Prior to law school, Hale Stewart was a bond broker with Vining Sparks, where his clients were comprised of mutual funds, insurance companies and money managers. He graduated from the South Texas School of Law in 2003. He continued his education at the Thomas Jefferson School of Law in 2007 where he obtained an LLM in domestic and international taxation, graduating Magna Cum Laude. He has three certifications from the American Academy of Financial Management: Chartered Trust and Estate Planner, Chartered Wealth Manager and Chartered Asset Manager. Mr. Stewart is also a member of the AAFM’s Board of Standards. He is the author of the book U.S. Captive Insurance Law and is currently working on his Ph.D..

~~~

From the Financial Times:

“We can only win back confidence if we bring down excessive deficits and boost competitiveness,” he said. “In a such a situation, consolidation might inspire confidence and actually help the economy to grow.”

The above statement shows why austerity is simply one of the dumbest policies on the planet.  First, The EU region was already growing at a slow rate when people started to talk about austerity.  Consider the following chart:

Since the end of the recession, the best seasonally adjusted annual rate of growth (SAAR) is 2.4%.  But that figure is really an outlier; looking at the chart we see that the rate of growth can be broken down into two time periods.  The first — the five quarters coming out of the recession — growth was actually OK; it averaged 1.78% while the median number was 2%.  But since then — when the continent decided to implement austerity — the growth rate slowed.  Either way, growth was not strong enough for the economy to achieve “escape velocity” — a rate of growth that creates a self-sustaining, private sector led growth rate over 2.5%.  As a result, unemployment hasn’t dropped, but instead has risen:

Coming out of the recession, we see increased unemployment — which is to be expected, as unemployment is a lagging indicator.  However, since then unemployment hasn’t dropped, indicating that the economy hasn’t hit that critical growth level where employment picks up.  In fact, we see unemployment increase overall,  

INDICATING THAT AUSTERITY IS FAILING.

So — what was the policy response?  Cut spending in the hopes that would “inspire confidence” so that the economy would grow.  The problem with this is simple.  It completely runs counter to what is needed — spending.  Again, consider the GDP equation

C+I+X+G=GDP

Consumer spending and investment drop in a recession and in the quarters coming out of a recession.  Exports help, but they’re not the predominant component of GDP.  That leaves government spending to pick-up the slack.  And there is plenty of room to do this.  Consider the following chart of the EU debt/GDP level:

It currently stands at 85% — hardly crisis levels.

And we haven’t even mentioned the worst part yet: the overall economy is now probably in a second recession, largely caused by slowing demand, caused by (drum roll please) austerity!  And, worst of all, the economy may be entering a negative feedback loop: low demand leads to more unemployment which leads to lower demand … you get the idea.  

As for the whole “confidence will return” argument: businesses don’t invest in slow-growth environments when there is obviously slack demand.  Put another way, ask yourself this question: would you rather sell your product into a market that has 2% SAAR or 3.5% SAAR?

Also consider this from the NY Times:

With political allies weakened or ousted, Chancellor Angela Merkel’s seat at the head of the European table has become much less comfortable, as a reckoning with Germany’s insistence on lock-step austerity appears to have begun.

“The formula is not working, and everyone is now talking about whether austerity is the only solution,” said Jordi Vaquer i Fanés, a political scientist and director of the Barcelona Center for International Affairs in Spain. “Does this mean that Merkel has lost completely? No. But it does mean that the very nature of the debate about the euro-zone crisis is changing.”
A German-inspired austerity regimen agreed to just last month as the long-term solution to Europe’s sovereign debt crisis has come under increasing strain from the growing pressures of slowing economies, gyrating financial markets and a series of electoral setbacks.
Spain officially slipped back into recession for the second time in three years on Monday, after following the German remedy of deep retrenchment in public outlays, joining Italy, Belgium, the Netherlands and the Czech Republic. In the Netherlands, Prime Minister Mark Rutte handed his resignation to Queen Beatrix on Monday after his government failed to pass new austerity measures over the weekend.
The political upheaval drove stock markets on the Continent sharply lower, with Germany’s DAX index finishing the day down 3.4 percent. The sell-off in Europe dragged American indexes down around 1 percent. A survey of European purchasing managers showed an unexpected plunge in confidence this month.
The Netherlands, a staunch supporter of the German position, became the latest European country forced into early elections by the European crisis, just one day after the first round of presidential voting in France raised the possibility that the incumbent, Nicolas Sarkozy, would be unseated by his Socialist challenger, François Hollande, in a runoff election.

 From trading floors to polling stations to the streets of cities across Europe, the message appears increasingly to be that countries cannot cut their way to fiscal health. They need growth, too. In recent months, powerful voices have joined the chorus, including those of the managing director of the International Monetary Fund, Christine Lagarde, and Italy’s prime minister, Mario Monti. Treasury Secretary Timothy F. Geithner has called repeatedly for Europe to defer budget cutting in favor of some form of stimulus spending

OK, so people have put their hand on the stove, turned the heat on an learned that its hot.  Wow — hardly a new concept to people who read this blog, but obviously to people who haven’t learned a damn thing from history.  Anyway, it’s good to see sentiment changing, but we’re still not out of the woods.

See also this post at Brad DeLong, which links to Professor Krugman.

 

PART II AFTER THE JUMP

UK In Technical Recession; Or, No REALLY, Austerity is an Incredibly Stupid Idea

I wrote the first 1/2-2/3 of this story over the weekend,hence the reason for the somewhat backwards presentation of material.  However, it goes without saying (so I’ll go ahead and say it), yet another country is learning a lesson the hard way.

It’s another successful austerity program!

From the April 4-5 meeting minutes of the Bank of England:

According to the third ONS estimate, GDP had fallen by 0.3% in the fourth quarter of 2011, 0.1 percentage points weaker than reported in the second release. The ONS had also revised down the path for household consumption during 2011 such that the level at the end of the year was 0.5% lower than previously estimated. Together with an upward revision to households’ income, this implied a sizable revision upwards to the estimated household saving rate. This now appeared to have fallen back only modestly since its peak in 2009.

 

The top chart shows total GDP, which is still below pre-recession levels.  Also note there were two years of decline (2009 and 2010) with a slight increase in 2011.  The second chart shows the quarter to quarter growth, which shows that in three of the last give quarters UK GDP has shrunk.

