enough. What I was thinking was something like, 'a big glob of money generally earmarked for boosting the economy and other do-goodery'. Sure 500bln is a delicious shot in the arm, even if most of it is 'wasted' on the cronies. I can't predict what will trigger inflation, hyper- or otherwise, in this distorted economy. All I want to know is, just when exactly can I expect the payoff? Will there be growth or recovery such that the debt holders are paid back? No? Never can expect it, realistically? Ok, let's cut it out with the stimulus then, because I'm sick of bailouts and blatant cronyism.
  - jbooth 11y ago
    You already got the payoff, look at some charts of gdp and employment figures from 2008-2012. The downward slide was stopped and the slow recovery started, exactly the opposite of what the naysayers predicted. In other words there was a huge change in the derivative of those rates, downward change flattened and bent upwards.
  - EdSharkey 11y ago
    "You already got the payoff" equaling "predicted doom averted" seems very abstract. I interpret that as, "zombie economy continues to shamble along according to plan". Now, going instantly another 500bln in the hole and rolling over that much more debt service every year is concrete. I can measure that failure. Was the stimulus worth it short term or long term? I don't think so!
- api 11y ago
  I mostly agree, but I do have to point out that inflation has occurred. It's just been confined to a limited number of areas. Housing is completely insane in many areas when compared with median income, and that's largely a side effect of cheap money. Food, fuel, college tuition, and health care also continue to inflate, with tuition being almost as bad as housing. Hyperinflation is almost impossible in a highly leveraged credit economy, but cheap money has to go somewhere. I'm personally unimpressed with all the various schools of economics. Sometimes it seems like astrologers and palm readers arguing over which technique happened to randomly seem to work last time.
bloaf 11y ago
https://en.wikipedia.org/wiki/Civilian_Conservation_Corps https://en.wikipedia.org/wiki/Civilian_Conservation_Corps Not always. I think it's a shame that the stimulus wasn't done too well, but I don't think any attempt was destined to failure. If done well, the stimulus might have effectively addressed a large number of problems, such as infrastructure and unemployment as the CCC did in its day.
pdkl95 11y ago
"Wasteful government spending" is a propaganda meme used to justify austerity, when it usually is just a dog-whistle for "screw PBS/NASA/the poor". Notice how the "waste" never seems to be found in the traditional crony/bankster favorites like our huge military or anything resembling a subsidy for Wall St. Removing "waste" sounds good, but you have to make sure it's actually "waste" being removed, and not the usual political targets. The real problem with austerity is that it makes debt bigger by shrinking the underlying GDP, and a fallacy of composition where individually rational actions (e.g. cutting your personal expenses so you can pay down your debt) doesn't work if we all do it at the same time. The solution often is some variant of "grow your way out of recession". It's not a great solution, but it's probably the least-worst plan. This may or may not involve make-work programs; an "anti-austerity" plan may simply be a plan that stops ruining the GDP with cuts. (trickle-down the opposite idea, I'm not sure why you associate it with anti-austerity) Never mind Krugman - I highly recommend Mark Blyth's (prof. econ. Brown Uni) discussion of the topic ( https://www.youtube.com/watch?v=B6vV8_uQmxs#t=674 https://www.youtube.com/watch?v=B6vV8_uQmxs#t=674 - the main lecture starts after a boring introduction at ~12min). While this particular lecture is focusing on the situation in the EU, Blyth covers a lot of general econ topics and spends a lot of time on the history of austerity and what it does to an economy.
- EdSharkey 11y ago
  trickle-down theory presumes the whole rising tide lifts all boats deal where the creation of new businesses and increased wealth at the top will trickle-down to the lower and middle classes through jobs and wage increases. "grow your way out of recession" is pretty much making the same argument.
rbehrends 11y ago
That'd be the fallacy of the excluded middle. There's middle ground between austerity and wasteful government spending. It's not as though countercyclical spending is particularly heterodox (though certain implementations can be). For example, one of the most successful anti-austerity measures was the "kurzarbeit" program of the German government, which prevented mass layoffs and kept the German "mittelstand" (the backbone of the German economy) afloat. "Kurzarbeit", very simply put, is a program that allows businesses to keep their employees employed part-time, while the government makes up for most of the loss of wages by paying them benefits. Once the recession is over and orders are coming in again, they go back to full-time employment. People don't lose their jobs, there's no drop in consumption, and businesses don't have to go through painful layoff and rehiring processes for high skill positions. In America, which has a more consumption-driven economy, food stamps (i.e., SNAP) have been shown to be one of the most effective forms of stimulus; not only do they keep low-income families fed, but because the marginal propensity to consume is basically 100% for SNAP recipients, this then creates business for supermarkets, which in turn can keep employing their workers who also have a high marginal propensity to consume, and so forth. As a result, increases in SNAP spending were probably one of the most successful parts of the Recovery Act [1]. [1] http://www.cbpp.org/research/snap-is-effective-and-efficient http://www.cbpp.org/research/snap-is-effective-and-efficient

