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12-19-2012, 06:48 AM   #1
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LAST Austerity bashing thread

God Save the British Economy


QuoteQuote:
Today these two approaches offer a crucial case study and perhaps a breakthrough in an age-old economic argument of austerity versus stimulus. In the past few years, the United States has experienced a steep downturn followed by a steady (though horrendously slow) upturn. The U.S. unemployment rate, which shot up to 10 percent at the end of 2009 from 4.4 percent in mid-2007, has now dropped steadily to 7.7 percent. It might be a frustrating pace, but it’s enough to persuade most economists that a recovery is under way.

The British economy, however, is profoundly stuck. Between fall 2007 and summer 2009, its unemployment rate jumped to 7.9 percent, from 5.2 percent. Yet in the three and a half years since — even despite the stimulus provided by this summer’s Olympic Games — the number has hovered around 7.9. The overall level of economic activity, real G.D.P., is still below where it was five years ago, too. Historically, it’s almost unimaginable for a major economy to be poorer than it was half a decade ago. (By comparison, the United States has a real G.D.P. that is around a half-trillion dollars more than it was in 2007.) Yet austerity’s advocates continue to argue, as Cameron has, that Britain’s economic stagnation shows that the government is still crowding out private-sector investment. This, they say, is proof that austerity is even more essential than was first realized. Once the debts have been paid off and the euro zone solves its political problems, the thinking goes, the British economy will bounce back quickly.

When I visited Posen this summer, he refused to publicly criticize a sitting administration’s policies, but every time the topic of austerity came up, he was unable to hide his frustration. Posen’s term ended in August, and his subsequent nondisclosure agreement expired last month. Now he wants to persuade everyone he can that Britain should abandon its austerity program. He says that he has a solution that would quickly return healthy economic growth. His critics say that his prescription would bring about another financial panic. But whether you think he’s right or wrong depends on what you make of the data. ...............

Adam Posen says that the challenge of economic policy at a time when the economic data are so unlike anything that has come before is that no one can be sure what will work. But he says that’s no reason for inaction. Our options, he argues, can be divided into three general categories: austerity, stimulus and doing nothing. He, like an increasing number of mainstream economists, believes we can now scratch austerity off the list. Doing neither stimulus nor austerity — which is basically what’s happening in the United States — isn’t working, either. So, he says, let’s try stimulus, even if we don’t know for sure it’ll do the job. Now he wants to persuade America that it’s the best shot it’s got.
http://www.nytimes.com/2012/12/23/magazine/god-save-the-british-economy.html...anted=all&_r=0


Posen urges Coalition to ditch austerity measures
Self-defeating strategy has left economy malnourished, says former MPC man

QuoteQuote:
"For two and a half years, the Coalition Government's economic policies have focused on the wrong narrow goal, been self-defeating in pursuit of that goal, and in so doing have eaten away at British economic capabilities and confidence. It is past time for me, and far more importantly for the Chancellor, to say so."

Mr Posen attacked the Coalition for failing to encourage capital investment, in contrast to international rivals such as Germany, France, Japan, and the United States. He called for the Chancellor to stimulate the supply side of the economy as well as supporting demand through major infrastructure projects.

He set out a five-point plan to revive the economy with "aggressive" tax credits for business investment, which has fallen far below the expectations of the Government's Office for Budget Responsibility fiscal watchdog. He also called on the Government to create a far more diverse credit market to enable small businesses to rely on more sources of funding than just banks.

He also labelled the lack of competition in the banking sector in the UK market as "extraordinary", as well as calling for the creation of a small business bank. The Chancellor should ratchet up spending on major infrastructure projects, Mr Posen argued.

He warned: "It is not enough for Messrs Cameron and Osborne to claim that they have done what they promised to do. Their policies have left the British economy malnourished, and indeed made parts of it quite ill. There are alternatives available, and the British Government should switch to these now."

The economist also had a broadside for the Bank for "scaremongering" over the need for spending cuts, adding that the committee risked feeding "the policy defeatism and austerity cycle" damaging the economy.
good thing we don't do THAT here.........................

QuoteQuote:
The Treasury declined to comment on Mr Posen's analysis, although sources pointed to the Chancellor's temporary two-year rise in investment allowances to 250,000 in the autumn statement.

