IMF Chief Economist apologizes for not recognizing how much damage austerity...

[lotus503]

Let's put this in context. Here's the "austerity" that didn't work.

Austerity isn't the problem...it's out-of-control debt that's caused the problem.

Progressives are very good at twisting words to suit their agenda. Countries spending their way to prosperity is blatant delusion when they're already up to their ears in debt. But for some strange reason nobody will give them the money to do it...how odd is that?

Previously austerity focused on reducing government spending in order to leave more money in the hands of people in the private sector to do with as they wished. That could be consumption, savings or investment.

What we have now is the reduction in government spending not to permit the public to keep more of their hard earned money but in order to pay off investors and banks for debts that cannot be repaid by any means except by blowing up the economy.

 

[werepossum]

^ Hold the presses, Incorruptible says the guy with MIT doctorate in Economics is wrong. Because ron paul on youtube and freedom.


The IMF paper is actually pretty interesting:

Third, and consistent with some of the above mechanisms, a number of empirical studies
have found that fiscal multipliers are likely to be larger when there is a great deal of slack in
the economy. Based on U.S. data, Auerbach and Gorodnichenko (2012b) have found that
fiscal multipliers associated with government spending can fluctuate from being near zero in
normal times to about 2.5 during recessions.

and

We find a significant negative relation
between fiscal consolidation forecasts made in 2010 and subsequent growth forecast errors.
In the baseline specification, the estimate of β, the coefficient on the forecast of fiscal
consolidation, is –1.095 (t-statistic = –4.294), implying that, for every additional percentage
point of GDP of fiscal consolidation, GDP was about 1 percent lower than forecast.
11
Figure
1 illustrates this result using a scatter plot. The coefficient is statistically significant at the 1
percent level, and the R
2
is 0.496. The estimate of the constant term, 0.775 (t-statistic =
2.023) has no strong economic interpretation.
12

The concept that austerity is bad during a recession is sound IFF as Darwin points out, the spending was responsible and sustainable before the recession. I'd also point out that if stimulus spending continues for very long, the economy becomes organized around that spending. FDR found that out when he attempted to cut back his stimulus spending and saw the economy contract with the cuts.

Considering that the US is each year the equivalent of our 2007 spending plus TARP and Stimulus Rex, I don't think we need to worry about the effects of austerity.

 

[Matt1970]

$1T? It's more than that. Count every budget (when there was actually a budget) and then every $ deficit spent over that was effectively stimulus. We're into the multi-Trillions in stimulus. If this is what the economy looks like under stimulus, I shudder to think what would happen if the Pols at Fed and State were made to actually fund their liabilities and have spending remain within yearly budgets or tax receipts, whichever lower.

$1T...if we could be so lucky...

Chuck

You have to think of the bailouts and first stimulus as seperate because a lot of the spending since then is just growing Government by putting more people on the till combined with the entitlements.

 

[werepossum]

That's a false equivalency. Stimulus does work to the extent that it's done. We know that the stimulus saved jobs and and resulted in economic activity. Local government gets money from the feds to buy a bus, where do you think the bus comes from? Workers build it.

Austerity also works to the extent that it's done... And the work it does is worsening the economy. You lay off a government worker, he can't spend money at the local shops, he can't get his car fixed at the mechanic down the street. And what is the benefit? That's what the IMF chief is admitting, that austerity failed.

Stimulus works when we're on a steep downward slope to stop the bleeding. However, anything government spends has friction. Taking money from one person's pocket and giving it to another requires paying all the people who handle this; that portion of the redistributed wealth cannot produce more wealth. Borrowing money to stimulate the economy requires paying interest and causes inflation; again, not a bad thing during an inflationary downward spiral, but not good during growth.

America's other big problem with stimulus is our huge amount of outsourcing. When we spend for stimulus and that money goes for foreign-made goods, that portion of the money spent leaves our economy. In the case of nations like Red China, with whom we have a large trade deficit, very little of the money leaving our economy comes back except as loans.

Government stimulus spending certainly has its place, but it's no panacea.

 

[chucky2]

You have to think of the bailouts and first stimulus as seperate because a lot of the spending since then is just growing Government by putting more people on the till combined with the entitlements.

My point is/was, if Gov spending (be it Fed or State) is considered stimulus, then we've been stimulus spending for decades. And recently, really stimulus spending.

Those that have been advocating for more stimulus, or, were advocating for greater past stimulus, really already got what they wanted. If they got what they wanted, why isn't the economy roaring?

 

[Matt1970]

My point is/was, if Gov spending (be it Fed or State) is considered stimulus, then we've been stimulus spending for decades. And recently, really stimulus spending.

