The economic framework for austerity is getting even weaker

[First]

For example:

Pimco’s Bill Gross blasts Europe’s focus on austerity

If last week was a rough one for austerity advocates, Monday morning isn’t off to a great start either.

Pimco’s Bill Gross, the manager of the world’s largest bond fund, is the latest to trash a focus on austerity by British and euro-zone officials, telling the Financial Times that moving to cut debt too fast instead risks wrecking an economic recovery rather than righting the fiscal ship.

“The U.K. and almost all of Europe have erred in terms of believing that austerity, fiscal austerity in the short term, is the way to produce real growth. It is not,” Gross said. “You’ve got to spend money.”

 

[Doc Savage Fan]

Nowhere do I see Lagarge claim austerity>stimulus and, even if such a position was taken, what matters is evidence and not necessarily the person saying it. Because if you're going to try and support your argument with other qualified person's claims of economic success/failure, that's a losing battle for you since academia and business is on the side of stimulus, something I hope you already realize.

Yes...I agree..."what matters is evidence".

I've given you every opportunity to present actual cases where stimulus spending was successful in turning around small country economies hit extremely hard by real estate bubbles and the financial crisis. So far you've produced nothing relevant that supports your point unless one wishes to pretend that extremely large economies are somehow similar to small economies.

If you want to believe Latvia is a failure...that's your perogative. However, when the head of the IMF disagrees with your opinion, you might want to think twice. I also understand that Latvia has met all the convergence criteria and is expected to become a member of the Eurozone 1/1/14.

http://en.wikipedia.org/wiki/Enlargement_of_the_eurozone

Financially, they are also in much better shape than several existing Eurozone members. But hey...if you really want to believe that their austerity program was a failure...go for it.

 

[First]

Yes...I agree..."what matters is evidence".

I've given you every opportunity to present actual cases where stimulus spending was successful

I already have. Continue.

in turning around small country economies hit extremely hard by real estate bubbles and the financial crisis.

Stop obfuscating and answer directly; why small countries? And why now financial crises? (Not that there's anything wrong with wanting to compare two nations that went through a financial crisis to keep variables consistent between said two economies, that makes sense to me, but continually harping on "small country" doesn't).

So far you've produced nothing relevant that supports your point unless one wishes to pretend that extremely large economies are somehow similar to small economies.

Um, they are similar. How similar depends on what you're arguing. But feel free to explain why they're so dissimilar they can't be compared.

If you want to believe Latvia is a failure...that's your perogative.

I'll repost my previous statement since you keep obfuscating: "...they are nowhere near to recovering their former level of GDP after 5 years, so by what definition is that a success so far? Please explain..."

However, when the head of the IMF disagrees with your opinion,

She doesn't, as eskimospy quite nicely pointed out and which I can cite from her CNBC interview last week as well as a direct quote from her here: Christine Lagarde, head of the International Monetary Fund, said that the United States needs fiscal consolidation (her technical term for austerity) in the medium-term, but not so much now. In its World Economic Outlook, the IMF said U.S. fiscal consolidation was “overly strong.” Europeans were urged to loosen the purse strings, if they can.

So yet again, you've been fact checked and have been found lacking.

you might want to think twice. I also understand that Latvia has met all the convergence criteria and is expected to become a member of the Eurozone 1/1/14.

http://en.wikipedia.org/wiki/Enlargement_of_the_eurozone

Financially, they are also in much better shape than several existing Eurozone members. But hey...if you really want to believe that their austerity program was a failure...go for it.

I already explained why and will repost since you continue to fail to nut up to any specifics I've mentioned: "Looking at your GDP numbers just for Latvia, we notice a 32.5% net negative result from immediate austerity over the same number of quarters, your (apparent) preferred policy institution. Please explain how that's a success".

 

[Doc Savage Fan]

There were really only two options for Latvia...either go the austerity route or leave the Euro and deal with the consequences. Stimulus spending was not an option...nobody in their right mind was going to lend them a dime unless there were austerity strings attached. This is why you can't find any examples of stimulus spending success stories for small countries...because nobody is stupid enough to loan money based on a hope and a prayer that a small country can somehow actually spend their way to prosperity.

