France to form new government

[fskimospy]

So let's apply that statement to France. Since France implemented its version of austerity measures - tax increases and spending cuts - what would you do differently?

Conduct expansionary fiscal policy and run larger deficits.

 

[dphantom]

Conduct expansionary fiscal policy and run larger deficits.

I thought that was your position but did not want to presume. Thank you for verifying my assumption.

At what point would your policy change and to what would you change it to?

 

[fskimospy]

I thought that was your position but did not want to presume. Thank you for verifying my assumption.

At what point would your policy change and to what would you change it to?

My policy would change when there was either a return to somewhere close to full employment or a significant increase in inflation. (it is most likely that these would in fact happen together)

As that point drew closer I would attempt to steadily draw back fiscal policy in response to this.

 

[chucky2]

What do you mean by drawback?

 

[Doc Savage Fan]

This is not correct. What's the confusion? Bad monetary policy is not inherent to tax increases. Spending cuts are only superior if you assume that we must have bad monetary policy, which is nonsensical.

You were duped by Heritage. I sincerely hope you take the lessons of the IMF study to heart.

This is what you initially asked:

Also, you appear to be arguing that the same amount of consolidation would have been significantly less damaging if it took the form of spending cuts instead of tax increases. What is the research basis for this?

You asked me for research supporting my opinion and I provided it.

So what if tax increase austerity seems to correlate to some degree with bad monetary policy in the real world. The fact is that spending cuts are significantly less damaging than tax increases in actual practice. Every bit of research I can find supports this and there appears to be solid consensus among economists on this point.

In reference to you point above, please provide your research basis showing that tax increase austerity programs are even remotely equivalent to spending cut programs when monetary policies being relatively equal. You might find an outlier somewhere...but, even at that, I won't hold my breath.

 

[fskimospy]

So what if tax increase austerity seems to correlate to some degree with bad monetary policy in the real world. The fact is that spending cuts are significantly less damaging than tax increases in actual practice. Every bit of research I can find supports this and there appears to be solid consensus among economists on this point.

This is what you initially asked:

Right. So why is the logical answer to pursue spending cuts instead of pursue better monetary policy?

You asked me for research supporting my opinion and I provided it.

In reference to you point above, please provide your research basis showing that tax increase austerity programs are even remotely equivalent to spending cut programs when monetary policies being relatively equal. You might find an outlier somewhere...but, even at that, I won't hold my breath.

The IMF study that I have actually read before and you provided effectively says as much. Did you read it?

 

[Jhhnn]

So what if tax increase austerity seems to correlate to some degree with bad monetary policy in the real world. The fact is that spending cuts are significantly less damaging than tax increases in actual practice. Every bit of research I can find supports this and there appears to be solid consensus among economists on this point.

Right wing economists who've been wrong every inch of the way.

Tax increase austerity? What kind of austerity can be invoked by that on the World's wealthiest people, anyway? Do you think their lifestyles will be altered by any rate that's not completely confiscatory?

You need to have your "economists" explain how laying off govt workers & wholesale closing of facilities creates jobs & opportunities in the face of the worst economic disaster since 1929.

 

[realibrad]

Is the IMF considered a biased source as well?

https://www.imf.org/external/pubs/ft/weo/2010/02/pdf/c3.pdf

Am I reading page 112 correctly, in that cutting the debt to GDP ration hurts for 3 years, is break even at 5, and everything after 5 is a net gain?

 

[fskimospy]

Am I reading page 112 correctly, in that cutting the debt to GDP ration hurts for 3 years, is break even at 5, and everything after 5 is a net gain?

Yes, this is generally true outside of a liquidity trap.

We are in a liquidity trap. In the current situation it is most likely that attempts to limit budget deficits will lead to long term damage to future growth.

 

[realibrad]

Yes, this is generally true outside of a liquidity trap.

We are in a liquidity trap. In the current situation it is most likely that attempts to limit budget deficits will lead to long term damage to future growth.

But I thought that page 109 addressed that, and said that it would just take a little longer, but still the net effect would be positive.

 

[fskimospy]

But I thought that page 109 addressed that, and said that it would just take a little longer, but still the net effect would be positive.

I should be clearer: reducing deficits leads to more growth but in a liquidity trap austerity is so destructive that cutting spending and increasing taxes actually makes your debt/GDP ratio worse instead of better because the fiscal multiplier is above 1 for deficit spending.

 

[Jhhnn]

I should be clearer: reducing deficits leads to more growth but in a liquidity trap austerity is so destructive that cutting spending and increasing taxes actually makes your debt/GDP ratio worse instead of better because the fiscal multiplier is above 1 for deficit spending.

Don't be trying to fool 'em with your edumucated stuff. They know that liquidity just trickles down from the Job Creators.

 

[Moonbeam]

I personally subscribe to a view of economic liberalism and free markets. If that makes me a wacko, I will wear the title.

