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

[Incorruptible]

Good grief. Just because you watched some arcane "economics" videos on Youtube doesn't mean you have any idea what you're talking about.

I Never said that, I have done lots of reading on this issue so I know what I am talking about.

 

[jackstar7]

I Never said that, I have done lots of reading on this issue so I know what I am talking about.

Puff out your chest, so people can see you demonstrating your clout.

 

[sandorski]

Puff out your chest, so people can see you demonstrating your clout.

Too late, I am already in the stance of dominance, my teeth bared, eyes wide open, my neck muscles fully flared. A little bit of chest puffery ain't gonna do it.

 

[Gonad the Barbarian]

http://www.nytimes.com/2013/01/07/opinion/krugman-the-big-fail.html?_r=0

...
Of the papers presented at this meeting, probably the biggest flash came from one by Olivier Blanchard and Daniel Leigh of the International Monetary Fund. Formally, the paper represents the views only of the authors; but Mr. Blanchard, the I.M.F.’s chief economist, isn’t an ordinary researcher, and the paper has been widely taken as a sign that the fund has had a major rethinking of economic policy.

For what the paper concludes is not just that austerity has a depressing effect on weak economies, but that the adverse effect is much stronger than previously believed. The premature turn to austerity, it turns out, was a terrible mistake.

I’ve seen some reporting describing the paper as an admission from the I.M.F. that it doesn’t know what it’s doing. That misses the point; the fund was actually less enthusiastic about austerity than other major players. To the extent that it says it was wrong, it’s also saying that everyone else (except those skeptical economists) was even more wrong. And it deserves credit for being willing to rethink its position in the light of evidence.

The really bad news is how few other players are doing the same. European leaders, having created Depression-level suffering in debtor countries without restoring financial confidence, still insist that the answer is even more pain. The current British government, which killed a promising recovery by turning to austerity, completely refuses to consider the possibility that it made a mistake.

And here in America, Republicans insist that they’ll use a confrontation over the debt ceiling — a deeply illegitimate action in itself — to demand spending cuts that would drive us back into recession.

The truth is that we’ve just experienced a colossal failure of economic policy — and far too many of those responsible for that failure both retain power and refuse to learn from experience.

 

[momeNt]

Stimulus spending is a literal loophole in economic theory, when money is controlled by the government it ceases to act on traditional supply and demand curves and what is gained by printing is not lost by inflation. We should be honoring Dr. Keynes for discovering this loophole and quit whining and enjoy the free money.

 

[Tom]

Stimulus spending is a literal loophole in economic theory, when money is controlled by the government it ceases to act on traditional supply and demand curves and what is gained by printing is not lost by inflation. We should be honoring Dr. Keynes for discovering this loophole and quit whining and enjoy the free money.

the money isn't free. nobody claims it is. That isn't the point.

The point is when the government spends money it stimulates the economy.

It doesn't matter if they get the money from taxing money that otherwise wouldn't be spent, or by borrowing the money(bonds) from someone who otherwise wouldn't spend it, or spend it in the USA.(if the goal is to stimulate the US economy.)

Of course, stimulating the economy isn't always what we need, and sometimes there are economic advantages to private spending.

Not always though. Just considering economics, its better for the government to spend money to increase productivity, like building roads and dams, than it is for people to buy xboxes.

There are important reasons other than economics for favoring private spending' things like freedom and individual rights, as well as diversity. But there are compelling reasons for government spending too, defense, public safety, protecting the enviroment.

 

[thraashman]

I don't get how anyone could even begin to think austerity would work to stop a recession. It makes literally no sense. The economy is shrinking, quick lets take more money out of the economy! It's the most idiotic idea ever. Yes, spending needs to be cut, but when the economy is in growth not in recession. In recession the best thing to do is to stimulate growth, with you know, stimulus.

 

[FerrelGeek]

If we follow the logic of the OP's article, doesn't that mean that Reagan had it right with big spending? So if we say 'screw austerity', why bother taxing? Just spend, spend, spend.

/somewhat sarcastic post

 

[Doc Savage Fan]

I don't get how anyone could even begin to think austerity would work to stop a recession. It makes literally no sense. The economy is shrinking, quick lets take more money out of the economy! It's the most idiotic idea ever. Yes, spending needs to be cut, but when the economy is in growth not in recession. In recession the best thing to do is to stimulate growth, with you know, stimulus.

Italy and Greece agree...but for some unknown reason, nobody wants to lend them any more money. Go figure.

 

[fskimospy]

Italy and Greece agree...but for some unknown reason, nobody wants to lend them any more money. Go figure.

I'm glad that you also agree that the Eurozone has a broken monetary/fiscal policy model. I'm not sure what this has to do with the complete failure of spending cuts in depressed economies though.