 

[fskimospy]

There were really only two options for Latvia...either go the austerity route or leave the Euro and deal with the consequences. Stimulus spending was not an option...nobody in their right mind was going to lend them a dime unless there were austerity strings attached. This is why you can't find any examples of stimulus spending success stories for small countries...because nobody is stupid enough to loan money based on a hope and a prayer that a small country can somehow actually spend their way to prosperity.

Actually this just shows the fundamental problem with the euro. It has a common monetary policy without a common fiscal policy. There could have absolutely been stimulus spending within the euro zone, but countries like Germany wanted all the benefits if the euro without paying for them. The US, in effect, engaged in massive stimulative policies for states like Florida and California.

You keep asking for examples of small countries hit like this and we keep telling you that in this crisis they really don't exist. It all took place in the Euro zone. One possible outside example would be Iceland, which so far is handily out performing Latvia, but even that is a developed economy vs a developing one.

 

[First]

There were really only two options for Latvia...either go the austerity route or leave the Euro and deal with the consequences.

Well then your expanded point here would mean, if true, that using Latvia or any Baltic country as a "successful" example of austerity is folly considering they have the added complication of Euro fallout.

Stimulus spending was not an option...nobody in their right mind was going to lend them a dime unless there were austerity strings attached.

Another reason why using them as an example is folly; they can't print their own currency, showing the limitations of the Euro for so many countries and exactly why it acts as gold would to individual nations; constraining potential growth based on a fixed currency exchange rate.

This is why you can't find any examples of stimulus spending success stories for small countries...because nobody is stupid enough to loan money based on a hope and a prayer that a small country can somehow actually spend their way to prosperity.

This makes no sense. I'm sorry to say, but you're out of your element in this discussion. My previous points that have gone unanswered on this page, and numerous previous pages, still stand, so please don't waste my time with further inquiry unless you decide to answer them. K thanks.

 

[Doc Savage Fan]

Actually this just shows the fundamental problem with the euro. It has a common monetary policy without a common fiscal policy. There could have absolutely been stimulus spending within the euro zone, but countries like Germany wanted all the benefits if the euro without paying for them. The US, in effect, engaged in massive stimulative policies for states like Florida and California.

You keep asking for examples of small countries hit like this and we keep telling you that in this crisis they really don't exist. It all took place in the Euro zone. One possible outside example would be Iceland, which so far is handily out performing Latvia, but even that is a developed economy vs a developing one.

Iceland cut government spending by 25%, devalued their currency by 50%, increased taxes and "adjusted" public debt to stimulate their economy...so you have a lot of austerity and some stimulus which resulted in a relatively decent outcome. I view this as a success as well; however, I doubt First would agree since their GDP hasn't yet returned to pre-crisis levels.

http://www.economicshelp.org/blog/6880/economics/icelands-recovery/

http://www.hurriyetdailynews.com/de...rovides-lessons-for-eurozone-plans-2011-11-06

 

[DucatiMonster696]

Iceland cut government spending by 25%, devalued their currency by 50%, increased taxes and "adjusted" public debt to stimulate their economy...so you have a lot of austerity and some stimulus which resulted in a relatively decent outcome. I view this as a success as well; however, I doubt First would agree since their GDP hasn't yet returned to pre-crisis levels.

http://www.economicshelp.org/blog/6880/economics/icelands-recovery/

http://www.hurriyetdailynews.com/de...rovides-lessons-for-eurozone-plans-2011-11-06

You missed the most important part. They allowed failure to occur within the banking system which cleared most of the toxic sludge of mal-investments while their entire focus was mainly on protecting depositors and taxpayers over banks and bankers.

 

[simpletron]

Actually the really interesting thing that was point out earlier is that each time the US government has run a surplus (with the exception of 2000) a depression has followed.

This would seem to suggest that hoarding tax to prepare for recessions would instead induce depressions.

The government paid down the debt in 1947, 1948, 1951, 1956, and 1957 and ran budget surplus in 1949, 1960, 1969. While they are plenty of recession in 50s and 60s, there was no depression.

When is the government most likely to run a surplus? During a economic boom; And what happens after the boom? the bust. The causality of budget surplus to depression is loose to non-existent and most of the depressions (Panics) were caused by a failure of a major financial institution, whose failure's primary cause wasn't the government paying down the debt.