Those that have been advocating for more stimulus, or, were advocating for greater past stimulus, really already got what they wanted. If they got what they wanted, why isn't the economy roaring?

I would agree that any spending in the name of proping up or improving the economy is stimulus one way or another.

 

[glenn1]

That's a false equivalency. Stimulus does work to the extent that it's done. We know that the stimulus saved jobs and and resulted in economic activity. Local government gets money from the feds to buy a bus, where do you think the bus comes from? Workers build it.

Austerity also works to the extent that it's done... And the work it does is worsening the economy. You lay off a government worker, he can't spend money at the local shops, he can't get his car fixed at the mechanic down the street. And what is the benefit? That's what the IMF chief is admitting, that austerity failed.

Progressives are basically arguing for Trickle Down economics, only it's the government who is getting the money rather than rich people.

 

[lotus503]

Progressives are basically arguing for Trickle Down economics, only it's the government who is getting the money rather than rich people.

and when you come to understand the government and rich people are the same, you will wise to the game.

 

[fskimospy]

My point is/was, if Gov spending (be it Fed or State) is considered stimulus, then we've been stimulus spending for decades. And recently, really stimulus spending.

Those that have been advocating for more stimulus, or, were advocating for greater past stimulus, really already got what they wanted. If they got what they wanted, why isn't the economy roaring?

People who advocate stimulus advocate it during economic downturns, not on a continuing basis. This has been common knowledge for years now, what don't you get about it?

People who have advocated for stimulus have most certainly not gotten what they wanted. Stimulus is not simply not cutting the budget, it is extra massive spending on top of the previous budget. We got one inadequate stimulus that was 1.) called inadequate even before it passed and was 2) almost half tax cuts, which ate among the least effective forms of stimulus.

So basically what I'm saying is that everything you wrote there is wrong.

 

[lotus503]

People who advocate stimulus advocate it during economic downturns, not on a continuing basis. This has been common knowledge for years now, what don't you get about it?

People who have advocated for stimulus have most certainly not gotten what they wanted. Stimulus is not simply not cutting the budget, it is extra massive spending on top of the previous budget. We got one inadequate stimulus that was 1.) called inadequate even before it passed and was 2) almost half tax cuts, which ate among the least effective forms of stimulus.

So basically what I'm saying is that everything you wrote there is wrong.

its like saying i'm going to have a cavity filled but only half of it. than let me act shocked and amazed when I still have tooth decay.

 

[glenn1]

People who advocate stimulus advocate it during economic downturns, not on a continuing basis. This has been common knowledge for years now, what don't you get about it?

People who have advocated for stimulus have most certainly not gotten what they wanted. Stimulus is not simply not cutting the budget, it is extra massive spending on top of the previous budget. We got one inadequate stimulus that was 1.) called inadequate even before it passed and was 2) almost half tax cuts, which ate among the least effective forms of stimulus.

So basically what I'm saying is that everything you wrote there is wrong.

Again, Japan's debt to GDP ratio has quadrupled to over 200% since the 1989 recession and after decades of "stimulus" spending. Yet their economy is still comatose, even as the debt service costs rise to almost 60% of tax receipts. If the amount of stimulus applied by Japan wasn't enough, what amount would ever be sufficient in your mind?

 

[Incorruptible]

It has been proved that stimulus doesn't work and austerity does, most governments will not enact austerity because the people are such idiots and want their social programs and other things. The same in the US, that pos obama needs to keep people on the government dole.

 

[chucky2]

People who advocate stimulus advocate it during economic downturns, not on a continuing basis. This has been common knowledge for years now, what don't you get about it?

People who have advocated for stimulus have most certainly not gotten what they wanted. Stimulus is not simply not cutting the budget, it is extra massive spending on top of the previous budget. We got one inadequate stimulus that was 1.) called inadequate even before it passed and was 2) almost half tax cuts, which ate among the least effective forms of stimulus.

So basically what I'm saying is that everything you wrote there is wrong.

its like saying i'm going to have a cavity filled but only half of it. than let me act shocked and amazed when I still have tooth decay.

No, not really. It's more like you've had every tooth filled again and again to varying degrees each year, but you still have mouth pain. The reason is unclear, but, clearly, it's not for lack of dentistry. The spenders are saying more dentistry. Perhaps maybe rather than blow more money there, we find what's causing the pain and fix that?

And, eski, you are wrong. Every dollar spent past what is budget/tax receipted is stimulus. It's money being spent that otherwise wouldn't (or more accurately, shouldn't) have been. We've had budget deficits, that is, stimulus, for years now. Maybe not in the areas you wanted, but, Gov spending just the same.