* Spencer Dale, the Bank of England's chief economist, warned of more wage pain to come after official figures showed average growth in salaries remains at 1.8 per cent. This is in effect a real-terms cut for workers when the consumer prices index inflation benchmark stands at 2.7 per cent.

Mr Dale said wages had fallen 15 per cent in real terms compared with the pre-crisis trend. He warned: "Although real wages have fallen sharply, it seems likely there is still a little further to go in adjusting to the shocks that we have seen so far."
Yippee... THAT will help an economy.................(someones economy)

Just for fun:



Last edited by jeffkrol; 12-19-2012 at 07:04 AM.
12-19-2012, 08:35 AM   #2
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Ok, let's make this a good one. NY Times:
http://www.nytimes.com/2012/12/19/business/say-goodbye-to-the-government-und...lan.html?_r=1&
QuoteQuote:
The truth is that both the president and House Republicans have agreed to shrink a critical part of the government to its smallest in at least half a century. This is regardless of which trillion-dollar proposal gains the upper hand.

Consider the president’s budget, which by law must include projections of taxing and spending over the next decade. Loath to raise taxes on the middle class yet unwilling to cut deeply into the budgets for Social Security or Medicare, the president and his advisers proposed cutting the discretionary part of the budget devoted to everything except defense and other security agencies to 1.7 percent of economic output by 2022, down from 3.1 percent last year.

This is not irrelevant spending. It accounts for every government expenditure except entitlements, security and interest. It pays subsidies for higher education and housing assistance for the poor. It finances the National Institutes of Health and the Food and Drug Administration. It pays for the Federal Emergency Management Agency and training programs for unemployed workers. Without such spending, the government becomes little more than a heavily armed pension plan with a health insurer on the side.

House Republicans are equally if not more frugal. The House budget resolution, the Republicans’ last detailed proposal about taxes and spending, refers to discretionary spending except national defense, a broader category than that considered in the president’s budget. They too cut it to the bone: to about 2.1 percent of economic output in 2022, from 4.3 percent last year.

To put it in perspective, this would cut the government’s civilian discretionary budget to the smallest it has been as a share of the economy at least since the Eisenhower administration — when a quarter of the population lived under the poverty line, thousands of children still contracted polio each year and fewer than one in 12 Americans older than 25 had a college degree. According to estimates by the Congressional Budget Office, even going over the so-called fiscal cliff would not cut it as deeply.

“This is no way to run a $3.7 trillion enterprise,” said a Columbia University economist, Jeffrey Sachs, referring to the size of the federal government. “It is President Obama’s responsibility to put forward a plan and give us a comprehensive view of what is the strategy.”

The numbers for civilian discretionary spending shrink so much under both the president’s and the House Republicans’ budget proposals that even those who wrote them seem to have a hard time believing they will come true.

Rather than specify how all the required cuts would affect spending on specific programs, like housing assistance, Pell grants or the National Science Foundation, the budget writers put hundreds of billions of unspecified savings under a hazy budget line called “allowances” — which essentially means cuts to be determined later, in the course of the decade. They are what Richard Kogan, a tax expert at the Center on Budget and Policy Priorities, calls “the magic asterisk.”

President Obama’s budget has almost $200 billion worth of allowances. The House Republican proposal included almost $1 trillion. “In my personal opinion, the defense and nondefense spending caps won’t hold until 2021,” Mr. Kogan said. “At some point the deficit will look small enough and the pressure to provide services and benefits will appear large enough that Congress will find ways around them.”

Mr. Sachs’s critique comes from the president’s left, where there is widespread belief that the nation needs more tax revenue to avoid sacrificing important government programs. But economists to the president’s right share the concern over an opaque budgeting process that fails to address the central issue of our time.

“Either we reform entitlements or we accept large tax increases or we crowd out everything else the government does,” noted R. Glenn Hubbard, the dean of Columbia Business School, who advised the Republican nominee Mitt Romney during the last presidential campaign. “People need to have that discussion.”

We’ve had this debate several times before. President Franklin Roosevelt’s New Deal was based on the proposition that government should play a much bigger role to guarantee Americans’ economic security. In the 1960s, President Lyndon Johnson asserted the government’s responsibility to alleviate the plight of the poor and disenfranchised. Three decades ago, President Ronald Reagan changed course, ushering in an era of government retrenchment that persisted pretty much unabated until we were walloped by the Great Recession.