 

[simpletron]

Right, we have to pay ourselves back with interest. If you lent $100 to your wife and she paid you back $110, did your family become richer or poorer because of either transaction?

If the bank lent $100 to you and you paid you back $110, did society become richer or poorer because of either transaction? If the I lent $100 to the government and government paid me back $110, did society become richer or poorer because of either transaction?

Your analogies to show government debt as somehow different from household debt have all been a complete failure. Replace bank/banker with china or wife and family with society and they all fall apart. The real problem comparing household debt to government is that people put artificial limits on household when giving examples, otherwise they are far more similar to each other than you think. For example, "If I ran continuous deficits like the government, I would go broke", this assume a static income to be true. If you assume your income grows continuously, then you can ran smaller than growth-interest deficits forever.

US military spending dropped close to 25% in that quarter in preparation for budget cuts.

Federal government outlays for the 4th quarter were the fourth highest ever (non-inflation adjusted dollars) behind 2012 1st, 2011 1st, and 2010 2nd. If cuts to military spending caused the lower GDP growth, why didn't the higher other government spending didn't offset it? Maybe you should support military spending increases...and cut to other spending...

Eskimospy, why did you support the austerity measure called obamacare being passed during one of the worst points in the recession? (at its passing, CBO was projecting a net surplus) Maybe you should support the republicans in their effort to repeal it. Why did you support the austerity measure of the expiration of bush/obama tax cuts for the rich?

 

[Doc Savage Fan]

You missed the most important part. They allowed failure to occur within the banking system which cleared most of the toxic sludge of mal-investments while their entire focus was mainly on protecting depositors and taxpayers over banks and bankers.

I didn't miss that point...I just included that in the "adjusted" public debt column. I understand that bank obligations were more than 11 times Iceland's GDP which essentially left them no other choice except to let them default.

 

[fskimospy]

If the bank lent $100 to you and you paid you back $110, did society become richer or poorer because of either transaction? If the I lent $100 to the government and government paid me back $110, did society become richer or poorer because of either transaction?

Yes, that was exactly my point. People view their family as a self-contained unit while government debt is a society wide phenomenon. Hence in my example why lending between family members is a proxy for lending between different segments of society.

You do realize that what you wrote here 100% supports my point, right?

Your analogies to show government debt as somehow different from household debt have all been a complete failure. Replace bank/banker with china or wife and family with society and they all fall apart. The real problem comparing household debt to government is that people put artificial limits on household when giving examples, otherwise they are far more similar to each other than you think. For example, "If I ran continuous deficits like the government, I would go broke", this assume a static income to be true. If you assume your income grows continuously, then you can ran smaller than growth-interest deficits forever.

Actually they are entirely accurate, just as shown by your first question. The fact that government income grows continuously is another part of why government debts are dissimilar from family debts, but the fact that we owe the major majority of our debt to ourselves is another big factor.

My analogies would only fall apart if most of our debt were foreign sourced, which it is not.

 

[Doc Savage Fan]

My analogies would only fall apart if most of our debt were foreign sourced, which it is not.

Needs to be updated but the trend is clear.

 

[fskimospy]

Eskimospy, why did you support the austerity measure called obamacare being passed during one of the worst points in the recession? (at its passing, CBO was projecting a net surplus) Maybe you should support the republicans in their effort to repeal it. Why did you support the austerity measure of the expiration of bush/obama tax cuts for the rich?

This is absolute silliness. You are being deliberately obtuse here.

First is the absurd straw man that because I oppose austerity I must oppose anything that reduces any government deficit anywhere for whatever reason. The ACA reduced the deficit through increases in efficiency, which is a good thing. (it was also scored as a ten year measure, btw) It also provides a really excellent start towards a better health care system, by itself an extremely positive outcome. Joining the Republicans to repeal things like that would be enormously foolish, but nobody ever accused Republicans of being responsible.

As for the Bush tax cuts, if you look at what I wrote at the time I explicitly mentioned how I don't think we should be raising taxes for anyone during a depression. The only problem with that was that it was literally our only chance to remove some of the most irresponsible tax cuts that Bush enacted. If we had a more responsible Republican Party we could have passed a measure to raise those taxes a few years down the line when they should be raised, but that clearly wasn't an option. I also would have supported replacing the additional revenues with more deficit spending, however that was also not an option.

