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

[Phokus]

... would cause.

Amazing. I posted months ago how half of the rightwing idiot academic economists (and the other half being conveniently 'on vacation') who signed a letter urging the UK to adopt austerity regretted it when it turned out disastrous.

http://forums.anandtech.com/showthread.php?t=2264840&highlight=austerity

Now the IMF's chief economist is having his own mea culpa:

http://www.washingtonpost.com/blogs...a-from-the-imfs-chief-economist-on-austerity/

This is exactly why we need macro econ 101 taught in high school - when you're in a recession and liquidity trap, the LAST thing you want to do is enact austerity. This is something that everyone should have drilled in their heads at a young age so we don't have these moron republicans/conservatives destroying our economies.

 

[Incorruptible]

Wrong again, The countries who have "tried" austerity have even used it properly, they weren't making REAL spending cuts. You cant tax your way out of the recession, tax the rich at 100% and it wont even be enough because there is a serious spending problem.

Its just like the Wall Street Crash where government interference caused it but they blamed it on the Free Market which would have prevented it from happening.

 

[halik]

^ 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

 

[lotus503]

Wrong again, The countries who have "tried" austerity have even used it properly, they weren't making REAL spending cuts. You cant tax your way out of the recession, tax the rich at 100% and it wont even be enough because there is a serious spending problem.

Its just like the Wall Street Crash where government interference caused it but they blamed it on the Free Market which would have prevented it from happening.

hold on here a minute?

"Its just like the Wall Street Crash where government interference caused it"

Please explain this in some detail, I cant wait to shred your positions with facts and logic.

 

[ShintaiDK]

Austerity methods rarely works og a country scale. You tend to destroy the GDP and put people out of job. With the lower GDP you now need to cut more and more. And around you go in circles.

Roughly translated, countries need to cut back in good times and not waste it on taxcuts (Also prevents overboiling the economy) and to spend in bad times (prevent recession.)

But when Rothchild for example is the advisor to a country. No wonder it goes bad. You dont let the fox watch your chickens either.

 

[halik]

hold on here a minute?

"Its just like the Wall Street Crash where government interference caused it"

Please explain this in some detail, I cant wait to shred your positions with facts and logic.

I'm betting he's gonna come back with "FED did it", because that's what youtube told him. The fact that FED didn't raise the discount rate until late 1931 notwithstanding...

 

[lotus503]

I'm betting he's gonna come back with "FED did it", because that's what youtube told him. The fact that FED didn't raise the discount rate until late 1931 notwithstanding...

Im betting he is coming back with nothing but platitudes. Bullshit about banks being forced to loan to people who couldn't afford it etc.

 

[soulcougher73]

hold on here a minute?

"Its just like the Wall Street Crash where government interference caused it"

Please explain this in some detail, I cant wait to shred your positions with facts and logic.

I dont think he would get it though. Facts and logic are like kryptonite to these people.

 

[CycloWizard]

Austerity very well may tank an economy in the short term just as a family tightening its belt may have to cut back at Christmas. However, 10 years down the line, the family that did the belt-tightening will still be able to celebrate Christmas because they won't be spending 100% of their income on interest payments like the family that piles on credit card debt to get their kids the new iPad every year.

 

[lotus503]

Austerity very well may tank an economy in the short term just as a family tightening its belt may have to cut back at Christmas. However, 10 years down the line, the family that did the belt-tightening will still be able to celebrate Christmas because they won't be spending 100% of their income on interest payments like the family that piles on credit card debt to get their kids the new iPad every year.

Its a false comparison, as the family tightening the belt doesn't have the same impact on employment as austerity.


In your analogy the US should just chapter 7, like most Americans who are paying %100 of their income to interest payments.

 

[ShintaiDK]

Austerity very well may tank an economy in the short term just as a family tightening its belt may have to cut back at Christmas. However, 10 years down the line, the family that did the belt-tightening will still be able to celebrate Christmas because they won't be spending 100% of their income on interest payments like the family that piles on credit card debt to get their kids the new iPad every year.

