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  • I think that's 13,783rd time the Republican Economic Model has been blown out of the water.
  • In other words, Krugman was right again?
  • Oh that wasn't their goal? The IMF does that to every other country they deal with, they have it down to an art.
  • Grand_Moff_Joseph: In other words, Krugman was right again?


    Allow me to repeat that.

    Grand_Moff_Joseph: In other words, Krugman was right again?


    Suck on it austerians. Suck on it.
  • I'm so shocked. So shocked and surprised.

    And I'm not an economist. You can't UN-spend yourself to prosperity. Christ of crutches... everybody saw this.
  • ...because it did not fully understand how government austerity efforts would undermine economic growth.

      So, in other words, the head economist at the  International Monetary Fund knows less about economics than I do?
  • I'm still unclear where the Fark Economist Posse thinks Greece should have gotten funds - they were (and are) spending more than they take in. Is the magical Euro fairy just going to sprinkle money into the treasury?

    Of *course* the economy slows when you take a huge chunk of money out of it, duh. Same thing will happen in the US eventually - whether spending is tightened / taxes increased now or in fifty years, there comes a point where you can't keep spending an extra trillion bucks a year.

    Difference of course being people will still loan us cash, because we're still good for it - and people won't loan to Greece, because they're not
  • Speaker2Animals: Grand_Moff_Joseph: In other words, Krugman was right again?

    Allow me to repeat that.

    Grand_Moff_Joseph: In other words, Krugman was right again?

    Suck on it austerians. Suck on it.


    This!
  • NewportBarGuy: I think that's 13,783rd time the Republican Economic Model has been blown out of the water.


    Grand_Moff_Joseph: In other words, Krugman was right again?


    whither_apophis: Oh that wasn't their goal? The IMF does that to every other country they deal with, they have it down to an art.


    ecmoRandomNumbers: And I'm not an economist. You can't UN-spend yourself to prosperity. Christ of crutches... everybody saw this.


    THIS THIS THIS THIS

    stratagos: I'm still unclear where the Fark Economist Posse thinks Greece should have gotten funds - they were (and are) spending more than they take in. Is the magical Euro fairy just going to sprinkle money into the treasury?

    Of *course* the economy slows when you take a huge chunk of money out of it, duh. Same thing will happen in the US eventually - whether spending is tightened / taxes increased now or in fifty years, there comes a point where you can't keep spending an extra trillion bucks a year.


    But haven't Fark IndependentsTM been telling us all year that we're going to end up like Greece? I had said you couldn't compare us because unlike Greece we issue our own currency but was told that was not the case at all and I was really confused and uneducated.
  • No shiat dumbass.  You can't deliver a bodyblow to an economic engine without consequences.  But hey, good job killing Greece and the Euro with your bullshiat.

    If fiscal multipliers are small, countries can cut spending faster or raise more in taxes without much short-term damage.

    So you still believe it works, you're just willing to acknowledge that every time it has been tried, the resulting GDP loss offset the spending cuts, leaving the country no better off and the people worse off.
  • Typical liberal farking lies  - austerity is actually working in Greece, but no one wants to see it through properly to its happy ending. A little financial pain and the libs start whining... Greece just hasn't lowered their taxes and cut spending far enough... I mean have you actually seen how many restaraunts and coffee shops they have over there? Half of the people unemployed are on the doles because they like to sip their lattes in some trendy bistro rather then put their back into a little honest work.
  • Grand_Moff_Joseph: In other words, Krugman was right again?


    Yep Krugman and my dad - who is also an economist. Hes in his 70s and whenever the news is on he gets this look on his face of total disbelief. Like all academics hes sure if he could just explain it to them the right way then at least they could do the right thing if they wanted to.

    So he writes journal articles and blog posts and walks around muttering a lot.
  • Elzar: Typical liberal farking lies  - austerity is actually working in Greece, but no one wants to see it through properly to its happy ending. A little financial pain and the libs start whining... Greece just hasn't lowered their taxes and cut spending far enough... I mean have you actually seen how many restaraunts and coffee shops they have over there? Half of the people unemployed are on the doles because they like to sip their lattes in some trendy bistro rather then put their back into a little honest work.


    poes-law.jpg
  • So you mean drastically cutting spending during a recession to balance a budget hurts the economy?! Who would have guess.
  • Those pigs still enforce Blasphemy laws. Right on par with the Yemenis and Pakis.
  • Here's a little secret: THERE NEVER WAS REAL AUSTERITY IN GREECE.