Now your comeback will be, Yes, but, we need massive stimulus in specific areas to achieve the affects we want. If that's the case, spend $10T. We'll lift the entire world up while we're at it. If some is good, more is better, right?

 

[lotus503]

It has been proved that stimulus doesn't work and austerity does, most governments will not enact austerity because the people are such idiots and want their social programs and other things. The same in the US, that pos obama needs to keep people on the government dole.

what metrics are you using to evaluate what works.

Other than you saying so in your post do you have any corroborative data?

also why is it when anytime I challenge you for data or facts you run and never answer?

 

[lotus503]

No, not really. It's more like you've had every tooth filled again and again to varying degrees each year, but you still have mouth pain. The reason is unclear, but, clearly, it's not for lack of dentistry. The spenders are saying more dentistry. Perhaps maybe rather than blow more money there, we find what's causing the pain and fix that?

And, eski, you are wrong. Every dollar spent past what is budget/tax receipted is stimulus. It's money being spent that otherwise wouldn't (or more accurately, shouldn't) have been. We've had budget deficits, that is, stimulus, for years now. Maybe not in the areas you wanted, but, Gov spending just the same.

Now your comeback will be, Yes, but, we need massive stimulus in specific areas to achieve the affects we want. If that's the case, spend $10T. We'll lift the entire world up while we're at it. If some is good, more is better, right?

Your wrong my response is simply you have no idea at all what your talking about.

 

[zephyrprime]

I still don't quite understand, so I'll just say what I think in layman's terms.

It seems to me when you're deep in debt you have two options to get money to pay it off: Reducing your expenditures below your income or increasing your income above your expenditures. If it's true on a small scale, I don't understand how it's not true on the larger scale. If this statement is true, then it follows that if increasing income isn't an option, your only recourse is to cut your spending.

Is that not the case?

It is not the case. You are suffering from the fallacy of composition. What you say is true in microeconomics but not true for macroeconomics. If an entire country were to cut spending, it would also cut its income thereby reducing its ability to pay.

 

[zephyrprime]

Let's put this in context. Here's the "austerity" that didn't work.

Austerity isn't the problem...it's out-of-control debt that's caused the problem.

Progressives are very good at twisting words to suit their agenda. Countries spending their way to prosperity is blatant delusion when they're already up to their ears in debt. But for some strange reason nobody will give them the money to spend their way to prosperity...how odd is that?

So basically, you're showing that even a small amount of austerity was enough to deep six europe's economy? Your evidence is arguing against austerity.

 

[chucky2]

Your wrong my response is simply you have no idea at all what your talking about.

And round and round we go...

 

[lotus503]

And round and round we go...

Yeah which is sort of sad, because we both arrive at the same spot we just have different paths to get there.

 

[glenn1]

So basically, you're showing that even a small amount of austerity was enough to deep six europe's economy? Your evidence is arguing against austerity.

So how's that "stimulus" working out for ya? Oh yeah, I forgot - the problem was just that it wasn't big enough. If only it had been a few more hundred billions or trillions, now THAT would have done the trick.

 

[lotus503]

So how's that "stimulus" working out for ya? Oh yeah, I forgot - the problem was just that it wasn't big enough. If only it had been a few more hundred billions or trillions, now THAT would have done the trick.

Thats the real shitty thing about the whole mess, there is no getting out of it. Austerity wont work and stimulus buys time but wont work.

 

[chucky2]

Yeah which is sort of sad, because we both arrive at the same spot we just have different paths to get there.

Yes. I'll always take short term (10-15 years) pain over long term pain on the national level.

 

[Incorruptible]

Thats the real shitty thing about the whole mess, there is no getting out of it. Austerity wont work and stimulus buys time but wont work.

Stimulus does NOT work, austerity hasn't even been properly tried. Let go of the ideology and think rationally

 

[Matt1970]

So how's that "stimulus" working out for ya? Oh yeah, I forgot - the problem was just that it wasn't big enough. If only it had been a few more hundred billions or trillions, now THAT would have done the trick.

But, but, but the economists aren't wrong about stimulus spending......

 

[lotus503]

Yes. I'll always take short term (10-15 years) pain over long term pain on the national level.

issue is the folks who call the shots would much rather drag this shit on as long as they can.

i'm not just being a doom and gloomer when i say there is no way out, we are in for a very prolonged decline, things could happen to make it happen faster, but the longer it takes the less civil unrest there will be, so thats the current path.

I hope I am wrong, for my kids sake. In fact nothing would make me happier than to be wrong.