My point was aimed at the notion that a link considered to represent right winged economic views should be addressed by posters on the basis of the ideas presented when everybody already knows those points they choose to represent will be biased. I compared that to wasting time on religious nuts by taking the fact of the certain crap they will give you seriously. I suspect you wouldn't do that but you think eskimospy should, for some reason. I am all in favor of debating ideas regardless of link, but only up to some point. If you want to personalize the wacko thingies, it't ok by me, but I see no real reason to.

 

[glenn1]

That doesn't make any sense. Your spending is my income and my spending is your income. How did we all run out of money?

By the same token, your savings is my liability so how does a "liquidity trap" exist unless you think the savings are somehow buried in a hole somewhere. And how can you believe in a fiscal multiplier when you reject the "trickle down effect" of supply side economics? The effect should be identical whether the government is spending the funds or a rich person is - your "they will only save the money" argument I already addressed.

 

[Spungo]

At what point would your policy change and to what would you change it to?

Build an economy that relies on 0% interest rates + stimulus, and then raise interest rates to crash the economy. It sucks if you're an average American, but it's awesome if you're an oligarch. Houses are 1/3 the price, every stock is on sale.

Bernanke's "wealth effect"

Encouraging Americans to use their house as collateral to buy stocks? That sounds like a lovely idea. That way I get to buy both their house and their stocks at fire sale prices when the interest rates rise.


“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.”
- Thomas Jefferson

 

[glenn1]

Build an economy that relies on 0% interest rates + stimulus, and then raise interest rates to crash the economy. It sucks if you're an average American, but it's awesome if you're an oligarch. Houses are 1/3 the price, every stock is on sale.

Bernanke's "wealth effect"

Encouraging Americans to use their house as collateral to buy stocks? That sounds like a lovely idea. That way I get to buy both their house and their stocks at fire sale prices when the interest rates rise.


“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.”
- Thomas Jefferson

The only thing that matters is that we crank the marginal propensity to consume as high as it will go and everything else will take care of itself, right Keynesians? If the oligarchs are going to get it all anyway, why not accelerate the process as much as possible by any means necessary.

 

[realibrad]

I should be clearer: reducing deficits leads to more growth but in a liquidity trap austerity is so destructive that cutting spending and increasing taxes actually makes your debt/GDP ratio worse instead of better because the fiscal multiplier is above 1 for deficit spending.

So why cant you cut spending and not cut taxes? Why would you have to do both?

 

[Jhhnn]

By the same token, your savings is my liability so how does a "liquidity trap" exist unless you think the savings are somehow buried in a hole somewhere. And how can you believe in a fiscal multiplier when you reject the "trickle down effect" of supply side economics? The effect should be identical whether the government is spending the funds or a rich person is - your "they will only save the money" argument I already addressed.

The savings *are* buried- in the banks. Even with extremely low borrowing rates, neither consumers nor business have appetites to borrow in the face of uncertainty. It's called flight to liquidity, and it's still in effect. Those who can save do so, even at 1% return or less. Investors have no interest in Bonds unless they really are of the highest quality, so lending standards have tightened considerably since the heyday of the greatest financial flimflam in history, the ownership society. The have even less reason with a surging stock market. Financial institutions don't hold debt so much as they securitize it. If the FRB weren't buying bonds via QA, it'd be even more pronounced.

Rich people don't spend money the same way as the govt. They invest it in financial instruments which may have nothing to do with the American economy. That investment should theoretically create jobs per trickle down theory, so where are the jobs?

Govt spends money on all sort of things, from infrastructure to services, and can direct spending where they want it to go. That puts people to work in ways that the Job Creators only promise to do.

 

[Matt1970]

Right wing economists who've been wrong every inch of the way.

Tax increase austerity? What kind of austerity can be invoked by that on the World's wealthiest people, anyway? Do you think their lifestyles will be altered by any rate that's not completely confiscatory?

You need to have your "economists" explain how laying off govt workers & wholesale closing of facilities creates jobs & opportunities in the face of the worst economic disaster since 1929.

Because when you are borrowing money to pay for those government workers you are just kicking the can down the road. Maybe before you tell me I can't even begin to comprehend things you should at least know that.

 

[Spungo]

So why cant you cut spending and not cut taxes? Why would you have to do both?

Are you suggesting they pay back money they borrowed? How dare you, sir. It's much easier to rely on a printing press to inflate that debt away. Oh, France can't print own their money? I guess they'll run head first into a brick wall. I hope France defaults on the debt. Anyone stupid enough to lend money to the French government deserves to lose all of it.

A few years ago, I remember having a debate with my dad about the European debt crisis. He thought Europe was totally screwed and would eventually collapse. I thought Europe would recover because it's a simple accounting problem - spend less, pay off debts, problem solved. I'm starting to think my dad was right. This isn't a simple grade 1 math problem. This is a political problem. It's politically impossible to cut spending. Can France stop using government money for porn movies? We can't cut that, it's part of our cultural development program! Can France stop giving out free college education? Nope, we need more people with degrees in Gender Studies. It's very similar to America's budget problem. We spend too much, but nobody wants to cut anything. We can't cut the military, we can't cut medicare, medicaid, welfare, or any of the thousand useless programs. We can't cut billion dollar handouts to big corporations. We can't stop subsidizing corn. It's politically impossible to cut any of it. The only difference between France and USA is the type of collapse that will happen. France will see a deflationary collapse as a result of forced austerity when people refuse to lend money to the government. USA will see an inflationary collapse because the government will print money to fund all these stupid projects like bridges to nowhere and military bases in countries nobody cares about.