The good news in the above statement is the increased savings rate which means two things going forward:

1.) Consumers have increased spending power if they choose to use it, and
2.) The deposit base is increasing, which increases bank reserves.  This can lead to an increase in overall credit, assuming there is an increase in demand.

In line with the usual pre-release arrangements, the Governor informed the Committee that manufacturing output had fallen by 1% in February and that output in January had been revised down. This was somewhat at odds with the more positive message from the corresponding business surveys. The data on service sector output in January were consistent with solid growth in services in the first quarter of 2012. The CIPS/Markit indices for manufacturing, services and construction had all risen in March and the composite expectations balance had reached its highest level in over a year. The BCC Quarterly Economic Survey had recorded rising sales balances for both manufacturing and services in the first quarter. And the Bank’s Agents had reported a broad-based, if still modest, pickup in output growth over the previous three months. Consistent with these reports, household and corporate broad money growth had increased in January and February on a three-month annualised basis.

 

The above chart shows the YOY percentage change in UK Industrial production, which has been negative for the few months.  The divergence between the Markit survey and IP numbers can be explained by looking at the internals of the Markit report:

In short, UK manufacturing increased because it filled old orders and replenished inventories.  In addition, the UK’s primary market — the EU — is slowing down.  The Market economists comments highlight the basic conclusion to draw: manufacturing won’t be a drag, but nor will it be a strong contributor to the economy in the first quarter.

For the second month in a row, the ONS had reported a particularly large contraction in construction output, which it estimated to have fallen by around 12% in each of December and January on a non-seasonally adjusted basis. Even if activity were to rise strongly in February and March, measured construction output was likely to show a very sharp fall in the first quarter as a whole. This was at odds with other indicators of construction activity from CIPS/Markit, Experian and the Bank’s Agents, which had generally pointed to much smaller declines around the turn of the year. Although construction orders had been weak, the Construction Products Association was expecting only a modest reduction in output during the year as a whole.

Here are the relevant data points from Markit:

 

Only time will tell who is right.  However, an increase in construction spending would be most welcome as this has an ancillary economic effect down the line.

In the absence of revisions to the latest vintage of data, the contraction in measured construction output was likely to depress measured GDP growth significantly in the first quarter. Indeed, it was possible that the ONS’s preliminary estimate for GDP could record a fall in aggregate output. In the second quarter, some activity was likely to be lost because of the extra bank holiday associated with the Queen’s Diamond Jubilee celebrations. With output having already contracted in the fourth quarter of last year, the Committee could not rule out the publication of official data showing GDP falling for three successive quarters. Nevertheless, the Committee’s judgement was that, abstracting from both the puzzling weakness in measured construction output and the impact of one-off factors, the economy appeared likely to be expanding, albeit only modestly, in the first half of the year

And now, just to add the icing on the cake, we learn that the UK is in a technical recession (from the office of national statistics)

  • The chained volume measure of GDP decreased by 0.2 per cent in Q1 2012
  • Output of the production industries decreased by 0.4 per cent in Q1 2012, following a decrease of 1.3 per cent in the previous quarter
  • Construction sector output decreased by 3.0 per cent in Q1 2012, following a decrease of 0.2 per cent in the previous quarter
  • Output of the service industries increased by 0.1 per cent in Q1 2012, following a decrease of 0.1 per cent in the previous quarter
  • GDP in volume terms is flat in Q1 2012, when compared with Q1 2011

As explained by Reuters:

Britain’s economy has fallen into its second recession since the financial crisis after an shock contraction at the start of 2012, heaping pressure on Prime Minister David Cameron’s government as it reels from a series of political missteps.

Britain’s Conservative-Liberal Democrat coalition has seen its support crumble after weeks of criticism over unpopular tax measures in last month’s budget, and is under further pressure from revelations about its close links with media tycoon Rupert Murdoch.

With local elections taking place on May 3, there could hardly be worse timing for Wednesday’s news from the Office for National Statistics that Britain’s gross domestic product fell 0.2 percent in the first quarter of 2012 on top of a 0.3 percent decline at the end of 2011.

Most economists had expected Britain’s economy to eke out modest growth in early 2012, but these forecasts were upset by the biggest fall in construction output in three years, coupled with a slump in financial services and oil and gas extraction.

For a good summation of the report and what this means, here is a link to the FT Money Supply Blog
 

Category: Economy, Really, really bad calls, Taxes and Policy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

93 Responses to “People Are Finally Figuring Out: Austerity is Stupid”

  1. machinehead says:

    ‘Consider the following chart of the EU debt/GDP level. It currently stands at 85% — hardly crisis levels.’

    Says who? Rogoff and Reinhardt, who surveyed many decades worth of data in their book, concluded that 90% of GDP is the average ratio which precedes a crisis. And for many countries with a long rap sheet of prior defaults, the threshold can be as low as 50% of GDP, they added.

    The Hale Stewarts of this world just don’t want to admit that the fiat currency, tax-and-spend economic model pursued by the rich West since 1971 has FAILED.

    Austerity won’t fix it — at least not quickly, and not without pain. But more deficit spending just means digging a deeper hole with a broken model.

    Ultimately, only a sound monetary regime will cure the rot. Today’s Fed meeting drama — in which markets waited breathlessly for the pronouncements of clueless central planners — illustrates vividly both why the system is broken, and why ‘more of the same’ status quo cannot possibly fix it.

  2. HarleyHoward says:

    The entrenched elites of the world, both political and financial, have formed a gigantic circle to blow smoke up each others asses! THIS TIME IS NOT DIFFERENT!
    The only way to correct this disaster is to get them all out, restore reason and responsibility, deleverage and default, reboot and start over. All of the idiots that created this mess should – must lose everything they have sucked out of the system in the process. NO MORE BAILOUTS!
    Common Sense from the Heartland – http://howardwemple.com.

  3. Joe Friday says:

    People Are Finally Figuring Out: Austerity is Stupid“:

    HalleFRICKINujah !

    Now, who in the MSM will inform the American people that this massive failure of policy is the CORNERSTONE of the economic agenda that Willard Romney and the Congressional Republicans want to enact into law, along with even MORE failed tax cuts for the Rich & Corporate ?

  4. Frilton Miedman says:

    Machine, though I respect Rogoff’s opinion (even if he has the personality of a houseplant)

    It’s a given that a large percent of recessions are preceded by high debt/GDP ratio’s.

    It’s also a given that all car accidents are preceded by a driver with a foot on the accelerator.