    Many politicians and commentators such as Paul Krugman claim that Europe's problem is austerity, i.e., there is insufficient government spending. The common argument goes like this: Due to a reduction of government spending, there is insufficient demand in the economy leading to unemployment. The unemployment makes things even worse as aggregate demand falls even more, causing a fall in government revenues and an increase in government deficits. European governments pressured by Germany (which did not learn from the supposedly fateful policies of Chancellor Heinrich Brüning) then reduce government spending even further, lowering demand by laying off public employees and cutting back on government transfers. This reduces demand even more in a never ending downward spiral of misery. What can be done to break out of the spiral? The answer given by commentators is simply to end austerity, boost government spending and aggregate demand. Paul Krugman even argues in favor for a preparation against an alien invasion, which would induce government to spend more. So the story goes. But is it true?

    First of all, is there really austerity in the eurozone? One would think that a person is austere when she saves, i.e., if she spends less than she earns. Well, there exists not one country in the eurozone that is austere. They all spend more than they receive in revenues.

    In fact, government deficits are extremely high, at unsustainable levels, as can been seen in the following chart that portrays government deficits in percentage of GDP. Note that the figures for 2012 are what governments wish for.

    images.mises.orgView Full Size


    The absolute figures of government deficits in billion euros are even more impressive.

    images.mises.orgView Full Size


    A good picture of "austerity" is also to compare government expenditures and revenues (relation of public expenditures and revenues in percentage).

    images.mises.orgView Full Size


    Imagine that a person you know spends 12 percent more in 2008 than her income, spends 31 percent more than her income the next year, spends 25 percent more than her income in 2010, and 26 percent more than her income in 2011. Would you regard this person as austere? And would you regard this behavior as sustainable? This is what the Spanish government has done. It shows itself incapable of changing this course. Perversely, this "austerity" is then made responsible for a shrinking Spanish economy and high unemployment.

    Unfortunately, austerity is the necessary condition for recovery in Spain, the eurozone, and elsewhere. The reduction of government spending makes real resources available for the private sector that formerly had been absorbed by the state. Reducing government spending makes profitable new private investment projects and saves old ones from bankruptcy.

    Take the following example. Tom wants to open a restaurant. He makes the following calculations. He estimates the restaurant's revenues at $10,000 per month. The expected costs are the following: $4,000 for rent; $1,000 for utilities; $2,000 for food; and $4,000 for wages. With expected revenues of $10,000 and costs of $11,000 Tom will not start his business.

    Let's now assume that the government is more austere, i.e., it reduces government spending. Let's assume that the government closes a consumer-protection agency and sells the agency's building on the market. As a consequence, there is a tendency for housing prices and rents to fall. The same is true for wages. The laid-off bureaucrats search for new jobs, exerting downward pressure on wage rates. Further, the agency does not consume utilities anymore, leading toward a tendency of cheaper utilities. Tom may now rent space for his restaurant in the former agency for $3,000 as rents are coming down. His expected utility bill falls to $500, and hiring some of the former bureaucrats as dishwashers and waiters reduces his wage expenditures to $3,000. Now with expected revenue at $10,000 and costs at $8,500 the expected profits amounts to $1,500 and Tom can start his business.

    As the government has reduced spending it can even reduce tax rates, which may increase Tom's after-tax profits. Thanks to austerity the government could also reduce its deficit. The money formerly used to finance the government deficit can now be lent to Tom for an initial investment to make the former agency's rooms suitable for a restaurant. Indeed, one of the main problems in countries such as Spain these days is that the real savings of the people are soaked up and channeled to the government via the banking system. Loans are practically unavailable for private companies, because banks use their funds to buy government bonds in order to finance the public deficit.

    In the end, the question amounts to the following: Who shall determine what is produced and how? The government that uses resources for its own purposes (such as a "consumer-protection" agency, welfare programs, or wars), or entrepreneurs in a competitive process and as agents of consumers, trying to satisfy consumer wants with ever better and cheaper products (like Tom, who uses part of the resources formerly used in the government agency for his restaurant).

    If you think the second option is better, austerity is the way to go. More austerity and less government spending mean fewer resources for the public sector (fewer "agencies") and more resources for the private sector, which uses them to satisfy consumer wants (more restaurants). Austerity is the solution to the problems in Europe and in the United States, as it fosters sustainable growth and reduces government deficits.

    Lower GDP?

    But does austerity not at least temporarily reduce GDP and lead to a downward spiral of economic activity?

