Tag Archives: Austerity

Progress Abandoned – Jean Pisani-Ferry. 

Margaret Thatcher and Ronald Reagan are remembered for the laissez-faire revolution they launched in the early 1980s. They campaigned and won on the promise that free-market capitalism would unleash growth and boost prosperity. In 2016, Nigel Farage, the then-leader of the UK Independence Party (UKIP) who masterminded Brexit, and US President-elect Donald Trump campaigned and won on a very different basis: nostalgia. Tellingly, their promises were to “take back control” and “make America great again” – in other words, to turn back the clock.

As Columbia University’s Mark Lilly has observed, the United Kingdom and the US are not alone in experiencing a reactionary revival. In many advanced and emerging countries, the past suddenly seems to have much more appeal than the future. In France, Marine Le Pen, the nationalist rights candidate in the upcoming presidential election, explicitly appeals to the era when the French government controlled the borders, protected industry, and managed the currency. Such solutions worked in the 1960s, the National Front leader claims, so implementing them now would bring back prosperity.

Obviously, such appeals have struck a chord with electorates throughout the West. The main factor underlying this shift in public attitudes is that many citizens have lost faith in progress. They no longer believe that the future will bring them material improvement and that their children will have a better life than their own. They look backward because they are afraid to look ahead.

Social Europe

The Guardian view on Davos: beat extremists by tackling extreme economics. 

Eight men, six of them American, own as much wealth as the 3.5 billion poorest people in the world.

“If that’s not insanity, I don’t know what is!” Bernie Sanders. 

A good measure of the topsy-turviness of our political economy could be found at Davos today. As the billionaires gathered for the World Economic Forum, the toast of the Alps was Xi Jinping. The first Chinese president ever to address the summit, his speech this morning was bound to be a big moment. Just as striking, though, was what Mr Xi said. The general secretary of the Communist party of China launched into an eloquent defence of openness and free markets. It was, as several observers remarked, the kind of speech one might expect to come from an American president. Except the US president-elect, Donald Trump, will not be popping in to Switzerland this week and won his new job partly because of his protectionism. He was at it again this week, threatening BMW with swingeing import tariffs if it followed plans to build a new plant in Mexico, rather than America. It did not sound like an empty threat.

Extreme economics breeds extreme politics: the campaigns for Brexit and Mr Trump both harnessed anger at the vast gap between the super-rich and the rest of society. One of the ironies of this anti-elitist politics is that it has been spearheaded by people who would normally count as part of an elite. Mr Trump is a billionaire property developer, Nigel Farage is an alumnus of Dulwich college who worked in the City. These people are effectively squatting a space in forward-looking politics – a space that has gone almost unoccupied by the political mainstream.

Even after the fall of Lehman Brothers, mainstream politicians from Britain through continental Europe to America have continued to push the same old dead economics: a reliance on a bloated finance sector, a penchant for austerity (even when it is not working, as the Office for Budget Responsibility pointed out today about Britain’s budget position), and a hankering after the same failed economics. Consider: since the 1980s, the UK has taken the lead in slashing marginal tax rates and its corporation tax rate is in freefall. While ministers acknowledge the depth of anger against three decades of grotesque inequality, their attempts to do anything about it are sadly desultory.

The Guardian

Austerity Kills Economies

By Narayana Kocherlakota, Bloomberg View. Professor of economics at the University of Rochester and was president of the Federal Reserve Bank of Minneapolis from 2009 to 2015.

The planet’s wealthiest and most powerful countries face a slow-moving but potentially devastating political and economic crisis. It now falls to Donald Trump to find a way to combat it. (I think it’s safe to say: We Are Screwed!)

Over the past few years, voters in much of the developed world have rebelled against the establishment. In the U.S., millions of voters supported an avowed socialist in the Democratic primary. (An avowed Socialist? Shock Horror. It’s not a disease! Social means people helping people. Something Americans like to beat themselves on the chest about but it’s all bullshit.) And this week, Americans elected a new president who has essentially no support from mainstream politicians or media.

Across countries, these dissatisfied voters vary wildly in terms of their preferences for (or opposition to) societal change. What they have in common is anger at the existing economic order.

The well-off often treat this anger as something of a mystery. Actually, it can be traced directly to what Christine Lagarde, managing director of the International Monetary Fund, has termed a global low-growth trap. (Christine came around to intelligent economic thinking in the end.) 

Over the last nine years, economic growth has been slow throughout the world, and particularly in developed nations. The U.S. is a prime example: Output is about 12 per cent to 15 per cent lower than was expected nine years ago.

(Like every respectable economist predicted in 2008. AUSTERITY KILLS ECONOMIES!  But no, most governments once again chose to ignore common sense and the lessons of history and followed a Neoliberal, ‘we must balance the books’ policy.

Economics 101: A Government Is Not A Household. It Does Not Have To Balance The Books.

Modern Money Theory: Money the government hogs is money taken out of the economy. Government debt is good. The government controls the currency, the government IS the currency. It’s deficit is owed to itself. Is just a simple case of adjusting a few numbers in the right place.) 

The primary culprit, in my view and in Lagarde’s, is a shortage of consumer demand for goods and services, (No, Really?) which has left businesses with little motivation to invest, hire or innovate. As a result, there aren’t enough jobs to go around, and the people who are working aren’t very productive.