    To assume that austerity is necessary solely based on the statistic of 90% debt to GDP is always going to induce recession, is assuming all car accidents can be avoided by not putting a foot on the accelerator.

    Instead of flatly looking at debt alone, we should be looking at the specifics.

    We have seen specific trends over the last 3 decades that exactly coincide with the credit driven event that got us here.

    The extremes in both consumer debt & government debt parallel wealth/disparity increases for the top marginal wage earners.

    I don’t have to role play as an OWS protester to get this point across, a brief read of M. Friedman s “Permanent Income Hypothesis” would explain why as it relates to consumption vs accrued wealth.

    $100 in the hands of a billionaire will stagnate, the same $100 is completely spent on staples for a family living on $30K.

    If Friedman were alive today, I suspect he too would be doing an about face – exactly the same way Greenspan has done.

    Greenspan openly admitted that deregulation was at the root of the crisis in Congressional testimony, he has also openly pleaded with political (Tea Party) leadership to eliminate the Bush tax rates – the Ayn Rand Protoge himself has abandoned Atlas to shrug alone.

    It’s time to start incorporating common sense into economics, stop the “rock star” worship of weirdly contrarian ideologues & sci-fi writers.

  5. brianinla says:

    What a bunch of junk. It’s the current deficit spending policy that led to 93% of the income gains in 2010 to go to the top 1%. What we’re seeing now is federal and local governments trying to manage their out-of-control debt by getting back some money from the bottom up (reducing services and raising fees and taxes).

    When we’re at $20 trillion in debt there will still be tools of the establishment claiming we need even more debt to fix the problem. It’s a never-ending story with them.

  6. philipat says:

    Yes, let’s just keep on “Stimulating” the economy without any financial discipline and profligate spending. Is it any wonder the Politicians love these pseudo-Keynsian Guys.

    This time it IS different. The bill is overdue.

  7. PeterR says:

    Austerity may be Stupid, unless there is something worse.

    philipat just above may have it right?

    “The bill is overdue.”

    Junkies will always argue in favor of their favorite “syrup.”

    For Western Capitalism, the syrup appears to be “Mo’ Money!”

    Sad.

    Nero is tuning up her fiddle in Rome IMO.

  8. philipat says:

    From ZH on the same subject:

    http://youtu.be/pES9C7fX_Co

  9. uzer says:

    austerity isn’t stupid by itself, but austerity to pay for massive, systemic, pernicious, egregious financial fraud is so far beyond stupid, Hubble doesn’t even recognize it.

  10. Frilton Miedman says:

    Oh, I dunno boys, I hate to break-up the angry partisan melodrama and potentially work a brain cell…but

    It’s all in the details -

    Where, for example, British healthcare costs $3500 per person, and our costs are $8500 per person, the math for 315 million Americans comes to $1.5 TRILLION per year that we outspend per person.

    I know, I know, it’s “Socialism” and “corporations are people”, but begger’s can’t be choosers….after all, this is a crisis – right?

    Then,

    Imagine, Bowles -Simpson’s finding that we lose $1 TRILLION per year in unnecessary, ineffective tax loopholes…what if we only gave “job creators” tax cuts when they actually “create jobs”?

    Imagine that!!

    Imagine, of that $1 trillion per year, if we were able to generate $500 billion/year…and on top of that, we were actually “creating jobs” with “job creating” ta cuts?

    Go figure!

    I know, I know…it’s more fun to belittle, engage in angry blame or exude “intelligent” sounding criticism…but just imagine – if we stopped name calling, blame games and actually focused on the details of where the money is, what it’s spent on and how to repair it?

    Imagine that.

  11. Francisco Bandres de Abarca says:

    It’s a bit tough not to snicker each time I see this equation and the end to which it always seems to be employed in an argument C+I+X+G=GDP.

    Who shall pay for ‘G’? Ah, circularity.

    It is an interesting, from a social psychology perspective, that irrationality–rendered as a formula–suddenly becomes sound thinking.

  12. hammerandtong2001 says:

    Austerity is certainly stupid – especillay when it’s practiced by only 90% of the populace.

    What’s even stupider is debt.

    But you have to “‘believe” – sure.

    “believe” that it will all get better, that we’ll grow past the debt.

    Sure thing.

    Put your hands together, put them up in the air…

    If college grads won’t get married, won’t buy houses, won’t do all that… you have Russia circa 1993. Negative bitrhrates for YEARS…

    Put you hands together…

  13. Joe Friday says:

    philipat,

    Yes, let’s just keep on ‘Stimulating’ the economy without any financial discipline and profligate spending.

    * Except our massive federal deficits and debt are NOT as a result of “profligate spending”, but instead as a result of a MASSIVE decline in federal income tax revenues caused by numerous rounds of tax cuts that overwhelmingly benefited the Rich & Corporate.

    * As we are all witnessing first-hand in real time in Britain, you cannot cut spending in a down economy, unless your intent is to make the economy WORSE.

    * You could eliminate ALL non-defense discretionary spending –

    Eliminate all the air traffic controllers and shut down all the airports, shut down the entire federal prison system (and release all the prisoners), shut down the federal court system and eliminate the federal marshals, shut down the Justice Department along with the FBI and the ATF, shut down the Customs Service and eliminate the Border Patrol and Coast Guard, and shut down the CIA/NSA/DIA/Homeland Security, and MORE

    - and STILL not even come close to balancing the federal budget.

  14. techy says:

    i think as soon as the republicans win the elections, they will be back to deficit spending, i do not think they are stupid enough to force austerity and push the unemployment higher….unless of course the lucky bastards inherit a improving economy in 2013. Why do i think Obama will lose, well 20-30% of the people hate him because he is black and other 20% because he is not suporting their religious theocracy, throw in 5-10% who think all their problems started in 2009.

  15. RecencyEffect says:

    “You could eliminate ALL non-defense discretionary spending –”

    Are you counting the ongoing overseas wars as discretionary? You know, what with there being no threat to the US from those regions and all…

    Every time I see C+I+X+G=GDP I get annoyed. Our ability to improve our lives financially is not tied exclusively to times of GDP growth. Like a bodybuilder on steroids our credit expanded economy eventually has to accept coming back to a smaller size. That period of lower GDP does not mean we all go backwards.