    Unfortunately, GDP is a quite misleading figure. GDP is defined as the market value of all final goods and services produced in a country in a given period.

    There are two minor reasons why a lower GDP may not always be a bad sign.

    The first reason relates to the treatment of government expenditures. Let us imagine a government bureaucrat who licenses businesses. When he denies a license for an investment project that never comes into being, how much wealth is destroyed? Is it the expected revenues of the project or its expected profits? What if the bureaucrat has unknowingly prevented an innovation that could save the economy billions of dollars per year? It is hard to say how much wealth destruction is caused by the bureaucrat. We could just arbitrarily take his salary of $50,000 per year and subtract it from private production. GDP would be lower.

    Now hold your breath. In practice, the opposite is done. Government expenditures count positively in GDP. The wealth destroying activity of the bureaucrat raises GDP by $50,000. This implies that if the government licensing agency is closed and the bureaucrat is laid off, then the immediate effect of this austerity is a fall in GDP by $50,000. Yet, this fall in GDP is a good sign for private production and the satisfaction of consumer wants.

    Second, if the structure of production is distorted after an artificial boom, the restructuring also entails a temporary fall in GDP. Indeed, one could only maintain GDP if production remained unchanged. If Spain or the United States had continued to use their boom structure of production, they would have continued to build the amount of housing they did in 2007. The restructuring requires a shrinking of the housing sector, i.e., a reduced use of factors of production in this sector. Factors of production must be transferred to those sectors where they are most urgently demanded by consumers. The restructuring is not instantaneous but organized by entrepreneurs in a competitive process that is burdensome and takes time. In this transition period, when jobs are destroyed in the overblown sectors, GDP tends to fall. This fall in GDP is just a sign that the necessary restructuring is underway. The alternative would be to produce the amount of housing of 2007. If GDP did not fall sharply, it would mean that the wealth-destroying boom was continuing as it did in the years 2005-2007.

    Conclusion

    Public austerity is a necessary condition for private flourishing and a rapid recovery. The problem of Europe (and the United States) is not too much but too little austerity - or its complete absence. A fall of GDP can be an indicator that the necessary and healthy restructuring of the economy is underway.
  • Irving Maimway: NewportBarGuy: I think that's 13,783rd time the Republican Economic Model has been blown out of the water.

    Grand_Moff_Joseph: In other words, Krugman was right again?

    whither_apophis: Oh that wasn't their goal? The IMF does that to every other country they deal with, they have it down to an art.

    ecmoRandomNumbers: And I'm not an economist. You can't UN-spend yourself to prosperity. Christ of crutches... everybody saw this.

    THIS THIS THIS THIS

    stratagos: I'm still unclear where the Fark Economist Posse thinks Greece should have gotten funds - they were (and are) spending more than they take in. Is the magical Euro fairy just going to sprinkle money into the treasury?

    Of *course* the economy slows when you take a huge chunk of money out of it, duh. Same thing will happen in the US eventually - whether spending is tightened / taxes increased now or in fifty years, there comes a point where you can't keep spending an extra trillion bucks a year.

    But haven't Fark IndependentsTM been telling us all year that we're going to end up like Greece? I had said you couldn't compare us because unlike Greece we issue our own currency but was told that was not the case at all and I was really confused and uneducated.


    Couldn't tell you; I'm not a Fark Independent.

    Acknowledging that being in the Euro both allowed Greece to borrow unpayable debts and removed their ability to just run the printing presses, when you have an option between sharp cuts mandated by the IMF or even sharper cuts when no one will loan to you, what do you do?
  • Carth: So you mean drastically cutting spending during a recession to balance a budget hurts the economy?! Who would have guess.


    Well, cutting spending because you have no money and no one will loan it to you
  • Elzar: Typical liberal farking lies  - austerity is actually working in Greece, but no one wants to see it through properly to its happy ending. A little financial pain and the libs start whining... Greece just hasn't lowered their taxes and cut spending far enough... I mean have you actually seen how many restaraunts and coffee shops they have over there? Half of the people unemployed are on the doles because they like to sip their lattes in some trendy bistro rather then put their back into a little honest work.


    most of the "honest work" is gone. moved to third world countries by the global capitalists who run the world.
  • A - Its a blog
    B - Its a WAPO blog
    C - Fail
  • Wait... so, slashing budgets and firing everybody during hard economic times is a bad thing now?  Well, color me f*cking surprised.  I was told that self-inflicted recessions were what economies craved.
  • I'm surprised the overall influence of Greek Euro zone membership was for the most part, overlooked here.