jbooth 11y ago

Sure, 'wasteful' anything is probably, uh, wasteful. But there's a long history of successfully executed stimulus, VERY MUCH INCLUDING the recent one which was supposed to lead to hyperinflation and the end of society as we know it, but actually was highly correlated with a very nice recovery from near total economic meltdown. Austerity has way better rhetoric, you can talk about wasteful spending and living within our means, blah blah, but the predictions have absolutely sucked compared to standard economics. Edit: other austerity greatest hits: * don't bail out detroit! * qe will lead to hyperinflation! * cancel infrastructure projects! * buy gold!

wavefunction 11y ago
Regarding quantitative easing, I would actually assign support for pursuing to the pro-austerity camp as it devalued the dollar and caused the average consumer's purchasing parity to decrease. It was austerity applied to the population at large to solve the problems caused by only a fractional portion of the population in the US.
- jbooth 11y ago
  But it didn't devalue the dollar, inflation's been really low for the last 7 years. Honestly it doesn't make much sense, and should really make people hesitate to pursue deflationary measures. China's fiscal policy does serve to deflate the dollar, so that counterweights QE a little, but that much? Maybe, I guess?
_yosefk 11y ago
Erm... I think asset price inflation actually did happen. With stock prices (which anti-austerity economists say are "fair" in that you cannot expect P/Es around 15 under ZIRP, so get used to 20) the result is wealth redistribution from the majority of the population to the richest people, but since rich people don't typically increase consumption that much as a result of extra wealth, this does not affect things like food prices. However, housing, which is also one of the kinds of assets the rich buy as an investment (rather than to "consume" it/live there), had its prices increase around the world as well, which I think hurts most people really bad. Another big issue is all the stuff that got financed that normally couldn't be financed, with investors everywhere willing to buy junk bonds and any imaginable kind of stock. How that works out remains to be seen. (Personally I don't have a firm opinion on stimulus/austerity, apart from it being a far from obvious issue - that I believe rather firmly.)
- jbooth 11y ago
  I'd agree with your first paragraph and disagree with your 2nd one with the exception of the tech bubble -- it's been really, really hard for normal businesses to get bank loans even when competing with 0.1% interest rates from the fed. My theory is that the administration wanted more stimulus, couldn't make it happen politically in useful ways (infrastructure projects, school building, new nuke plants etc), so the only outlet they had was QE, which did the job somewhat (we're not in a great depression), but did have the negative effects you highlighted. I think we'd be better off had the money been spent on infrastructure projects -- same sugar rush preventing a crash, plus we get a bunch of stuff afterwards. Right now we just have paper assets in the aftermath.
  - _yosefk 11y ago
    Just the tech bubble?.. I dunno. I'm not that good at these things, but fracking comes to mind, and subprime auto loans. "Couldn't make it happen politically?!" That part I don't get. You mean they couldn't just give everyone money so they spend it instead of giving money more or less directly to the richest people? You mean the citizens would revolt?! (Actually the possibility of QE on the scale we had in a bunch of democracies left me dumbfounded. Why do people put up with that shit?)
ende 11y ago
What stimulus? According to Krugman, fiscal policy in the US fell far short. In fact he classifies temporary decreases in spending -growth- as austerity. Frankly most developed economies have thrown the kitchen sink at their problems to the extent that its near impossible to disentangle policies that coherently resemble either strategy. That makes analysis difficult, but also means all the economics bloggers blog about how right they were. Such is the dismal science.
- jbooth 11y ago
  Stimulus compared to what others wanted. Indeed since 2010 we've been cutting lots of domestic spending but you wouldn't know that watching TV talk about socialism, so people have been calling for crazier cuts while predicting doom. They've consistently been very very wrong and had no accountability for it.
EdSharkey 11y ago
I suppose 'wasteful' isn't descriptive enough. What I was thinking was something like, 'a big glob of money generally earmarked for boosting the economy and other do-goodery'. Sure 500bln is a delicious shot in the arm, even if most of it is 'wasted' on the cronies. I can't predict what will trigger inflation, hyper- or otherwise, in this distorted economy. All I want to know is, just when exactly can I expect the payoff? Will there be growth or recovery such that the debt holders are paid back? No? Never can expect it, realistically? Ok, let's cut it out with the stimulus then, because I'm sick of bailouts and blatant cronyism.
- jbooth 11y ago
  You already got the payoff, look at some charts of gdp and employment figures from 2008-2012. The downward slide was stopped and the slow recovery started, exactly the opposite of what the naysayers predicted. In other words there was a huge change in the derivative of those rates, downward change flattened and bent upwards.
- EdSharkey 11y ago
  "You already got the payoff" equaling "predicted doom averted" seems very abstract. I interpret that as, "zombie economy continues to shamble along according to plan". Now, going instantly another 500bln in the hole and rolling over that much more debt service every year is concrete. I can measure that failure. Was the stimulus worth it short term or long term? I don't think so!
api 11y ago
I mostly agree, but I do have to point out that inflation has occurred. It's just been confined to a limited number of areas. Housing is completely insane in many areas when compared with median income, and that's largely a side effect of cheap money. Food, fuel, college tuition, and health care also continue to inflate, with tuition being almost as bad as housing. Hyperinflation is almost impossible in a highly leveraged credit economy, but cheap money has to go somewhere. I'm personally unimpressed with all the various schools of economics. Sometimes it seems like astrologers and palm readers arguing over which technique happened to randomly seem to work last time.