How many more people will have to come out and tell you that conservative economics were a failure here before you will accept it? Seriously, I'm genuinely curious what it would take for you to accept that austerity here was a bad idea.

 

[chucky2]

I don't get how anyone could even begin to think austerity would work to stop a recession. It makes literally no sense. The economy is shrinking, quick lets take more money out of the economy! It's the most idiotic idea ever. Yes, spending needs to be cut, but when the economy is in growth not in recession. In recession the best thing to do is to stimulate growth, with you know, stimulus.

So of all the bubbles we've had, when has the Fed budget been decreased...that reduction during the good times that makes the over-spend in bad times papable?

Chuck

 

[fskimospy]

So of all the bubbles we've had, when has the Fed budget been decreased...that reduction during the good times that makes the over-spend in bad times papable?

Chuck

Debt to GDP ratio is by FAR the most important statistic about the debt a country holds:

So the answer? A bunch of times.

 

[chucky2]

I didn't ask that. I asked, when has the Fed budget been chopped back to down economy (the one that justified the spend) levels once the next bubble (good time) hits?

We've had good times before, so surely, one can say look in year abcd we had a budget of x.yT, then we crashed, so we spent like drunken sailors, then we recovered in year efgh, and in year efgi the budget was back to abcd level. What were those years?

Chuck

 

[werepossum]

Debt to GDP ratio is by FAR the most important statistic about the debt a country holds:

So the answer? A bunch of times.

But you changed his question to one you prefer to answer. The correct answer would be never. Even the 1994 - 2000 Republican Congresses' cuts - which we were assured were draconian - were never cuts to spending, only cuts in the rate of spending growth. And the 1994 - 2000 Republican Congresses were themselves aberrations; at no other time except when just ending a major war does either party cut even the rate of growth in spending. Bad times we must increase government spending to stimulate the economy; good times we must increase government spending because now we can afford it.

 

[nextJin]

This is the problem with Keyansian economics; We never actually follow it and never would/will.

 

[fskimospy]

But you changed his question to one you prefer to answer. The correct answer would be never. Even the 1994 - 2000 Republican Congresses' cuts - which we were assured were draconian - were never cuts to spending, only cuts in the rate of spending growth. And the 1994 - 2000 Republican Congresses were themselves aberrations; at no other time except when just ending a major war does either party cut even the rate of growth in spending. Bad times we must increase government spending to stimulate the economy; good times we must increase government spending because now we can afford it.

I'm not changing the question to one I prefer, I'm changing it to one that matters. Debt to GDP ratio is basically the means by which every country on earth's debt is evaluated and the reason for it is fairly simple. If I make $10,000 a year and have $10,000 in debt, I'm in trouble. If I make $100,000,000 a year and have $1,000,000 in debt, I'm not even sweating it. Even though I'm 100x more in debt I'm in a much better fiscal situation.

The US never, ever, ever actually needs to cut the amount of debt that it holds. Maybe we will choose to, but it's not required. We DO need to make sure that we keep the rate of debt/GDP in check however. So your argument that government spending always increases doesn't really matter much. It's always how it increases in proportion to the economy and what we can afford to pay.

 

[nextJin]

Nice graphic showing how bipartisan this stuff really is.

The interesting thing here is how quickly the debt dropped after WW2 during the boom. This does not show interest rates but I'm sure someone not at work (like me) can elaborate better than I. I do not see the same type of boom happening anytime soon unless it is another government sponsored bubble.

 

[Jhhnn]

Debt as a % of GDP can be deceptive in its own way. When there's false prosperity & inflated GDP as during the Bush Years, it appears to be less than in the aftermath, when GDP plunged along with federal revenues, even as automatic stabilizers kicked in- UI, early dependence on SS, food stamps, EITC, Medicaid & so forth.

Which is what's supposed to happen to stabilize the economy in the face of financialized free market capitalism tripping over its own dick...

Preventing that from happening was the whole point of New Deal economic policy, something "Conservatives" convinced us we really didn't need any more...

 

[Incorruptible]

Debt as a % of GDP can be deceptive in its own way. When there's false prosperity & inflated GDP as during the Bush Years, it appears to be less than in the aftermath, when GDP plunged along with federal revenues, even as automatic stabilizers kicked in- UI, early dependence on SS, food stamps, EITC, Medicaid & so forth.

Which is what's supposed to happen to stabilize the economy in the face of financialized free market capitalism tripping over its own dick...

Preventing that from happening was the whole point of New Deal economic policy, something "Conservatives" convinced us we really didn't need any more...

More ignorance!