    Once a country's monetary policy is de coupled from it's political process they loose all control over their economy. Greece can't print truckloads of Drachmas like they used to in the past (like the US government is doing now) to stabilize their debt & their economy, so they're forced to take bail outs from other Euro zone nations or the ECB & IMF.

    It took another 75 years, but German finally took over Europe, however reluctantly.

    If Germany was NOT part of the Euro zone their currency would have strengthened to the point where German exports would be cost prohibitive and that production would shift to countries with weaker currencies & cheaper production costs.

    But Greece, Portugal, Spain & Italy can't weaken their currency. They all belong to the common Euro. So, while the industrious & notoriously penny pinching Germans (much to their credit ha ha a pun, Germans don't like to buy things on credit) have a strengthening economy, the other countries in the Euro zone are kinda stuck.

    IHMO, the Euro zone & it's common currency are uncharted waters in the field of Macroeconomics. Never in modern times have 17 countries come together to use a common currency without a common political structure. To pin Greek's issues on austerity alone (and I'm not an austerity advocate, per se, I think austerity means raising taxes on those who have the means, while taking a look at what's necessary spending & what isn't) is a little simplistic. What we're seeing in Greece is a totally new animal.

    Another issues in Greece is it's almost considered your patriotic duty to dodge any and all takes. As the IRS says, there's a difference between Tax avoidance & tax EVASION. I do everything I can in the course of running my business to reduce the tax I pay, but I do everything by the book & the letter of the law. This is not the case in Greece. Rampant corruption and tax evasion have had serious negative repercussions on the Greek economy.

    /lecture over.
  • NewportBarGuy: I think that's 13,783rd time the Republican Economic Model has been blown out of the water.


    Yup, because massive government spending has been so successful in Japan. Well if by successful you mean continuing recessions and a National debt exceeding 200% of their GDP then yes successful.
  • Dadoody: Here's a little secret: THERE NEVER WAS REAL AUSTERITY IN GREECE.

    Many politicians and commentators such as Paul Krugman claim that Europe's problem is austerity, i.e., there is insufficient government spending. The common argument goes like this: Due to a reduction of government spending, there is insufficient demand in the economy leading to unemployment. The unemployment makes things even worse as aggregate demand falls even more, causing a fall in government revenues and an increase in government deficits. European governments pressured by Germany (which did not learn from the supposedly fateful policies of Chancellor Heinrich Brüning) then reduce government spending even further, lowering demand by laying off public employees and cutting back on government transfers. This reduces demand even more in a never ending downward spiral of misery. What can be done to break out of the spiral? The answer given by commentators is simply to end austerity, boost government spending and aggregate demand. Paul Krugman even argues in favor for a preparation against an alien invasion, which would induce government to spend more. So the story goes. But is it true?

    First of all, is there really austerity in the eurozone? One would think that a person is austere when she saves, i.e., if she spends less than she earns. Well, there exists not one country in the eurozone that is austere. They all spend more than they receive in revenues.

    In fact, government deficits are extremely high, at unsustainable levels, as can been seen in the following chart that portrays government deficits in percentage of GDP. Note that the figures for 2012 are what governments wish for.



    The absolute figures of government deficits in billion euros are even more impressive.



    A good picture of "austerity" is also to compare government expenditures and revenues (relation of public expenditures and revenues in percentage).



    Imagine that a person you know spends 12 percent more in 2008 than her income, spends 31 percent more than her income the next year, spends 25 percent more than her income in 2010, and 26 percent more than her income in 2011. Would you regard this person as austere? And would you regard this behavior as sustainable? This is what the Spanish government has done. It shows itself incapable of changing this course. Perversely, this "austerity" is then made responsible for a shrinking Spanish economy and high unemployment.

    Unfortunately, austerity is the necessary condition for recovery in Spain, the eurozone, and elsewhere. The reduction of government spending makes real resources available for the private sector that formerly had been absorbed by the state. Reducing government spending makes profitable new private investment projects and saves old ones from bankruptcy.

    Take the following example. Tom wants to open a restaurant. He makes the following calculations. He estimates the restaurant's revenues at $10,000 per month. The expected costs are the following: $4,000 for rent; $1,000 for utilities; $2,000 for food; and $4,000 for wages. With expected revenues of $10,000 and costs of $11,000 Tom will not start his business.

