also in Foreign Affairs

[winterbadger]

This article on the move to cut government deficit spending

The authors make a good case that by reducing the stimulus of government spending (whether intended as such or simply as regular government programs like police, fire safety, roads, libraries, etc.) the G-20 nations will cut back employment, consumer spending, imports and exports, and thus kick the slow economic recovery in the stones, instead of in the arse where they intended to strike it.

They close by saying

There is no silver bullet to avoid the macroeconomic fallout associated with financial crises. The question, then, is where (and by whom) this pain will be felt. So far, it appears that although the financial sector was largely responsible for creating the $2 trillion in losses since the crisis began, it is determined to avoid paying for it. Instead, the taxpayers that paid to bail these firms out are now being doubly taxed as government services are cut in the name of “growth-friendly fiscal consolidation,” in the words of the G-20. What lies ahead, then, is a harmful populism that allies U.S. Tea Party activists with Greek public-sector unions.

In sum, both of the following statements are true: countercyclical spending worsens government finances, and austerity compounds an already miserable unemployment situation. But cutting spending in the middle of a recession is no solution -- especially when market participants conflate stimulus spending with bailouts of the financial system. Refilling a $2 trillion hole in the global financial architecture does not have the same effect on demand as, say, a $2 trillion stimulus package spent on brick-and-mortar projects. Such a conflation damns fiscal stimulus to ineffectiveness -- even though a large portion of the stimulus is yet to be spent in the United States and abroad and almost all of the debt accrued since the crisis comes from tax-revenue losses and bailout costs.

It is a shame that many of the most powerful ideas of dead economists are the most fallacious. The Great Depression proved that supply does not create its own demand. The mortgage debacle showed that good and bad money can co-exist quite happily. Although the idea of “austerity” may have the immediate ring of virtue, in the long term it is a vice. Keynes was indeed right, but with a twist. It is not the ideas of dead economists we have to worry about, but rather the dead ideas of very much alive ones.

Sometimes I find "the dismal science" opaque and boring. This, though, I can follow readily and find quite credible; I only wish more people could... and did.

Comments

[cmlc.livejournal.com]

It seems that if they cut spending drastically they'll kick the economy (and the population!) in the nuts, as you say. If they don't cut spending drastically, they'll be kicked in the nuts by the panicky ratings agencies, who are energetically trying to look tough and independent to try to make up for having been bought and corrupted and tamed by the banks. Who knows what the right course of action is. All I know is I'm really not looking forward to next year when our libraries (theatres, galleries, parks, schools, hospitals, universities?) shut down.

[winterbadger]

Next year? I know people who are already being laid off... :-(

At least in the US, it's less the ratings agencies and more the voters that legislators are listening to. And the voters are, maddeningly, listening to Republicans, who ballooned the federal deficit with an irrational and unnecessary war and massive pork barrel spending and have suddenly decided that deficit spending is bad in the middle of a depression that they caused and for which the on;y rational answer is deficit spending.

Why it is that the voters listen to these people, that I do not know. It seems the more simplistic, stupid, and wrong-headed the argument, the more excited over it voters become.

[cmlc.livejournal.com]

Yes, all I really remember of those Republicans' domestic policies is a vague impression of wild profligacy - they seemed to be trying to borrow all the money there was in the world just so they could give it to the millionaires and billionaires. Like a gang of bank robbers who had hit the big time. (And the proles vote for this why?)

[winterbadger]

(And the proles vote for this why?)

Because, frankly, they're fools, which is sadly what proles usually are. They don't pay attention, they don't learn the basics or check the details or read the fine print, they believe people who tell them what they want to hear, and they hate people who tell them things they don't like, whether or not they're true.

They believe that they need to repeal the estate tax (cleverly called the "death tax" by Republicans) because they don't grasp that it only applies to people who leave millions of dollars to their survivors, something few voters will ever do. They vote for people who tell them they will roll back everyone's taxes and then roll back taxes on the rich. They believe in cutting taxes on investment income, despite the fact that it does them almost no good at all and relieves billionaires of the main call of government on their bank roll.

And they believe the most preposterous crap, like that we'll make huge inroads in government debt by cutting foreign aid, which is about 1% of the federal budget. Or that "responsible corporations" can be left to regulate themselves. Or that the United States must never, ever have a government-run healthcare program because it would turn us into Soviet Russia...despite the fact that we've had one for FORTY-FIVE YEARS and it's among the most efficient systems in the entire country.

Sadly, voters keep buying the bullshit Republicans put out because voters are, by and large, morons who don't think and don't reason and vote for people because they "like" them, not because they understand or agree with a word of what they say they will do if elected. And because Republicans are very clever at lying to stupid people.

And then the snivelling, idiotic wankers complain when they find out they've gotten the shaft, and they blame politics. Politics are not to blame, you bloody annoying little nyaffs--YOU ARE!

*sigh* I feel better now...