Please dont compare a country economy to a private household. Its so wrong in so many ways.

 

[Atreus21]

Please dont compare a country economy to a private household. Its so wrong in so many ways.

How?

 

[ShintaiDK]

How?

Because savings directly impact the country income as well. And increases expenses if newly unemployed due to the savings will require welfare instead as an example. Simply many more parameters in terms of a country compared to a household.

 

[lotus503]

How?

the easy answer is because a household budget doesnt have a similar impact on productivity.

There are lots more reasons but I think its worthwhile for you to do some of your own research.

 

[Darwin333]

Im betting he is coming back with nothing but platitudes. Bullshit about banks being forced to loan to people who couldn't afford it etc.

I got $5 on "the government made the banks make bad loans with the affordable housing act (or whichever one they keep using)".

 

[Darwin333]

Austerity during a recession is obviously bad but that isn't the actual issue.

The real issue is and was their spending was unsustainable even in good times. The recession simply highlighted exactly how unsustainable it was. Didn't Spain get most of its "mandatory" austerity crap waived? If so that should give us a nice comparison once everything runs its course.

 

[zephyrprime]

It's pathetic how stupid people are. Even professionals. The great depression already proved beyond a doubt that austerity is a total failure.

 

[ShintaiDK]

I got $5 on "the government made the banks make bad loans with the affordable housing act (or whichever one they keep using)".

Its hard to find an excuse for the banks, when they used lobbists to deregulate their own sector. Obviously they wasnt adult enough to be without regulation and they need even more than before.

 

[lotus503]

Its hard to find an excuse for the banks, when they used lobbists to deregulate their own sector. Obviously they wasnt adult enough to be without regulation and they need even more than before.

Why not go nuts when you can socialize your losses?

Its a win win for banks one could almost wonder if it was orchestrated to go down like it did.

 

[zephyrprime]

How?

If a person enacts austerity, it has no impact on how much they are paid at their jobs.

If a country enacts austerity, it reduces employment which effectively is like a pay cut for the entire country. So the country as a whole ends up working LESS and making LESS precisely at a time when it should be working MORE and making MORE in order to pay back debts.

This sort of comparison problem is called the fallacy of composition.

 

[chucky2]

Curious:

What sort of fallacy is it when Pols say we need to spend in bad times and cut back in good times, all the while knowing they'll never cut back in the good times?

 

[lotus503]

Curious:

What sort of fallacy is it when Pols say we need to spend in bad times and cut back in good times, all the while knowing they'll never cut back in the good times?

Do you think its fallacy or do you think there are some that benefit from debt? maybe those folks that benefit from debt also help to dictate public policy?

 

[chucky2]

I think when a Pol is suggesting we keep letting them blow money we don't even have at astonishing rates, because we're in bad times, but that we should trust them to really cut back during some future as yet to be determined in time and magnitude good time, that when that same Pol that is suggesting that knows for a 110% sure fact he/she is lying out their @ss so as to keep that support for blowing money now coming in, that is must be a fallacy of some sort.

I'd like to know what to call that. Fallacy of Politicians? Fallacy of Progressive? Fallacy of Delusional? Fallacy of PathalogicalLiar? Surely there is some designation for it...

 

[lotus503]

I think when a Pol is suggesting we keep letting them blow money we don't even have at astonishing rates, because we're in bad times, but that we should trust them to really cut back during some future as yet to be determined in time and magnitude good time, that when that same Pol that is suggesting that knows for a 110% sure fact he/she is lying out their @ss so as to keep that support for blowing money now coming in, that is must be a fallacy of some sort.

I'd like to know what to call that. Fallacy of Politicians? Fallacy of Progressive? Fallacy of Delusional? Fallacy of PathalogicalLiar? Surely there is some designation for it...

Its really a Ricardian equivalence trap. for it to be effective they do have to lie a whole lot.

 

[ShintaiDK]

Curious:

What sort of fallacy is it when Pols say we need to spend in bad times and cut back in good times, all the while knowing they'll never cut back in the good times?

Its one of the major weaknesses with democracy. They will keep spend in good times to sway votes.