  16. Maj Tom says:

    All I can say is wow – apparently, true private sector growth from excess savings and investment is the misallocation of capital. Obviously, letting governments spend excessively is a much better use. Austerity only hurts because politicians refuse to default. The defaults will still occur, just delayed. Any effect from government stimulus will be eventually withdrawn ( with interest) from future growth. People don’t see that the US GDP would be just shy of -10% without current government spending (which is why employment will lag indefinitely). Our country will either pay that back (with interest) or default. Future generations will pay for it through less services and increased taxes.

    Still can’t believe drivel like this is printed and believed… If the simple math of an individual making 100,000 and spending 150,000 by borrowing 50,000 per year will not work very long – there is absolutely no way a complex system will make it work. The bank will call the note (bondholders demanding higher interest) or individual goes bankrupt (default). It really is that easy. Spending an extra 50,000 sure felt good though while it lasted.

  17. blackjaquekerouac says:

    i was reading on Wiki how “the biggest problem with (the first economist) Adam Smith was his belief in the power of what was merely observable and his belief in common sense” as the foremost necessary thing in dealing with matters of the economy. Hmmmm. “Thank God Europe still get’s it!” cuz “the last thing you would want to do is something that could actually be observed as working.” Obviously austerity has been a catastrophe…i think soon even the Germans will say “good riddance.” We’ll see “what it all means” then as well.

  18. johnl says:

    Let’s just watch Japan, they tried the austerity thing without much luck.
    Now they have 57% budget deficits, 200% GDP dept and growing,……they’re leading the way.

    Looks like there are 2 paths.
    1. instability enters the process and the end is quick, painful and climatic.
    2. private sector recovers from it’s balance sheet imbalances and starts borrowing again then governments start to repair their imbalances resulting in a long drawn out period of low/no growth.
    Richard Koo’s has some interesting insights into the current predicament.
    check out
    http://www.youtube.com/watch?v=DFxWCyHRD1I&feature=g-all-u

  19. CSF says:

    Neither austerity nor Keynesian stimulus will work. We’re too deep in debt to cut or spend our way to prosperity on a cyclical basis. We can try short-term stimulus with long-term fiscal reform. However, we’re probably going to need some combination of 1) structural reforms 2) technological innovations 3) dumb luck.

  20. pintelho says:

    Bravissimo.

    In the end GDP is still CIXG…I don’t know why austerians have a hard time with that.

  21. Through the Looking Glass says:

    I being a right brained, big picture , personality have to weigh in with WTF are you guys UP TO?
    You cant extrapolate a foreign economy to the US economy. They are practicing austerity and we are practicing the psychology of extend and pretend, smoke and mirrors, and dont tell your neighbor but we really are fugged.
    When I see a statement like : “I know, I know…it’s more fun to belittle, engage in angry blame or exude “intelligent” sounding criticism…but just imagine – if we stopped name calling, blame games and actually focused on the details of where the money is, what it’s spent on and how to repair it?”

    Where the money is ? Its gone….g.o.n.e. we build daily on foundation of BS. This is no longer a money equation its a people equation and the people are raging mad at the people that took it all. Theres no use in looking for the money , find some way to tell the populations that yea ,they are right, they are screwed and go from there. I want to bitch slap every article writer that purveys a pretty picture of jobs and housing . Is that how easy it is to keep their job?….fire them so they find out the truth about the disease instead of spreading it.

  22. Bridget says:

    “Austerity is Stupid”

    Sorta depends on your time frame, dontcha think? It’s only stupid to those who can’t see past the end of their nose, or to those who don’t have children and grandchildren whose futures are more important than their own.

  23. patfla says:

    The problem is that through all of human history until, let’s say, industrial civilization, frugality, aka austerity, was virtuous which, in a world of very finite resources, made complete sense.

    With industrial civilization, now that – at least to a greater extent than before – surpluses (of production) accumulate. They need to be consumed, and traditional morality militates against that.

    Next, Germany has a particular historical interest in restoring its bona fides as regards virtue.

    Finally, when you net everything out, the Germans must be massive creditors to the rest of Europe. Worlds largest exporting country? When I last checked, 70% of those exports went to other EU countries. And that was the deal: create the euro and give for example the Southern European countries a buying power they wouldn’t have had otherwise and everyone’s happy – for a while. Germany sells, the others buy.

    But what happens when the debtor countries go bust – the creditor squeezes them for every last penny. Which is again traditional morality.

  24. James Cameron says:

    From trading floors to polling stations to the streets of cities across Europe, the message appears increasingly to be that countries cannot cut their way to fiscal health. They need growth, too. In recent months, powerful voices have joined the chorus, including those of the managing director of the International Monetary Fund, Christine Lagarde, and Italy’s prime minister, Mario Monti.

    With all due respect, Lararde’s views are a little more nuanced then this suggests:

    “Some countries can afford to relax a little bit the austerity policy that they had embarked on. Others cannot relax the austerity measures. For instance, Greece is one country that certainly should not relax its measures. Italy is another one.”

    “Some countries have to be very, very brutal, in terms of reducing their deficit and bringing sanity to their public finances.”

    Is Austerity the Only Path to Recovery? An interview with Christine Lagarde

    http://www.paristechreview.com/2012/04/04/austerity-path-recovery/

  25. Joe Friday says:

    CSF,

    Neither austerity nor Keynesian stimulus will work.

    We just watched “Keynesian stimulus” work.

    We’re too deep in debt to cut or spend our way to prosperity on a cyclical basis.

    We had TRIPLE our current federal deficits during WWII.

  26. What I still don’t get is if we are going to burn money to stimulate the economy why don’t we do it in a way that when its all over with we have some new roads, bridges, electricity grid, anything that will produce a return or reduce future costs. Instead it seems that highway funds, as an example, are being diverted to pay municipal salaries. Its a tragedy to waste a crisis right?

  27. Joe Friday says:

    RecencyEffect,

    You could eliminate ALL non-defense discretionary spending -

    Are you counting the ongoing overseas wars as discretionary?

    Are you counting the ongoing overseas wars as non-defense ?

  28. bobmitchell says:

    self-flagellation while expressing concerns about grand kids. Let them do it, they need some good, hard work.

  29. Frilton Miedman says:

    Through the Looking Glass Says:
    April 25th, 2012 at 11:09 pm
    “….Where the money is ? Its gone….g.o.n.e. we build daily on foundation of BS.”

    ~~~

    I’ll agree with your rant, I’ll agree with almost everything you said. – I won’t agree with the quoted portion.