It's only a matter of time before we're carrying bills this in our wallets:

 

[glenn1]

The savings *are* buried- in the banks. Even with extremely low borrowing rates, neither consumers nor business have appetites to borrow in the face of uncertainty. It's called flight to liquidity, and it's still in effect. Those who can save do so, even at 1% return or less. Investors have no interest in Bonds unless they really are of the highest quality, so lending standards have tightened considerably since the heyday of the greatest financial flimflam in history, the ownership society. The have even less reason with a surging stock market. Financial institutions don't hold debt so much as they securitize it. If the FRB weren't buying bonds via QA, it'd be even more pronounced.

Rich people don't spend money the same way as the govt. They invest it in financial instruments which may have nothing to do with the American economy. That investment should theoretically create jobs per trickle down theory, so where are the jobs?

Govt spends money on all sort of things, from infrastructure to services, and can direct spending where they want it to go. That puts people to work in ways that the Job Creators only promise to do.

Okay, so do you think the banks bury the money in coffee cans then? What do you think the huge balances on consumer credit cards are if not lending? What about student loan debt? When a rich person buys a security, do you think the person who sells that security to the rich person gets paid for it, or that the money is somehow vaporized? Again, you need to use your brain instead of turning it off as soon as someone strays from your Keynesian orthodoxy.

 

[Greenman]

Are you suggesting they pay back money they borrowed? How dare you, sir. It's much easier to rely on a printing press to inflate that debt away. Oh, France can't print own their money? I guess they'll run head first into a brick wall. I hope France defaults on the debt. Anyone stupid enough to lend money to the French government deserves to lose all of it.

A few years ago, I remember having a debate with my dad about the European debt crisis. He thought Europe was totally screwed and would eventually collapse. I thought Europe would recover because it's a simple accounting problem - spend less, pay off debts, problem solved. I'm starting to think my dad was right. This isn't a simple grade 1 math problem. This is a political problem. It's politically impossible to cut spending. Can France stop using government money for porn movies? We can't cut that, it's part of our cultural development program! Can France stop giving out free college education? Nope, we need more people with degrees in Gender Studies. It's very similar to America's budget problem. We spend too much, but nobody wants to cut anything. We can't cut the military, we can't cut medicare, medicaid, welfare, or any of the thousand useless programs. We can't cut billion dollar handouts to big corporations. We can't stop subsidizing corn. It's politically impossible to cut any of it. The only difference between France and USA is the type of collapse that will happen. France will see a deflationary collapse as a result of forced austerity when people refuse to lend money to the government. USA will see an inflationary collapse because the government will print money to fund all these stupid projects like bridges to nowhere and military bases in countries nobody cares about.


It's only a matter of time before we're carrying bills this in our wallets:

This fits in with my simplistic view of the issue. I don't understand how any economy that depends on government spending more than is taken in can work in the long term. It seems like when they have to borrow to make interest payments the death spiral has begun.

I really wish I had a grasp of this stuff, but it appears that it's almost entirely political, the "facts" mean different things depending on who's talking.

 

[fskimospy]

So why cant you cut spending and not cut taxes? Why would you have to do both?

You can do either one. Considering that government spending in a liquidity trap has a multiplier above one, however, cutting spending makes your debt problems worse.

That may sound counterintuitive, but that's what the research says.

 

[fskimospy]

By the same token, your savings is my liability so how does a "liquidity trap" exist unless you think the savings are somehow buried in a hole somewhere. And how can you believe in a fiscal multiplier when you reject the "trickle down effect" of supply side economics? The effect should be identical whether the government is spending the funds or a rich person is - your "they will only save the money" argument I already addressed.

Uhmm, that's not the same token. My spending money to buy something from you gives you income. My not spending money to buy something from you simply deprives you of that income; it does not create a liability on your end.

I don't reject the trickle down effect, I just find conservative claims for its effects preposterous as compared to what the data shows. (the effect is just much smaller than they always claim) If private individuals were spending money in that way we wouldn't be having this discussion.

 

[glenn1]

Uhmm, that's not the same token. My spending money to buy something from you gives you income. My not spending money to buy something from you simply deprives you of that income; it does not create a liability on your end.

I don't reject the trickle down effect, I just find conservative claims for its effects preposterous as compared to what the data shows. (the effect is just much smaller than they always claim) If private individuals were spending money in that way we wouldn't be having this discussion.

Then you don't understand basic accounting principles. Money in a savings account is an asset for you, and a liability to the bank who holds it. Unless you literally are keeping currency in a coffee can or safe deposit box, saving money does not take it out of circulation.