Today, our public finances are caught between these two appetites: our preference for lower taxes and our unwillingness to accept cuts to entitlements set up in our bygone Big Government era. The average federal income tax rate is at its lowest in more than 30 years. Still, nearly half of all Americans say their income taxes are too high. And most Americans do not want government to cut spending on Medicare or Social Security.

Unwilling to confront voters with the tension between these choices, it is perhaps natural that our leaders would take the ax to discretionary spending outside of defense, the easiest part of the budget to cut. It might also explain why they are so loath to tell us what they are doing. But this reticence does not make for a fruitful debate about the role of government in our future.

12-19-2012, 08:40 AM   #3
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QuoteOriginally posted by jeffkrol Quote
LAST Austerity bashing thread
Not necessarily, see posts 91 through 94.

Last edited by les3547; 12-19-2012 at 09:01 AM.
12-19-2012, 01:24 PM   #4
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Sing along, boys and girls: Grand Deal to Avoid Fiscal Cliff Just About As Bad!
This Emerging Fiscal Cliff Deal Could Push the Economy Into Recession | The Exchange - Yahoo! Finance
QuoteQuote:
Now in the names of fairness and fiscal responsibility, President Obama and Speaker Boehner are cooking up a deal to avert the fiscal cliff that could easily thrust the economy into a deep recession.

Taxes are going up.

Just about everyone agrees the two percentage point temporary reduction in the payroll taxes will lapse—it is too much of a drain on the solvency of Social Security. That will raise about $125 billion in revenue for 2013.

It is now apparent the Bush era income tax reductions for many wealthy families will not be extended. Mr. Obama is now willing to settle for raising rates on families earning over $400,000, whereas Mr. Boehner wants to set the threshold at $1 million. The cutoff that will likely emerge is about $500,000 and would generate another $50 billion a year in income taxes.

Dangerous Compromises

The Administration would also like to limit the value of itemized deductions and other tax breaks, including the tax-free status of municipal bonds. Mr. Boehner is inclined to go along, and if he accepts the President’s framework, it should generate another $50 billion in income taxes.

Republicans want spending cuts that at least match tax increases. The question is what tax increases will they get matched—$100 billion in additional income taxes or that sum plus the additional $125 billion obtained by letting the payroll tax holiday lapse?

Given how stubbornly the President defends the rapid growth in entitlements and his desire to extend long-term unemployment benefits, the likely target for Republicans is $100 billion in cuts from permanent reductions in entitlements and some trimming in other domestic areas and defense.

The President also wants some jobs creating temporary infrastructure spending in the range of $50 billion.

Get Ready for GDP Growth to Fall

Hence, overall taxes will rise about $225 billion and spending will be cut by about $75 billion, subtracting at least $300 billion from GDP in 2013—or nearly 2 percent, and owing to the ripple effects through the economy, about $450 billion from GDP in 2014.
The economy was growing at two percent until nervousness about the fiscal cliff recently dampened business spending and hiring.


Though some economists were optimistic that the housing recovery and stronger auto sales could spell better times, with such a new large drag on the economy, GDP growth in 2013 and 2014 will likely be below 2 percent for the next several quarters.

At that pace, businesses can easily handle most new demand by increasing productivity, and even trim payrolls to further boost profits. Hence, growth below 2 percent for several quarters could easily instigate a negative feedback cycle—layoffs cut household income and consumer spending, and in turn, the latter begets more layoffs.

U.S. the New Europe?

What is going on in Washington these final weeks before the New Year is the kind of fiscal fundamentalism that is making Greece, Italy and Spain economic train wrecks.

With unemployment so high, real wages falling and so many folks working part time for lack of full time work, the unemployment rate could easily surge into the teens, and no amount of stimulus spending could bring it back.


Clearly, Messrs. Obama and Boehner know a lot about getting elected but on economics they are spread thin. Like the sorcerer’s apprentice, they are courting disaster.




12-19-2012, 01:36 PM   #5
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QuoteOriginally posted by les3547 Quote
Not necessarily, see posts 91 through 94.
Well Economics can be discussed in neither political nor religious terms............How about them Mises people...........
12-19-2012, 03:04 PM   #6
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Stupid Party vs. Evil Party?