    The top 1% owns 43% of the stock market, the next 9% own 40% – 10% of Americans own 83% of all stocks, everyone else has negative net worth in terms of income/debt, also the case with the U.S. government.

    The top 1% incomes have increased 280% in 30 years, while 90% of households live on $32K or less, that one amazes me.

    Corporate earnings are at a record high, cash is also at a record high, – Apple alone holds 6.5% of our debt in cash.

    The money’s not gone,

    It’s sitting in low risk cap gains that get 15% or less tax rates, it’s sitting in shell corporations in Ireland or Switzerland avoiding taxation, it’s being used in HFT market scalping that only serves to shave value off pensions & retirement funds, doing nothing economically productive & paying tax rates equal to a single working mom.

    If I’m ridiculously wealthy, and I’m just given low tax rates in hopes that I’ll create jobs without requiring that I actually create jobs, I’d do it too.

    The Powers of Congress states it’s Congress’ duty to tax and regulate “for the common Defence and general Welfare of the United States”.

    Thanks to the informative, angry and fearful ravings about this “end of days” debt crisis mainly from the right, there is no question that it’s a matter of “the common Defence and general Welfare of the United States”.

    Therefore, it’s absolutely within the Constitutional obligations of Congress to tax and regulate as necessary.

    I don’t recall voting Dave Koch, Rupert Murdoch or Oliver Norquist into office, I’m not sure how they’re more entitled to control over my government than the words of the Constitution.

    On Norquist, any member of Congress or Senate taking any pledge aside the sworn oath of the Constitution is acting in treason, period.

    Norquist has violated the Constitution by coercing/bribing elected officers into sworn oath to something aside the Constitution as an agreement to how they conduct their duties.

    You can believe there’s no money if you insist.

    I’m telling you it’s not true, America is the wealthiest country in the world, America also has the greatest spread in disparity of any industrialized nation in the world.

  30. RecencyEffect says:

    “We had TRIPLE our current federal deficits during WWII.”

    What was the outstanding debt then, compared to now. Not even in the same ballpark. If you have no debt and you borrow fast there is no issue. If you have masses of debt and you borrow fast then you have a totally unsustainable path.

    The US deficit would not be such a problem if it hadn’t been going for 30 years.
    But it has.
    So it is.

  31. icm63 says:

    Austerity is a slow burn forest fire. What is need is a FAST BURN FOREST FIRE, banks go bust, losses written off, bankers sacked, rachet down to zero and kick start the enginee again, ak ICELAND !

  32. [...] One of the best essays on this subject was written by Hale Stewart for The Big Picture.  The title of the piece was “People Are Finally Figuring Out: Austerity is Stupid”. [...]

  33. Jo says:

    Some articles would more naturally find a home in The Pragmatic Capitalist.

    Ya’all see, they don’t think debt matter either!

  34. ConscienceofaConservative says:

    I am sympathetic to the anti-austerity argument, but do not agree with it. And I understand why the Times and Krugman and some other are taking this tact. It’s also a discussion about big vs small gov’t in the guise of how to maximize employment.
    European nations simply cannot spend their way out of low economic growth because they cannot print their own currency. Greece if it were not in the Euro could chose against austerity, devalue the currency and solve their problems with one big shock as opposed to a long period of economic pain(austerity). But in the end Greece will have pain. But every country can’t devalue their currency and not every country owed debt in its own currency which is the rub here.
    Now as far as the F.T. article is concerned , it is expected that those bearing some/much of the burden would be against austerity. And as far as sub-par growth before the crisis, well there are multiple reasons, just examine France, its tax structure and socialistic economy.
    Lastly in the United States we seem to be having a discussion that we need to increase gov’t spending and then pay for it by increasing taxes. But the knowledge or expectation of higher future taxes cancels out private consumption(if you know future net income will decline it’s natural to change habits).
    There’s a great deal left out of the ft and times pieces, such as the proper role of gov’t, whether its an efficient allocator of capital, how big the multiplier effect is, and how tax rates effect consumption and private investment. When you hear Keynsians argue that unemployment checks are stimulus you wonder if they believe there’s any difference between handing out checks, paying people to move rocks, or seeing a future Apple Computer company created.

  35. constantnormal says:

    When the problem is an industry/civilization that is too big for the shrunken economy it is trying to exist within, shrinking it by austerity fails, because austerity always shrinks the economy right along with everything else, resulting in a destination that can never be reached.

    Either create more demand by sensible policies and wise investment, or bring a war or some hideously destructive event inside your own economy — THAT will shrink the excess capacity (including people) rapidly enough to achieve the end goal of matching supply with demand …

    External wars do not do the job, as they expend precious resources blowing up OTHER people & their stuff, when what we need to be doing is blowing up OUR OWN people & stuff to put supply and demand back in harmony. Send the troops to Wall Street, to Washington.

    At least, If you’re intent on using the military to solve the problem. There are a lot better ways to get there, but direct application of Big Government is probably not among them, other than to (possibly) supply a direction, seed capital, and some motivation (Taxes? Regulation?). But it’s easy to screw up, when using a butcher as a surgeon … Big Government is a lot closer to a meat grinder than a robodoc.

  36. m111ark says:

    I look in vain for someone with real vision who can see the fundamental problem. Alas! not yet.

    Ask yourself this – why are private bankers permitted to print money? No one else can print money, if you or I do it, it’s called counterfeiting and we go to prison. So what gives bankers the right to counterfeit money?

    Second question – why are governments forced to borrow their own money? You’ve often heard the phrase that government just prints money in a crisis. Not true. Governments, in our convoluted monetary system, must borrow money when their spending exceeds tax revenue (which, in a debt based monetary system, they must eventually do – its really a ponzi scheme). QE prints money by buying agency debt but even then, the government ends up owing interest on that money(so it’s always in borrow mode – it’s no coincidence that an income tax was implemented the same time the FED was created ).

    If you think about the consequences of these two points, you’ll see why there is no conventional solution to our problem, especially when no one is looking at the real problem.

    Finally, when the only way new money can enter the system is when someone borrows it into existence, of what value are citizens? You remember that ancient word don’t you. It’s not much used anymore because in a debt based monetary system citizens are of no value whatsoever. We are now consumers. And what do consumers do, we borrow money to consume. And new money gets created(and bankers get richer). And when we can no longer borrow money we no longer provide any value to the state. Now you know why our freedoms are being eroded – when we don’t pull our own weight(borrow to create new money) do we deserve freedom?