There was no Free market capitalism, the government was responsible for the crash

The new deal did not work and it wont work again

 

[chucky2]

I'm not changing the question to one I prefer, I'm changing it to one that matters. Debt to GDP ratio is basically the means by which every country on earth's debt is evaluated and the reason for it is fairly simple. If I make $10,000 a year and have $10,000 in debt, I'm in trouble. If I make $100,000,000 a year and have $1,000,000 in debt, I'm not even sweating it. Even though I'm 100x more in debt I'm in a much better fiscal situation.

The US never, ever, ever actually needs to cut the amount of debt that it holds. Maybe we will choose to, but it's not required. We DO need to make sure that we keep the rate of debt/GDP in check however. So your argument that government spending always increases doesn't really matter much. It's always how it increases in proportion to the economy and what we can afford to pay.

If I'm making 100k right now and perfectly living within my means, and next year I make 200k, that doesn't mean my expenses automagically double so I can spend 200k and live within a new means. I can remain at 100k spending levels and - gasp - pocket 100k. Obviously the Fed gov cannot do something that perfect, but they do not need to spend at the same rate GDP increases.

I've asked a very simply question, if you didn't like the answer you didn't have to try and do a subject change, you could have just not answered or said 'I don't have the answer'.

Does anyone know - for sure - the answer to my question? What years was the budget actually pared back to the pre-crash amount?

Chuck

 

[nextJin]

Does anyone know - for sure - the answer to my question? What years was the budget actually pared back to the pre-crash amount?

Chuck

Judging by the image I linked above in the rescessions/crashes there were only the ones directly after WW2 (5 I believe) in which debt went up during the recession and then immediately down afterwards unless you count the Clinton "bump" which would seem questionable.

Considering the Depression and great Recession are the only times we were over 100% GDP to Debt ratio it seems reasonable, if anything it shows how the Reagan and Bush Sr Presidencies were a mindboggingly "Conservative" failure.

The problem I see is that for the past 3 decades or so we have not cared about the proper way of doing things. We surely cannot stay above a 100% GDP to Debt ratio forever.

 

[chucky2]

Nice graphic showing how bipartisan this stuff really is.

The interesting thing here is how quickly the debt dropped after WW2 during the boom. This does not show interest rates but I'm sure someone not at work (like me) can elaborate better than I. I do not see the same type of boom happening anytime soon unless it is another government sponsored bubble.

Wouldn't the WWII drop be expected though? The rest of the world was in shambles. We were producing everything we needed, plus everything everyone else needed (or, at least, largely supplanting it). You could call it the World Destrucion Bubble.

Once those countries rebuilt, and then technology interconnected the world, that bubble popped.

Chuck

 

[chucky2]

Judging by the image I linked above in the rescessions/crashes there were only the ones directly after WW2 (5 I believe) in which debt went up during the recession and then immediately down afterwards unless you count the Clinton "bump" which would seem questionable.

Considering the Depression and great Recession are the only times we were over 100% GDP to Debt ratio it seems reasonable, if anything it shows how the Reagan and Bush Sr Presidencies were a mindboggingly "Conservative" failure.

The problem I see is that for the past 3 decades or so we have not cared about the proper way of doing things. We surely cannot stay above a 100% GDP to Debt ratio forever.

But that is as a % of GDP, not in real dollars, right? The problem with the 'spend more now but we'll pay back more later' seems to me that the people saying it in Mantratone either don't understand - or refuse to admit - that the payback never happens. It's akin to this:

Hey kid, lend me $1 today, and tomorrow I'll give you it back. Tomorrow comes around, and I then say to the kid, hey kid, lend me $1.10 today, and tomorrow I'll pay you back $2.10. Then the third day, I say to the kid, hey kid, lend me $1.20 today and tomorrow I'll give you back $3.30. Infinitum.

At what point is it a lie when the kid realizes, Hey, what a sec, you're never going to pay me back! (it doesn't matter that the kid will get better jobs that pay more, be fired, be layed off, get another job, etc. Just as the economy will do. The point is, never is the balance brought to even)

That's my problem. I obviously prefer to just spend within our means, but, I can be convinced to do QE if it is shown that after QE in the past, balanced budgets have been enforced somewhere and the debt was paid off to at least the pre-crash amount.

All I'm simply asking for is examples of that. Surely these exist, right???

 

[fskimospy]

Wouldn't the WWII drop be expected though? The rest of the world was in shambles. We were producing everything we needed, plus everything everyone else needed (or, at least, largely supplanting it). You could call it the World Destrucion Bubble.

Once those countries rebuilt, and then technology interconnected the world, that bubble popped.

Chuck

No, not really. Trade at the time just wasn't that large a percentage of GDP. Also, while foreign competition was destroyed, so were foreign markets for our goods.

 

[chucky2]

I am certainly no expert, but I could have sworn that we supplied a lot of Ag products to EU and Japan after the war. Not a little, but, a lot. That's not true?