Your entire argument is based in the idea that because I accept the overwhelming evidence that austerity in a depression is foolish that I can't have any policy preferences outside of that or be able to recognize the legislative environment going forward.

 

[fskimospy]

Needs to be updated but the trend is clear.

Actually the trend isn't very clear at all. (look at what the chart looks like minus the financial crisis, which presumably you are not attributing to the balance of trade)

 

[fskimospy]

Another interesting aspect is that we hold about 90 cents in foreign holdings for every $1.00 foreigners hold of our assets/debt. Since our foreign assets are of higher quality than theirs are however, we still have a net surplus of investment income.

 

[Doc Savage Fan]

Actually the trend isn't very clear at all. (look at what the chart looks like minus the financial crisis, which presumably you are not attributing to the balance of trade)

Yeah...I looked for more current info but couldn't find anything after 15 minutes. I'll look some more later.

 

[simpletron]

Yes, that was exactly my point. People view their family as a self-contained unit while government debt is a society wide phenomenon. Hence in my example why lending between family members is a proxy for lending between different segments of society.

You do realize that what you wrote here 100% supports my point, right?

Actually they are entirely accurate, just as shown by your first question. The fact that government income grows continuously is another part of why government debts are dissimilar from family debts, but the fact that we owe the major majority of our debt to ourselves is another big factor.

My analogies would only fall apart if most of our debt were foreign sourced, which it is not.

So you agree that household debt and government debt have the same effect on society, which is my point. Thus my comment about household debt and government debt are more similar than you think.

You, like most people, take a very narrow view on analogy of household debt vs government debt adding artificial limits on households. Most household don't have static incomes and grow most years just like the federal government's income(over 90% of its income comes from payroll and income taxes, which are percentage of household income), but most people forget this fact when making the analogy. A household can spend more than the household makes every year and not go bankrupt(assuming the household income grows faster, which it can).

http://www.treasury.gov/resource-center/data-chart-center/tic/Pages/ticsec2.aspx

5656.9 billion dollars is held by foreign holders in Feb 2013, which is close to 50% of the 11,822,436,182,671.08 of public(external) federal debt at the time. So close to getting the automatic failure of your analogy...

 

[simpletron]

This is absolute silliness. You are being deliberately obtuse here.

First is the absurd straw man that because I oppose austerity I must oppose anything that reduces any government deficit anywhere for whatever reason. The ACA reduced the deficit through increases in efficiency, which is a good thing. (it was also scored as a ten year measure, btw) It also provides a really excellent start towards a better health care system, by itself an extremely positive outcome. Joining the Republicans to repeal things like that would be enormously foolish, but nobody ever accused Republicans of being responsible.

As for the Bush tax cuts, if you look at what I wrote at the time I explicitly mentioned how I don't think we should be raising taxes for anyone during a depression. The only problem with that was that it was literally our only chance to remove some of the most irresponsible tax cuts that Bush enacted. If we had a more responsible Republican Party we could have passed a measure to raise those taxes a few years down the line when they should be raised, but that clearly wasn't an option. I also would have supported replacing the additional revenues with more deficit spending, however that was also not an option.

Your entire argument is based in the idea that because I accept the overwhelming evidence that austerity in a depression is foolish that I can't have any policy preferences outside of that or be able to recognize the legislative environment going forward.

I apologize for the crudeness of my comment for you to support policy I know you oppose but I figured it would elicit a good response.

Recently, you posted numerous times how austerity in a depression is foolish, yet seem to pick and choose which austerity measures are good/bad, this would imply that effects of austerity measures can be overpowered or inconsequential depending on the measure. Your comments above seem to support this conclusion.

By the way, I would argue that we aren't currently in a depression to begin with - recession ended over 3 years ago, over 2 years of job/GDP growth, and higher GDP and GDP per capita than before recession to name a few. We are definitely in an expansion period. This would nullify your austerity in a depression argument before you can begin.

 

[fskimospy]

I apologize for the crudeness of my comment for you to support policy I know you oppose but I figured it would elicit a good response.