The demand shortage creates some perverse incentives for economic policy makers. To stimulate the economy, they want to convince consumers that prices are heading upward, so that buying something today will be more attractive than waiting.

In such an environment, policies that increase the cost of doing business — such as raising minimum wages or increasing the regulatory burden — can reap larger-than-usual benefits.

More alarmingly, the cost reductions associated with globalization appear much less desirable in a low-demand world. Restrictions on trade, immigration and all kinds of international economic interactions become more attractive.

The unwinding of economic linkages, in turn, can increase the incentives for transnational armed conflict — a danger that came to such disastrous fruition in the 1930s.

Guiding the world out of this quagmire will require determined leadership, which the U.S. is uniquely well placed to provide. It is by far the world’s largest economy, with a government that still has plenty of capacity to borrow — as the low interest rates on its debt indicate.

It could employ its vast resources in many ways.

(It could but unfortunately American foreign policy has a consistent track record of spending those resources on war. Why? If nobody is fighting, nobody is buying bullets.) 

For example, the president-elect has spoken of his desire to undertake a complete overhaul of American infrastructure and to cut taxes. Such a program, combined with appropriate support from the Federal Reserve, would both generate much-needed jobs for Americans and be a great first step toward leading the world out of its low-growth trap. I look forward to seeing this plan implemented in his first hundred days in office, and I hope that he is able to persuade other nations to join the U.S. in this vital effort.

(Cut taxes for who? The 1%, so they can invest and create jobs? Making extra stuff for who to buy? The 1%? Nobody else has any cash. Companies don’t spend money on productivity when nobody’s buying. Which is why Austerity Kills Economies.) 

Come on now people. Can you not learn from experience and admit you’ve been pushing a stupid Neoliberal policy for the last eight years? 
Christine ate humble pie and adjusted her thinking to new information.  Clever Eh?  You can do it too. 

Hans

He manipulated and massaged Adam Smith’s message to suit his own, sometimes brilliant but often delusional, economic theories. 

Neoliberalism and Austerity. Simon Wren-Lewis. 

I like to treat neoliberalism not as some kind of coherent political philosophy, but more as a set of interconnected ideas that have become commonplace in much of our discourse. That the private sector entrepreneur is the wealth creator, and the state typically just gets in their way. That what is good for business is good for the economy, even when it increases monopoly power or involves rent seeking. Interference in business or the market, by governments or unions, is always bad. And so on. …

I do not think austerity could have happened on the scale that it did without this dominance of this neoliberal ethos. Mark Blyth has described austerity as the biggest bait and switch in history. It took two forms. In one the financial crisis, caused by an under regulated financial sector lending too much, led to bank bailouts that increased public sector debt. This leads to an outcry about public debt, rather than the financial sector. In the other the financial crisis causes a deep recession which – as it always does – creates a large budget deficit. Spending like drunken sailors goes the cry, we must have austerity now.

In both cases the nature of what was going on was pretty obvious to anyone who bothered to find out the facts. That so few did so, which meant that the media largely went with the austerity narrative, can be partly explained by a neoliberal ethos. Having spent years seeing the big banks lauded as wealth creating titans, it was difficult for many to comprehend that their basic business model was fundamentally flawed and required a huge implicit state subsidy. On the other hand they found it much easier to imagine that past minor indiscretions by governments were the cause of a full blown debt crisis. …

While in this sense austerity might have been a useful distraction from the problems with neoliberalism made clear by the financial crisis, I think a more important political motive was that it appeared to enable the more rapid accomplishment of a key neoliberal goal: shrinking the state. It is no coincidence that austerity typically involved cuts in spending rather than higher taxes… In that sense too austerity goes naturally with neoliberalism. …

An interesting question is whether the same applies to right wing governments in the UK and US that used immigration/race as a tactic for winning power. We now know for sure, with both Brexit and Trump, how destructive and dangerous that tactic can be. As even the neoliberal fantasists who voted Leave are finding out, Brexit is a major setback for neoliberalism. Not only is it directly bad for business, it involves (for both trade and migration) a large increase in bureaucratic interference in market processes. To the extent she wants to take us back to the 1950s, Theresa May’s brand of conservatism may be very different from Margaret Thatcher’s neoliberal philosophy.

From Higher Education to Water Treatment, Financialization Is Harming Our Economy.

One of the standout features of our increasingly financialized economy is a systemic disinvestment in public goods such as infrastructure and education. As the finance sector hoards the wealth our economy produces, wages stagnate, corporations and the wealthy avoid contributing their rightful share in taxes, and money and power coalesces at the top, revenues at all levels of government have declined.

Correspondingly, we have witnessed a turn to austerity measures including big cuts to the budgets of the entities that provide vital public goods, from water to public education. This is no accident — it’s a feature of a rigged economic system in which austerity is the price most of us pay for the wealthiest to get even wealthier.

Austerity creates vulnerability. As the stewards of public goods strive to meet the needs of the constituents they serve — from water customers to students attending public colleges — without breaking their shrinking budgets, they can become susceptible to financing schemes peddled by the financial industry. TruthOut 

It’s touching to see economists talking about the problems of men without jobs. 

Most economists believed that we would see a quick bounce back from the crash, even without any exceptional amounts of government stimulus. This was the excuse for the austerity that was imposed across the world in 2011. As a result, we have seen an incredibly slow recovery in the United States, and an even slower one in Europe. TruthOut