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There is no correlation between austerity and debt reduction: http://equitablegrowth.org/2015/06/28/must-read-christian-odendahl-no-correlation/ http://equitabl

by MaysonL 11y ago

There is no correlation between austerity and debt reduction: http://equitablegrowth.org/2015/06/28/must-read-christian-odendahl-no-correlation/ http://equitablegrowth.org/2015/06/28/must-read-christian-od... https://news.ycombinator.com/item?id=9796611 https://news.ycombinator.com/item?id=9796611 In other words, austerity doesn't work.

jackgavigan 11y ago
Ironically, that graph is taken from an IMF paper[1], which outlines a model for the effect of fiscal tightening on the Debt:GDP ratio, under which said ratio generally (depending on the country's fiscal multiplier) increases in the first year after a fiscal tightening, then declines after year 2 (see figures 2, 3 and 4). In other words, that graph supports the idea that austerity helps reduce debt. 1: http://www.imf.org/external/pubs/ft/wp/2013/wp1367.pdf http://www.imf.org/external/pubs/ft/wp/2013/wp1367.pdf
- MaysonL 11y ago
  The paper is about a model, not any actual data: the data don't support the thesis. Anyway, austerity at the zero lower bound is arguably insane, and imposing it on countries in recession is also arguably insane.
tiatia 11y ago
I give you one counter-example: "As the IMF recommended, imports were reduced and exports were increased. The effect of the cuts in imports in Romania, a net importer of food from the West, was however not correctly estimated by the foreign analysts and it led to food shortages.[5] By 1986, it paid half its debt[3] and it finished paying its whole debt early in 1989, ahead of schedule. Nevertheless, the austerity policy continued even after all the debts had been paid." https://en.wikipedia.org/wiki/1980s_austerity_policy_in_Romania https://en.wikipedia.org/wiki/1980s_austerity_policy_in_Roma...
pdkl95 11y ago
Oh, there is a correlation between austerity and debt... just not the direction the pro-austerity people assume. Austerity not only doesn't work,it makes debts larger by reducing the underlying GDP. Austerity is really just the latest trick used by bankers to shift their debts on to lower classes. If you want more details, I highly recommend Mark Blyth's explanation ( https://www.youtube.com/watch?v=B6vV8_uQmxs#t=674 https://www.youtube.com/watch?v=B6vV8_uQmxs#t=674 )

by MaysonL 11y ago

jackgavigan 11y ago

Ironically, that graph is taken from an IMF paper[1], which outlines a model for the effect of fiscal tightening on the Debt:GDP ratio, under which said ratio generally (depending on the country's fiscal multiplier) increases in the first year after a fiscal tightening, then declines after year 2 (see figures 2, 3 and 4). In other words, that graph supports the idea that austerity helps reduce debt. 1: http://www.imf.org/external/pubs/ft/wp/2013/wp1367.pdf http://www.imf.org/external/pubs/ft/wp/2013/wp1367.pdf

MaysonL 11y ago
The paper is about a model, not any actual data: the data don't support the thesis. Anyway, austerity at the zero lower bound is arguably insane, and imposing it on countries in recession is also arguably insane.

tiatia 11y ago

I give you one counter-example: "As the IMF recommended, imports were reduced and exports were increased. The effect of the cuts in imports in Romania, a net importer of food from the West, was however not correctly estimated by the foreign analysts and it led to food shortages.[5] By 1986, it paid half its debt[3] and it finished paying its whole debt early in 1989, ahead of schedule. Nevertheless, the austerity policy continued even after all the debts had been paid." https://en.wikipedia.org/wiki/1980s_austerity_policy_in_Romania https://en.wikipedia.org/wiki/1980s_austerity_policy_in_Roma...

pdkl95 11y ago

Oh, there is a correlation between austerity and debt... just not the direction the pro-austerity people assume. Austerity not only doesn't work,it makes debts larger by reducing the underlying GDP. Austerity is really just the latest trick used by bankers to shift their debts on to lower classes. If you want more details, I highly recommend Mark Blyth's explanation ( https://www.youtube.com/watch?v=B6vV8_uQmxs#t=674 https://www.youtube.com/watch?v=B6vV8_uQmxs#t=674 )