    Ya’ see, it’s really pretty simple, isn’t it. The FED can QE till the cows come home – ain’t gonna solve nutn’. Governments can austerity til pigs fly, ain’t gonna solve nutn’. No debt money system has or ever will succeed.

    end of lesson, resume swatting at gnats.

  37. osbjmg says:

    I will agree austerity can be stupid in some circumstances, but is it always the worst choice?

    I have trouble following the hypothesis when the conclusion is based on only one variable – “The first — the five quarters coming out of the recession — growth was actually OK; it averaged 1.78% while the median number was 2%. But since then — when the continent decided to implement austerity — the growth rate slowed.”

    Perhaps this is true, perhaps it’s a coincidence. I just can’t agree that correlation is causality. Maybe there are more convincing numbers?

  38. Lukey says:

    So keep spending money you don’t have and can’t afford to borrow to keep your sclerotic semi-socialist economy wheezing for a few more years while you pretend you haven’t destroyed the people’s will to work and desire to produce through decades of progressive social and economic policy? Yeah, that should work out well for them.

    When government spending becomes the engine of your economic growth, you have entered the realm of “failed state” and you can either turn back, endure the pain of austerity until you get back an economy that can sustain itself without the crutch of permanent government stimulus, or you can keep going until you reach the ultimate limits of your ability to borrow and/or print money and the economy collapses like any number of Latin American or African economies that were run into the ground by incompetent leaders who ignored the simple rules of monetary and fiscal policy (that you cannot continue indefinitely spending money you don’t have and can’t afford to borrow because eventually the house of cards you are building will collapse).

  39. gman says:

    for all this hand wringing about “DEBT THREAT”! ..debt service for the US govt. is at a 30year LOW!

    http://macromon.files.wordpress.com/2011/10/us-as-greece.jpg

    Now is NOT the time for austerity!

  40. gman says:

    As Keynes once famously said “the time for government austerity is in the middle of a boom“..

    You remember the last boom we had…tax cuts, 2 wars and a new entitlement.

  41. Jim67545 says:

    Why are we always debating issues such as this as either/or? Austerity OR Stimulas? What ends up happening is that the proponents of each view trot out their studies and conclusions in a futile attempt to defeat those with the opposing idea. We end up getting more set in our positions and reject out of hand anything that sounds like it challenges our fossilized position.

    Perhaps we need to recognize that there is a germ of truth in both positons. We cannot descelerate the economy radically by slashing spending radically but certainly we can find waste and unproductive and unnecessary functions to reduce? We cannot descelerate by increasing taxes. No? Would there be anything wrong with the 50% who pay no federal income taxes paying something? $100? Have some skin in the game? What about tax cheats? Would the 1% really cut back on spending and “job creating” if it is taxed somewhat more? Aren’t we all in this together? Good, bad or indifferent, don’t we all have a couple wars to pay for? Don’t we have some tax breaks we can no longer afford as a nation? Maybe we cannot afford Medicare drug benefit anymore. (In Medicare I pay about $160 per month for health insurance, dental and drug benefit. My wife pays about $100. Nice, but how as a nation can we afford to do that??) Maybe we cannot stimulate our economy ad infinitum without paying the bill sooner or later. Maybe somewhat more stimulas is indicated now followed by more austerity later? Ideology aside, what’s the plan?

    Both sides rejected Bowles Simpson because it did not advocate ALL of one side’s position or another. We need to grow up. Unfortunately, that day is nowhere in sight.

  42. gman says:

    For all the pro austerity politicians many of whom were the same people pushing the tax cuts and wars in the last boom..do they ever sit back and think “WOW! I advocate pro-cyclical policies? I literally push policies the MAKE THE BOOMS BIGGER AND THE BUSTS BIGGER!”

  43. AHodge says:

    austerity is stupid
    deficit spending now is only slightly less stupid, massive money is slightly less stupid
    and asking for trouble down the line
    we might have had another Great depression without them so far
    but fixing finance would be the right idea
    im kind of a keynesian meself
    but when you are a keynesian true believer and dont know shit about banking and finance
    every economic malfunction has a mo mo spending solution
    when you are a hamnmer every problem looks like a nail

  44. Greg0658 says:

    I agree with FM@1258am
    this morning on Squawk bobblehead Ryan (wanted to fireoff email – why bother)
    hoarded cash sitting – so that economies fault – so that assets become cheaper – so that the hoarded cash captures more – then all will be well
    IF ONLY Robinhood was out of jail .. and stocholm syndrome was FauxNews
    ~~
    interest seeking as a business plan must be checked – its not presently – that is apparent
    ~~
    enjoyed the thread – best wishes world

  45. DeDude says:

    Make that SOME people are finally figuring out: austerity is stupid.

    There are still a lot of individuals who are convinced that whatever common sense they are pulling out of their dumb asses is better than the observable reality.

    The story of the “confidence fairy” gets completely wacko when you realize that it presumes that she cannot read the above charts and, therefore, will not get scared when a country is instituting policies that destroy growth.

  46. AHodge says:

    but i agree europe has got it massively wrong recently
    partly by squeezing the debtors way too hard
    you cant do even good partial debtors repaymentl repayment when the debtor is in a depression?
    spain 24% unemployment rate and getting a lot worse? WTF?

  47. opensourcecurrency says:

    “Comprised” instead of “were comprised of”…

  48. cognos says:

    Uh, its pretty simple:

    Austerity is bad.
    WASTE and inefficiency is really bad. (There is lots in govt… and everywhere).

    Debt is never really a problem. DEBT = SAVINGS (its an accounting identity).

    In 100 years the US “debt” will be around $1,000 TRILLION. And thats fine, because the economy will also be around $1,000 TRILLION. We will continue to have more travel, luxury, entertainment, over eating, dionysian drinking, and over medicating. We will continue to fret about silly things… like the national debt, and “family values”.

    Thats an aside. Has anyone noticed that Barack Hussein Obama (and Michelle O.) is the best “family values” guy we’ve ever had in major political office. Yet he gets little embrace from that community. Hmm?

  49. Joe Friday says:

    RecencyEffect,

    We had TRIPLE our current federal deficits during WWII.

    What was the outstanding debt then, compared to now. Not even in the same ballpark.

    You’re conflating nominal amounts with relative amounts.