    Let's now assume that the government is more austere, i.e., it reduces government spending. Let's assume that the government closes a consumer-protection agency and sells the agency's building on the market. As a consequence, there is a tendency for housing prices and rents to fall. The same is true for wages. The laid-off bureaucrats search for new jobs, exerting downward pressure on wage rates. Further, the agency does not consume utilities anymore, leading toward a tendency of cheaper utilities. Tom may now rent space for his restaurant in the former agency for $3,000 as rents are coming down. His expected utility bill falls to $500, and hiring some of the former bureaucrats as dishwashers and waiters reduces his wage expenditures to $3,000. Now with expected revenue at $10,000 and costs at $8,500 the expected profits amounts to $1,500 and Tom can start his business.

    As the government has reduced spending it can even reduce tax rates, which may increase Tom's after-tax profits. Thanks to austerity the government could also reduce its deficit. The money formerly used to finance the government deficit can now be lent to Tom for an initial investment to make the former agency's rooms suitable for a restaurant. Indeed, one of the main problems in countries such as Spain these days is that the real savings of the people are soaked up and channeled to the government via the banking system. Loans are practically unavailable for private companies, because banks use their funds to buy government bonds in order to finance the public deficit.

    In the end, the question amounts to the following: Who shall determine what is produced and how? The government that uses resources for its own purposes (such as a "consumer-protection" agency, welfare programs, or wars), or entrepreneurs in a competitive process and as agents of consumers, trying to satisfy consumer wants with ever better and cheaper products (like Tom, who uses part of the resources formerly used in the government agency for his restaurant).

    If you think the second option is better, austerity is the way to go. More austerity and less government spending mean fewer resources for the public sector (fewer "agencies") and more resources for the private sector, which uses them to satisfy consumer wants (more restaurants). Austerity is the solution to the problems in Europe and in the United States, as it fosters sustainable growth and reduces government deficits.

    Lower GDP?

    But does austerity not at least temporarily reduce GDP and lead to a downward spiral of economic activity?

    Unfortunately, GDP is a quite misleading figure. GDP is defined as the market value of all final goods and services produced in a country in a given period.

    There are two minor reasons why a lower GDP may not always be a bad sign.

    The first reason relates to the treatment of government expenditures. Let us imagine a government bureaucrat who licenses businesses. When he denies a license for an investment project that never comes into being, how much wealth is destroyed? Is it the expected revenues of the project or its expected profits? What if the bureaucrat has unknowingly prevented an innovation that could save the economy billions of dollars per year? It is hard to say how much wealth destruction is caused by the bureaucrat. We could just arbitrarily take his salary of $50,000 per year and subtract it from private production. GDP would be lower.

    Now hold your breath. In practice, the opposite is done. Government expenditures count positively in GDP. The wealth destroying activity of the bureaucrat raises GDP by $50,000. This implies that if the government licensing agency is closed and the bureaucrat is laid off, then the immediate effect of this austerity is a fall in GDP by $50,000. Yet, this fall in GDP is a good sign for private production and the satisfaction of consumer wants.

    Second, if the structure of production is distorted after an artificial boom, the restructuring also entails a temporary fall in GDP. Indeed, one could only maintain GDP if production remained unchanged. If Spain or the United States had continued to use their boom structure of production, they would have continued to build the amount of housing they did in 2007. The restructuring requires a shrinking of the housing sector, i.e., a reduced use of factors of production in this sector. Factors of production must be transferred to those sectors where they are most urgently demanded by consumers. The restructuring is not instantaneous but organized by entrepreneurs in a competitive process that is burdensome and takes time. In this transition period, when jobs are destroyed in the overblown sectors, GDP tends to fall. This fall in GDP is just a sign that the necessary restructuring is underway. The alternative would be to produce the amount of housing of 2007. If GDP did not fall sharply, it would mean that the wealth-destroying boom was continuing as it did in the years 2005-2007.

    Conclusion

    Public austerity is a necessary condition for private flourishing and a rapid recovery. The problem of Europe (and the United States) is not too much but too little austerity - or its complete absence. A fall of GDP can be an indicator that the necessary and healthy restructuring of the economy is underway.


    I wonder what the private sector does with all that money it makes when it takes the resources away the public sector? Oh that's right it goes out of the country into tax havens.
  • stratagos: I'm still unclear where the Fark Economist Posse thinks Greece should have gotten funds - they were (and are) spending more than they take in. Is the magical Euro fairy just going to sprinkle money into the treasury?


    Eh yeah it does. If you allow it to be printed. But if the Northern countries (of which I am a member) call your bluff on this and say: not gonna happen we like our pensions and savings, then this is the result.
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