Recently, you posted numerous times how austerity in a depression is foolish, yet seem to pick and choose which austerity measures are good/bad, this would imply that effects of austerity measures can be overpowered or inconsequential depending on the measure. Your comments above seem to support this conclusion.

By the way, I would argue that we aren't currently in a depression to begin with - recession ended over 3 years ago, over 2 years of job/GDP growth, and higher GDP and GDP per capita than before recession to name a few. We are definitely in an expansion period. This would nullify your austerity in a depression argument before you can begin.

Not really, monetary policy is still stuck at the zero lower bound, meaning that you can't offset austerity with monetary policy. It is truly an odd description of a growth period when fed interest rates are effectively zero and we are running large deficits bit still only able to grow at about 2%.

Nothing I wrote would say that austerity measures could be overpowered or inconsequential. They simply stated that economic growth is not my sole consideration and that the future likelihood of legislation passing should be a consideration. Common sense, really.

 

[simpletron]

Not really, monetary policy is still stuck at the zero lower bound, meaning that you can't offset austerity with monetary policy. It is truly an odd description of a growth period when fed interest rates are effectively zero and we are running large deficits bit still only able to grow at about 2%.

Nothing I wrote would say that austerity measures could be overpowered or inconsequential. They simply stated that economic growth is not my sole consideration and that the future likelihood of legislation passing should be a consideration. Common sense, really.

After 14 consecutive quarters of real GDP growth, 37 consecutive months of private sector job growth, real GDP hitting an all-time high, then you coming out and declaring the US in a depression would be insane. The definition of an economic expansion is real GDP growth, which we have been doing for the past 3.5 years.

You might be able to make an argument that the economy isn't strong enough yet, to support further austerity. But considering the government component of GDP has barely changed in the last 3 years (currently 3049.7 with an average of 3060, low of 3030.9 and high of 3093.3, all are billions of dollars) and the deficit has been falling and projected to fall further, it might be hard to use the large deficit as propping up GDP growth. I agree that the federal reserve being limited in what it can do should be a concern if enacting a large, sweeping austerity measure. But on the other hand, federal reserve policy is focused on controlling inflation and unemployment, and not GDP growth, so even if the federal reserve was better positioned(higher discount rate), it wouldn't do anything unless the austerity were to affect inflation and unemployment. (cutting foreign aid wouldn't have much effect on inflation and unemployment)

http://www.bea.gov/iTable/index_nipa.cfm

Are you really saying that "A congressman should considered the probability of some unwritten future legislation in possibly a different congress passing as more important or even a factor compare to the economic impact of the legislation in front of them."? If your answer is yes, then I would put that as the equivalent of saying the economic impact of an austerity measure is inconsequential.

The ACA reduced the deficit through increases in efficiency, which is a good thing. (it was also scored as a ten year measure, btw) It also provides a really excellent start towards a better health care system, by itself an extremely positive outcome.

I read this reasoning for supporting ACA even though its an austerity measure as either "the better, more efficiency healthcare system caused by ACA will overpower the economic effects of the austerity caused by ACA" or "economic effects of austerity called ACA is inconsequential, in light of a better healthcare system". Take your pick (I hope the first one happens).

Since I don't post much and you won't think of me as some hardcore republican, my opinion on ACA is that it shouldn't be repeal. The expansion of health benefits, consumer protections, and coverage are a good things, but another piece of legislation focusing on healthcare cost growth control needs to be passed because ACA doesn't do nearly enough. And the Bush/Obama tax cuts for the rich shouldn't be repeal either. I'm just pointing out inconsistency in your posts when it comes to austerity.

 

[fskimospy]

After 14 consecutive quarters of real GDP growth, 37 consecutive months of private sector job growth, real GDP hitting an all-time high, then you coming out and declaring the US in a depression would be insane. The definition of an economic expansion is real GDP growth, which we have been doing for the past 3.5 years.

No it wouldn't be, but that's simply arguing semantics. Monetary policy is at the zero lower bound and we're running large deficits while still seeing low growth. That's a highly depressed economy to me.

You might be able to make an argument that the economy isn't strong enough yet, to support further austerity. But considering the government component of GDP has barely changed in the last 3 years (currently 3049.7 with an average of 3060, low of 3030.9 and high of 3093.3, all are billions of dollars) and the deficit has been falling and projected to fall further, it might be hard to use the large deficit as propping up GDP growth.