  50. cognos says:

    gman – you are saying a lot of wonderful points above.

    Hilarious (and political) that Keynes gets a bad rap. When if one studies and thinks… he ranks #1. It is simply without question. The modern world of economics and financial understanding and policy was literally laid out by Keynes. Others (Milton Friedman) are just subtitling modifying and (trying to) improve the general theory. Others (austrians, fringe figures like Schumpeter, Minsky, Modigliani, etc) are playing the kettle drums in the orchestra.

    Most anti-Keynes comments are uneducated. Most pro-Friedman comments are uneducated. Friedman advocated a minimum general population income (kinda like communism, a decent idea, better format). Friedman said Japan should do a “money financed tax cut”. That is… just print the f-ing money supply. Which is what I would bet he would advocate today… for both the US and Europe. Its kinda like QEX1000.

  51. DeDude says:

    It is sort of telling when the “best” push back you get is “you cannot grow the economy forever by deficit spending” – as if anybody had ever suggested stimulus as a permanent solution.

    Deficits are completely separate issues from spending. The decision to have a deficit is simply the decision to not tax as much as you spend. That is a decision that comes AFTER you have decided how much you want/need to spend in the public sector of the economy. It sometimes make sense to tax less than you spend, but it makes no sense to do so permanently or when the economy is strong.

  52. Francois says:

    “Says who? Rogoff and Reinhardt, who surveyed many decades worth of data in their book, concluded that 90% of GDP is the average ratio which precedes a crisis.”

    Despite being quoted ad nauseam, Rogoff and Reinhardt work is not the end of all things regarding financial crises, far from it. Basically, their method is very similar to meta-analysis, so common in medicine. Alas, when economists harbor the pretense to be as scientific as physicians…Houston! we got a clusterfuck coming!

    The degree of uncertainty inherent to economics in ONE country during a given time period is not small, as any student of prediction made by economists will tell you. Now, try to extend this paltry record of accuracy like these distinguished academics did and what do you get? They compared very different periods (gold standard v none; laissez-faire versus dirigism, etc. etc.) with one another, as if it was possible to draw empirical conclusions such as debt > 90% GDP precede the upcoming (almost sure to come so beware…bitchez!) cataclysm.

    Any huge caveat about the degree of uncertainty of their conclusions?

    Let me guess! It is not negligible, not by a long shot. Hence, a hefty dose of carefulness should always apply.

  53. AtlasRocked says:

    Keynesian Beauty Contest

    $50 gift certificate for the winning example:

    Keynesian stimulus was used in the
    country _____ in the years ______,
    during a __ recession/__ depression,
    then the economy turned around within 2
    years and then produced ___ years
    of lasting growth after this. The
    increased tax revenue was enough to
    pay off all the deficit the stimulus
    had created within ______ years.

    Keynesian stimulus has been used nigh
    on 27 years here in the US, and the
    deficits keep rising. Same for 19 of
    the 20 western democracies: All
    have massively increased deficits that
    are larger per capita than the US over
    the last 2 decades. None are paying
    back the increasing debts. Three
    (Greece, Italy, and England) are
    abandoning stimulus and are forced to
    adopt, not choosing, austerity.

    Treasury Secretary Henry Morgenthau, angry at the Keynesian spenders, confided to his diary May 1939.

    “We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and now if I am wrong somebody else can have my job. I want to see this country prosper. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this administration, we have just as much unemployment as when we started.[69] And enormous debt to boot.”

    Every deficit dollar we continue to spend is a completely waisted dollar folks, borrowed on immoral and unethical basis. You only borrow in cases where you create more wealth, and when you borrow an true loan, you sign a pay back plan, that’s how ethical, fiscally sound loans work. Both the loaner and borrower have equal counter-party risk. That does not exist for the current scam.

    No one is signing for the loans we are making, they are mathematically impossible to pay back at this point. Only the citizens can lose with the loans we are making, the government is taking no risk.

  54. AtlasRocked says:

    If a Republican tells you that cutting gov’t spending will make the economy grow, tell them they are wrong, you have the math and results to prove it. It WILL help us in the long run, but in the short run, the economy will recess.

    Remember I told you that if the gov’t cuts spending, the economy will recess because 9.4% of our economy is gov’t deficit spending – completely “borrowed” and thus falsely counted GDP. It is fiscally equivalent to you saying you put $10,000 on your credit card then claiming you got a $10,000 raise.

    I have been doing some fact checking on this, and the results are consistent with the math.
    UK Slides Back Into Recession in First Double Dip Since 1970s
    http://www.cnbc.com/id/47169446

    Greek Economy May Contract Near 5% of GDP in 2012
    http://www.bloomberg.com/news/2012-04-24/greek-economy-may-contract-near-5-of-gdp-in-2012-ta-nea-says.html

    Bernanke warns lawmakers country headed for ‘massive fiscal cliff’
    http://thehill.com/blogs/on-the-money/801-economy/213351-fed-boss-warns-of-massive-fiscal-cliff

    So when the gov’t stops borrowing, the economy recesses. It’s not the fault of the Democrats or the Republicans – it’s economic reality. We have to recess to reduce federal debt – both raising taxes and cutting spending will recess the economy – a simple review of the GDP equation will make this apparent.

  55. Frilton Miedman says:

    Atlas, had you heard?…
    If you do a web search for “beauty contest” you’ll get dozens of results – therefore proving that because you peppered dozens of sites with the term, that makes it credible.

    At any rate -

    Francois Says:
    April 26th, 2012 at 2:30 pm
    “Says who? Rogoff and Reinhardt, who surveyed many decades worth of data in their book, concluded that 90% of GDP is the average ratio which precedes a crisis.”

    I’d be more interested in knowing what the average debt was at the point of recovery.

    I have a funny feeling it’s even higher.

  56. AtlasRocked says:

    That’s a different Keynesian beauty contest, Frilton.

    I actually didn’t know the term had been used for a different Keynesian-related notion until years after I read about it.

    Let me know when you find the answer, I’ll send you a check.

  57. Joe Friday says:

    AtlasRocked,

    Keynesian Beauty Contest $50 gift certificate for the winning example

    You’ve welched on this three times already.

  58. HEHEHE says:

    This guy is a Mo-ron! The reason the Eurozone governments are taking austerity measures is that they can’t issue anymore debt at a reasonable interest rate unless they do so – Mr Economist say hello to Mr Bond Market Vigilante. It’s where your Keynesian fantasy runs into the brass knuckles of the lenders reality.