QuoteQuote:
Though the alleged "fiscal cliff" negotiations are ongoing, it appears the Republicans have yet again been duped by Barack Obama and the Democrats. When evil matches up against stupid, evil tends to win.

(Editorial: )

In this case House Speaker John Boehner has offered tax increases on incomes over $1 million in return for spending cuts that are essentially "to be determined." In short, Boehner offered Obama the one good thing anymore about the Republican brand (the Party's reputation for being viscerally opposed to tax increases) in return for spending cuts that anyone with a pulse knows will never materialize; that, or they'll be erased by bursts of spending elsewhere.

About spending cuts, it should first be acknowledged that they are stimulative. Supply-siders are no doubt correct that marginal reductions in tax rates provide more rocket economic fuel than do reductions in spending, but for some of them to presume that wasteful government spending is prized by the electorate absent tax cuts is for those same individuals to ignore basic economics.

(Editorial: WHA???)


Put simply, big government is itself austerity for government spending to varying degrees depriving the more productive private sector of limited capital. It's no mistake that the biggest recession most of us have never heard of (1920-21) is largely unknown precisely because Congress wisely slashed the federal spending burden from $6 billion to $3 billion on the way to a major economic boom. This was done without any major changes to the tax code. Spending cuts work when it comes to boosting economic growth.

The problem now is that there's not much definitive about the supposed cuts. Unless immediate they rarely ever happen given the tautological reality that future Congresses will not allow themselves to be hamstrung by deals made by past Congresses.

After that, implicit in the notion of future spending cuts is a static world free of global uncertainty, free of natural disasters, and free of poorly run banks and car companies suddenly in need of emergency cash necessary to "save" the financial system. Without getting into the U.S.'s wrongheaded role as the world's policeman, or into the similarly wrongheaded notion that local disasters should have national spending implications, or into the tragically wrongheaded view that commercial failure should be cushioned by the unwise hand of government, it's inevitable that the alleged spending cuts of tomorrow will essentially be sterilized by the war, natural disasters and financial crises that serve as food and water for the ever growing state.

As for Boehner's proposal to "only" raise taxes on incomes over $1 million, a proposal the Wall Street Journal's editorial page very oddly proclaimed to be "better than the scheduled increase on incomes above $200,000 a year", nothing could be further from the truth. Boehner of course thinks he's being clever here, that very few Americans earn over $1 million so we can raise taxes on them without tears and without a hit to growth. What a laugh, that is unless, you're poor, middle class, or in search of a job. Then Boehner's tax-the-rich scheme is not so funny.

Indeed, to raise taxes on top earners is to by definition lower the wages and job opportunities of the poor and middle class. Lest we forget, the rich, though very much a tiny minority, have by virtue of being wealthy the majority of disposable income which, if banked or invested, is lent to tomorrow's Microsofts and Intels. If that's not clear enough, there are once again no companies and no jobs without investment, and that small sliver of Americans earning over $1 million has the lion's share of funds for investment.

It's also true that $1 million earners and wannabe $1 million earners are the risk takers. They're the vital few, the economic activists as it were whose exploits make us healthier, more efficient and productive (think higher wages), and who are most likely to employ us. The problem now is they've been told yet again by the Party of Evil and the dependably clueless Party of Stupid that successful innovation and investment in same will be hit first and hardest by the tax man.

(Editorial: I'd be laughing now only this scares me)

The above in mind, and from a purely economic point of view, the Boehner compromise provides us with a scenario that is worse than falling off of the cliff. At least with the cliff dive we were going to get some immediate spending relief that would somewhat mitigate the higher taxes (prices) placed on work.

Also, if the Republicans had held their ground and been forced off of the cliff, they would still be the Party opposed to tax increases. In this scenario President Obama would own the tax increases, and for having opposed them, the Republicans would have ensured their hold on the House (economies tend to do better amid gridlock) going into the 2014 elections. With the Boehner compromise, the Republicans will be signing off on the tax increases that will do the most to reduce growth, the spending cuts promised will of course never materialize, and then in 2014 a tarnished GOP brand will have to fight for the House with a greatly weakened, tax-increase dirtied hand.

