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

Discussion in 'Politics and News' started by Phokus, Jan 3, 2013.

  1. Doc Savage Fan

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    I'm not going down that road for the moment. My whole point is that austerity programs have been effective for some countries. I'll leave it at that for now.
     
  2. fskimospy

    fskimospy Elite Member

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    Effective compared to what? Policies have to be viewed in comparison to their alternatives, and in that light its hard to see austerity as anything but a dismal failure it stems from a fundamental misunderstanding of depression economics.
     
  3. Doc Savage Fan

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    What alternate courses of action were available to these countries that would have resulted in better results?
     
  4. Tom

    Tom Lifer

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    Ok, you don't care to discuss it, but to reiterate, "austerity" for the countries you're saying have benefitted from it doesn't mean just spending cuts.

    It means tax increases too.
     
  5. Doc Savage Fan

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    I understand that. It can also mean substantial wage and benefit cuts as well.

    I would like to discuss your point but I don't have a lot of time today. Sorry.
     
  6. fskimospy

    fskimospy Elite Member

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    They could have abandoned the Euro, for one. I don't know enough about their individual circumstances to say if that would have been preferable, and absent that they had to do something like this. (or absent responsible EU monetary policy). That being said, the results have been horrid. I see no way in which this dismal performance shows austerity's efficacy, it just seems to show how badly they damage an economy as well as how badly the EU is integrated.

    If our standard is that almost a half decade later that their economy will start growing again amid 15% unemployment and that's a success, I'm not sure I want to know what failure looks like. (it is also interesting to see such standards when stimulative US policies are labeled a failure despite our drastically superior performance.)
     
  7. glenn1

    glenn1 Elite Member

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    Thankfully, I already showed you what failure looked like here and here earlier in the thread. Both of which you conveniently ignored.

    Since you're pro-stimulus, here's what should be an easy question for you. If stimulus actually worked, why is Japan not greatly outperforming the U.S. since their stimulus has been both greater and in effect for much longer?
     
  8. fskimospy

    fskimospy Elite Member

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    Huh? Sorry, I missed those. Iceland did not engage in stimulus, btw. What I find funny is that results similar to Iceland are being trumpeted as signs of austerity's success.

    Whole I don't know a ton about Japan, they suffered massive deflation and a huge balance sheet recession combined with a recently strong currency in an export based economy. When they tried stimulus, they concentrated it in small sectors and overall spread its impact out over years instead of focusing it in a short time frame. Also, why would the length of stimulus mean that they would outperform the US? That's nonsensical.
     
  9. glenn1

    glenn1 Elite Member

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    I guess you agree with Paul Krugman, who said "Iceland did not engage in fiscal stimulus; it didn’t have to, given the kick from a huge depreciation of the currency." Admittedly, Iceland may not be a perfect country to use in either support or opposition to austerity/stimulus since it's not very populated (~200k residents) or economically diverse.

    More to the point, there's no example that shows either approach works very well or demonstates consistent results. Japan tried stimulus and is still moribund after 20+ years, the U.S. tried stimulus and struggles to maintain above zero growth after trillions in spending, China tried stimulus and its GDP growth dropped. OTOH, Ireland tried austerity and had a sizable drop in GDP. Germany went austere and is doing well. Iceland and Latvia tried "austerity by devaluation" and are now growing again albeit at the cost of a big loss in purchasing parity for their currency and resulting inflation.

    To me, the only thing this shows is that economies return to mean regardless of what fiscal approach you attempt. You can rip the bandage off quickly (via austerity or devaluation) or slowly via stimulus, which may seem to help temporarily but in reality simply "borrows" future growth by deficit spending and malinvestment. There simply is no silver bullet.
     
  10. Doc Savage Fan

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    So...let me get this straight...you speculate that abandoning the Euro would have been a better course of action for these countries without providing any evidence to support your opinion...yet you remain adamant that austerity wasn't effective which directly conflicts with the facts I posted. Interesting.
     
    #210 Doc Savage Fan, Jan 9, 2013
    Last edited: Jan 9, 2013
  11. fskimospy

    fskimospy Elite Member

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    No. I said that was a possibility while mentioning that I couldn't make a judgment call on it due to lack of information. You asked and I answered, specifically adding a caveat. Why you would question this is simply baffling unless you just want to argue for its own sake.

    I believe the catastrophic performance of your 'success' stories is evidence of the damage austerity inflicts, not evidence of its effectiveness.
     
  12. Doc Savage Fan

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    In other words...you have no alternative course of action for these countries that would have resulted in better results. Got it.

    Here's a current look at 10 year international bond rates. The confidence level for Ireland has substantially improved in the marketplace over the past year. The markets think they must be doing something right.

    http://markets.ft.com/RESEARCH/Markets/Government-Bond-Spreads

    You see damage...yet the markets see good progress. Isn't that odd?
     
    #212 Doc Savage Fan, Jan 9, 2013
    Last edited: Jan 9, 2013
  13. Darwin333

    Darwin333 Lifer

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    Are you implying that people with billions of dollars actually enjoy investing in something in which they know they will lose money (albeit a limited and rather defined amount which is the purpose)?
     
  14. Darwin333

    Darwin333 Lifer

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    Ding ding ding.

    Now consider if there was no need for a safe place to park their money, do you think we would still enjoy the same bond rates?
     
  15. fskimospy

    fskimospy Elite Member

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    No. I'm saying that liquidity from controlling your currency has a large positive effect on borrowing rates. What's not clear about this?