I don't see how that makes any sense. Not only should you be using total government spending as a percentage of GDP instead of absolute dollars (and that percentage has been falling since the financial crisis, btw), but there is a large amount of evidence from all over the world that deficits do in fact prop up GDP growth.

I agree that the federal reserve being limited in what it can do should be a concern if enacting a large, sweeping austerity measure. But on the other hand, federal reserve policy is focused on controlling inflation and unemployment, and not GDP growth, so even if the federal reserve was better positioned(higher discount rate), it wouldn't do anything unless the austerity were to affect inflation and unemployment. (cutting foreign aid wouldn't have much effect on inflation and unemployment)

http://www.bea.gov/iTable/index_nipa.cfm

I'm not sure what you're linking there, but you appear to be arguing that cutting interest rates does not affect GDP growth... which is clearly untrue. Are you instead saying that because explicit GDP growth is outside the fed's mandate that they wouldn't do anything? This isn't in holding with the fed's past policies.

Are you really saying that "A congressman should considered the probability of some unwritten future legislation in possibly a different congress passing as more important or even a factor compare to the economic impact of the legislation in front of them."? If your answer is yes, then I would put that as the equivalent of saying the economic impact of an austerity measure is inconsequential.

I can't possibly see how. Seeing something else as more important in no way means that you view the effects of austerity as inconsequential. That's just false.

I read this reasoning for supporting ACA even though its an austerity measure as either "the better, more efficiency healthcare system caused by ACA will overpower the economic effects of the austerity caused by ACA" or "economic effects of austerity called ACA is inconsequential, in light of a better healthcare system". Take your pick (I hope the first one happens).

Also false. This just isn't what the word 'inconsequential' means. Seeing something else as more important in no way means that you view the effects of austerity as inconsequential. You would also see that in threads about deficit reduction through tax increases, etc I have said that the reduction should go towards additional deficit spending.

Since I don't post much and you won't think of me as some hardcore republican, my opinion on ACA is that it shouldn't be repeal. The expansion of health benefits, consumer protections, and coverage are a good things, but another piece of legislation focusing on healthcare cost growth control needs to be passed because ACA doesn't do nearly enough. And the Bush/Obama tax cuts for the rich shouldn't be repeal either. I'm just pointing out inconsistency in your posts when it comes to austerity.

It doesn't matter to me what your ideology is, what you've written here is poor. Not only is my position entirely consistent, it should be pretty much common sense. In most of the threads on here about cutting spending those cuts have been viewed as a virtue in their own right, which is what the austerity debate is really about. There are in fact many spending cuts or tax increases that I individually support, despite recognizing the overall bad effects of austerity. The only way that wouldn't make sense is if austerity were literally the ONLY policy position that I cared about, which is obviously untrue.

 

[Farang]

Austerity in the U.S. is not really for the sake of reducing deficits. It's the Republican's blanket argument to stop the Democratic agenda. If you make debt out to be the boogeyman, and say you don't want to spend anymore money, then you have a reason to oppose any new initiative proposed by the opposition.

This is why the argument faded during the Bush years. It will fade again if another Republican is elected.

 

[fskimospy]

Austerity in the U.S. is not really for the sake of reducing deficits. It's the Republican's blanket argument to stop the Democratic agenda. If you make debt out to be the boogeyman, and say you don't want to spend anymore money, then you have a reason to oppose any new initiative proposed by the opposition.

This is why the argument faded during the Bush years. It will fade again if another Republican is elected.

Yes, very much. Austerity mania is a smokescreen for enacting Republican policies to shrink the size and scope of government. There's a reason why Paul Ryan's budgets take so long to balance the budget, even with savage spending cuts... it's because he includes massive tax cuts with them. If Republicans actually considered the deficit the #1 priority they would trade tax hikes for large spending cuts, but they refuse. It's pretty transparent.

Interestingly enough when it comes to the effect of defense cuts, tax hikes, etc, Republicans frequently talk about how these austerity measures will hurt the economy. ie: they fundamentally accept the correctness of Keynesian analysis, but it isn't politically convenient for them so they need to talk out of both sides of their mouths.