Forgotten by John Boehner is that the electorate handed his GOP the House to ensure that tax-averse Republicans would hold the line on tax increases. Instead, Boehner and the stupid Party appear ready to cave not just on any tax increase, but a tax hike that will easily do the most to harm the economy at a time when it's still gasping for air. Welcome back to the minority, Republicans.

RealClearMarkets - Rep. Boehner's "Cliff" Deal Will Return Stupid Party to the Minority
12-19-2012, 03:23 PM   #7
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QuoteOriginally posted by Nesster Quote
LOOK.. Unicorns....................................

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John Tamny is editor of RealClearMarkets and Forbes Opinions, a senior economic adviser to H.C. Wainwright Economics, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). He can be reached at jtamny@realclearmarkets.com.
Fun comment:

QuoteQuote:
Epiminondas

In point of fact, the Republican party has been the Stupid Party since 1948, and, with the sole exception of Ronald Reagan, have never had a leader besides him who knew how to negotiate with the Evil Party. The Bush Family simply vacated the culture war to the Dems, which left the Republicans with the burden of going out and campaigning on bloodless economic and tax issues. And that has meant sitting around and waiting on the electorate to tire of the Dem in the White House or until the economy turns sour. Well, the economy was sour for four years under Obama and here we are. Bush 2 had eight years to demonstrate that the Republicans were more trustworthy with taxes, and what happened? They spent their goodwill on pork. They grew government more rapidly than any administration, including LBJ. Why would the public trust Republicans to do the right thing after the Bush let-down? We conservatives were abandoned years ago. Quite frankly, we would just as soon await a meltdown as to "go gentle into that good-night" of socialism.

Last edited by jeffkrol; 12-19-2012 at 03:30 PM.
12-20-2012, 12:58 PM   #8
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...back to the UK:
George Osborne's Journey: From Austerity to Cruelty : The New Yorker
QuoteQuote:
Over at our Daily Comment blog, I’ve put up a longer post on the latest failure of austerity economics: the admission by George Osborne, the British Chancellor of the Exchequer, that, after two and half years of furious budget-cutting, he’s still failing to meet his own fiscal targets.

One thing I didn’t mention in that piece is that Osborne isn’t merely reaffirming his commitment to the deflationary economics of the early nineteen-thirties. He’s coupling it with an embrace of Reaganite trickle-down economics of the nineteen-eighties and the even harsher Benthamite economics of the eighteen-thirties. Earlier this year, he cut the top tax rate from fifty per cent to forty-five per cent, claiming that Britain’s highest earners needed incentivizing. Now, with roughly one in twelve working-age Britons out of a job, he’s cutting the value of unemployment benefits—a move that harkens back to the infamous Poor Law of 1834, which was designed to stigmatize paupers and vagrants.
Cutting the value of unemployment benefits won’t make much of an impact on the deficit. The savings will amount to about four billion pounds in a total budget of about seven hundred billion pounds
----

About the only economic justification for these sorts of benefit cuts is that they render the labor market more “flexible,” a codeword for making the poor and the unemployed more eager to seek work and accept low wages. But the British labor market is already pretty flexible, and one of the few bright spots over the past couple of years has been a steady rise in total employment.

Osborne’s primary motivation wasn’t economics; it was politics. With Britain’s “lost decade” about to enter its sixth year, and the Conservatives trailing Labour in the polls, he deemed it necessary to do a bit of rabble rousing, appealing to the base instincts of middle-class voters who resent paying taxes to support the unemployed, while also throwing some meat to the Fleet Street jackals who are forever banging on about “scroungers” on the dole. The cut in benefits was “about being fair to the person who leaves home every morning to go out to work and sees their neighbor still asleep, living a life on benefits,” Osborne declared. “As well as a tax system where the richest pay their fair share, we have to have a welfare system that is fair to the working people who pay for it.”

For a time, Osborne, who hails from the Anglo-Irish Ascendancy, appeared to be an ill-informed aristocratic dilettante posing as an economic authority. Now, he has revealed himself as a cynical and cruel politician, who, in order to distract attention from the failure of his policies, is heaping more financial misery on the poor. Good going, fella!

Read more about the failed austerity here: It's Official: Austerity Economics Doesn't Work : The New Yorker

12-20-2012, 01:11 PM   #9
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