bloaf 11y ago

https://en.wikipedia.org/wiki/Civilian_Conservation_Corps https://en.wikipedia.org/wiki/Civilian_Conservation_Corps Not always. I think it's a shame that the stimulus wasn't done too well, but I don't think any attempt was destined to failure. If done well, the stimulus might have effectively addressed a large number of problems, such as infrastructure and unemployment as the CCC did in its day.

pdkl95 11y ago

"Wasteful government spending" is a propaganda meme used to justify austerity, when it usually is just a dog-whistle for "screw PBS/NASA/the poor". Notice how the "waste" never seems to be found in the traditional crony/bankster favorites like our huge military or anything resembling a subsidy for Wall St. Removing "waste" sounds good, but you have to make sure it's actually "waste" being removed, and not the usual political targets. The real problem with austerity is that it makes debt bigger by shrinking the underlying GDP, and a fallacy of composition where individually rational actions (e.g. cutting your personal expenses so you can pay down your debt) doesn't work if we all do it at the same time. The solution often is some variant of "grow your way out of recession". It's not a great solution, but it's probably the least-worst plan. This may or may not involve make-work programs; an "anti-austerity" plan may simply be a plan that stops ruining the GDP with cuts. (trickle-down the opposite idea, I'm not sure why you associate it with anti-austerity) Never mind Krugman - I highly recommend Mark Blyth's (prof. econ. Brown Uni) discussion of the topic ( https://www.youtube.com/watch?v=B6vV8_uQmxs#t=674 https://www.youtube.com/watch?v=B6vV8_uQmxs#t=674 - the main lecture starts after a boring introduction at ~12min). While this particular lecture is focusing on the situation in the EU, Blyth covers a lot of general econ topics and spends a lot of time on the history of austerity and what it does to an economy.

EdSharkey 11y ago
trickle-down theory presumes the whole rising tide lifts all boats deal where the creation of new businesses and increased wealth at the top will trickle-down to the lower and middle classes through jobs and wage increases. "grow your way out of recession" is pretty much making the same argument.

rbehrends 11y ago

That'd be the fallacy of the excluded middle. There's middle ground between austerity and wasteful government spending. It's not as though countercyclical spending is particularly heterodox (though certain implementations can be). For example, one of the most successful anti-austerity measures was the "kurzarbeit" program of the German government, which prevented mass layoffs and kept the German "mittelstand" (the backbone of the German economy) afloat. "Kurzarbeit", very simply put, is a program that allows businesses to keep their employees employed part-time, while the government makes up for most of the loss of wages by paying them benefits. Once the recession is over and orders are coming in again, they go back to full-time employment. People don't lose their jobs, there's no drop in consumption, and businesses don't have to go through painful layoff and rehiring processes for high skill positions. In America, which has a more consumption-driven economy, food stamps (i.e., SNAP) have been shown to be one of the most effective forms of stimulus; not only do they keep low-income families fed, but because the marginal propensity to consume is basically 100% for SNAP recipients, this then creates business for supermarkets, which in turn can keep employing their workers who also have a high marginal propensity to consume, and so forth. As a result, increases in SNAP spending were probably one of the most successful parts of the Recovery Act [1]. [1] http://www.cbpp.org/research/snap-is-effective-and-efficient http://www.cbpp.org/research/snap-is-effective-and-efficient