 

[shira]

A new article on from the Daily Ticker nicely sums up the consensus from the past five years of real-world "experimentation" in national debt-loads versus economic outcomes, and slam-dunks the defeat of "Austerianism" by pointing out the embarrassing mathematical error that propped up that house of cards. Advocates - most notably economist Paul Krugman - of more stimulus spending and higher debt-to-GDP ratios are the resounding victors:

http://finance.yahoo.com/blogs/dail...ent-over-paul-krugman-won-150247189.html?vp=1

For the past five years, a fierce war of words and policies has been fought in America and other economically challenged countries around the world.

On one side were economists and politicians who wanted to increase government spending to offset weakness in the private sector. This "stimulus" spending, economists like Paul Krugman argued, would help reduce unemployment and prop up economic growth until the private sector healed itself and began to spend again.

On the other side were economists and politicians who wanted to cut spending to reduce deficits and "restore confidence." Government stimulus, these folks argued, would only increase debt loads, which were already alarmingly high. If governments did not cut spending, countries would soon cross a deadly debt-to-GDP threshold, after which growth would be permanently impaired. The countries would also be beset by hyper-inflation, as bond investors suddenly freaked out and demanded higher interest rates. Once government spending was cut, this theory went, deficits would shrink and "confidence" would return.

This debate has not just been academic.

Those in favor of economic stimulus won a brief victory in the depths of the financial crisis, with countries like the U.S. implementing stimulus packages. But the so-called "Austerians" fought back. And in the past several years, government policies in Europe and the U.S. have been shaped by the belief that governments had to cut spending or risk collapsing under the weight of staggering debts.

Over the course of this debate, evidence has gradually piled up that the "Austerians" were wrong. Japan, for example, has continued to increase its debt-to-GDP ratio well beyond the supposed collapse threshold, and its interest rates have remained stubbornly low. More notably, in Europe, countries that embraced (or were forced to adopt) austerity, like the U.K. and Greece, have endured multiple recessions (and, in the case of Greece, a depression). Moreover, because smaller economies produced less tax revenue, the countries' deficits also remained strikingly high.

So the empirical evidence increasingly favored the Nobel-prize winning Paul Krugman and the other economists and politicians arguing that governments could continue to spend aggressively until economic health was restored.

And then, last week, a startling discovery obliterated one of the key premises upon which the whole austerity movement was based.

An academic paper that found that a ratio of 90%-debt-to-GDP was a threshold above which countries experienced slow or no economic growth was found to contain an arithmetic calculation error.

Once the error was corrected, the "90% debt-to-GDP threshold" instantly disappeared. Higher government debt levels still correlated with slower economic growth, but the relationship was not nearly as pronounced. And there was no dangerous point-of-no-return that countries had to avoid exceeding at all costs.

The discovery of this simple math error eliminated one of the key "facts" upon which the austerity movement was based.

It also, in my opinion, settled the "stimulus vs. austerity" argument once and for all.

The argument is over. Paul Krugman has won. The only question now is whether the folks who have been arguing that we have no choice but to cut government spending while the economy is still weak will be big enough to admit that.

The discovery of the calculation error, after all, came only a few months after the United States voluntarily cut spending through a government "sequester." This sequester is hurting the U.S. economy, and it is also depriving American citizens of some basic services--like a fully staffed air-traffic control system--that most first-world countries regard as a given in a developed economy. And with America's government deficit already shrinking (thanks to the rollback of some tax cuts and a modest increase in taxes), it is now even clearer that the sequester did not have to be adopted.

Yes, at some point, the American government needs to come together and figure out a smart long-term plan for containing healthcare and military costs, which are the real budget-busters in our government spending. That long-term plan does not need to be adopted immediately, however.

And in the meantime, for the sake of the country, it would be nice if our government came together and agreed to restore full funding for basic services.

Because the current state of government dysfunction in the United States is not just economically harmful. It is also embarrassing, depressing, and based on a premise that is now demonstrably false.

But is the anti-"big-government" crowd finally going to capitulate and admit that their entire argument was based on a theory that has now been refuted both on theoretical (bad math) and empirical grounds? Of course not. Who needs math? Who needs evidence. Ya just gotta believe.