  59. DeDude says:

    Francois;

    Agree those who quote Rogoff & Reinhardt rarely understand what they are quoting. Concluding that 90% of GDP is the “crisis point” has a few problems with it. The first is a simple fact called Japan (then one called Belgium, then ….). You can always just redefine the word “crisis”, or soft-peddle and say it is an average (which means what?: don’t worry about passing 90% but worry anyway???). From what I remember the problem with the analysis was that they did not treat the “debt as % of GDP” as a continuous variable but instead lumped things into categories of which the highest were “over 90%”. Lets spell this problem out. Say that 4 individuals have debt of 90%, 413%, 459% and 588% of their annual income and this group of individuals have a higher bankruptcy rate than a group where everybody have debt less than 90%. Does that mean that your debt has reached “crisis levels” when it exceeds 90% of your income? In other words if you want to set a calamity threshold you cant use averages or arbitrarily define groups before you analyze the data.

  60. DeDude says:

    Francois;

    Agree those who quote Rogoff & Reinhardt rarely understand what they are quoting. Concluding that 90% of GDP is the “crisis point” has a few problems with it. The first is a simple fact called Japan (then one called Belgium, then ….). You can always just redefine the word “crisis”, or soft-peddle and say it is an average (which means don’t worry about passing 90% but worry anyway?). From what I remember the problem with the analysis was that they did not treat the “debt as % of GDP” as a continuous variable but instead lumped things into categories of which the highest were “over 90%”. Lets spell this problem out. Say that 4 individuals have debt of 90%, 413%, 459% and 588% of their annual income and this group of individuals have a higher bankruptcy rate than a group where everybody have debt less than 90%. Does that mean that your debt has reached “crisis levels” when it exceeds 90% of your income? In other words if you want to set a calamity threshold you cant use averages or arbitrarily define groups before you analyze the data.

  61. techy says:

    wait till Jan, if Obama loses, there will be no talk of austerity there will be stealth stimulus all over the place.

  62. AtlasRocked says:

    Hehehehe – Joe you gave the FDR programs as a success story, right? Hehehe.

    Morgenthau pretty much seals that argument. Starting a World War does not count as a success story, sorry bro.

    Peacetime example of success.

  63. Greg0658 says:

    “It is fiscally equivalent to you saying you put $10,000 on your credit card then claiming you got a $10,000 raise….it’s economic reality”

    gotta agree .. the rub is – if its not worked off – real worked off – its a hand out and a real capitalist just can’t live with that .. and why ? because a capitalist thinks he really is a laborer too .. and we don’t give handouts in capital-land .. handouts are waste

    the next rub is doing the 3Ds > dirty, difficult, dangerous Work
    oh & not waste’g resources (which is not an issue is it)

  64. gman says:

    ” Starting a World War does not count as a success story, sorry bro.”

    Why not? If that was the level of government spending it take to revive the economy so be it.

    Many smaller downturns have been counter acted w/ smaller amounts of stimulus in the post ww2 era.

    Economic conditions improve during the mid 30s until too much of the stimulus was removed too soon and the economy relapsed in 1937.

  65. gman says:

    How much econ have you studied? It seems like you miss the key counter cyclical element of both monetary and fiscal policy.

    As for this little gem:

    Keynesian stimulus was used in the
    “country _____ in the years ______,
    during a __ recession/__ depression,
    then the economy turned around within 2
    years and then produced ___ years
    of lasting growth after this. The
    increased tax revenue was enough to
    pay off all the deficit the stimulus
    had created within ______ years.”

    This exact item(verbatim) seems to turn up in these discussions all the time. I’m starting to wonder it it originates in some Austrian leaning PR shop who then encourage trolls like you to post it.

    The whole series of question is flawed. The biggest flaw being the notion that “debt has to be totally paid back”.

    Governments are NOT like household.

    As long as in the boom times the debt grows at a much slower rate than nominal rate of GDP, at the end of the cycle, the debt then becomes a much smaller % GDP.

  66. McMike says:

    I’m always leary when I read a list of credentials that long, but, I bit, at least until within the first paragraph I cringed when I read:

    “Either way, growth was not strong enough for the economy to achieve ‘escape velocity’ –a rate of growth that creates self-sustaining, private sector led growth rate over 2.5%.”

    What is this, rocket science? Growth rates are accelerations, not velocities.

    Trees don’t grow to the moon, stars don’t shine forever, nothing (that I know of) can accelerate to a velocity faster than light, and a society cannot consume itself to prosperity.

    The “G” in the identity of Consumption + Investment + Government expenditures + net exports = GDP, is essentially the same as consumption. Societies consume government goods and services with the taxes they pay (or don’t pay in the case of the government borrowing in the name of the taxpayer to pay for itself).

  67. Joe Friday says:

    AtlasRocked,

    Hehehehe – Joe you gave the FDR programs as a success story, right?

    Yep, it was a slam dunk.

    Of course the more recent example was the Obama stimulus. You know, the one that reversed the MINUS 9% GDP at the end of Chimpy Bush’s term to +3.8% GDP in less than 12 months, a swing of more than 12% GDP from negative to positive.

    Starting a World War does not count as a success story, sorry bro.

    Sorry “bro“, but the FDIC says the Great Depression was over by 1939 (and they would know), well before WWII or even rumors of war as they used to say:

    “The Great Depression, a worldwide economic downturn, hits the U.S. in 1929 and lasts until about 1939″

    ~~

    You lose every time.

  68. AtlasRocked says:

    Joe Friday gets a fact check:

    http://www.usgovernmentspending.com/spending_chart_1930_1940USb_13s1li011mcn_H0t

    As you all can clearly see, this Keynesian advocate will say anything to support his case. Here he states FDR was a case of successful Keynesian spending, but the debt never came down one dollar.

    This is why America is failing, the proponents of this stuff won’t sit down and have an adult conversation about the debt bomb we’re leaving for the kids. Look at the legacy of failure they are documenting for us:

    Per capita debt – Notice the economies the liberal program advocates
    want us to copy policies from are at the top of the world’s worst
    debtor nations:

    Luxembourg 3,696,467
    Ireland 519,070
    Monaco 471,428
    The Netherlands 226,503
    Switzerland 154,063
    United Kingdom 144,338
    Norway 131,220
    Belgium 113,603
    Hong Kong 105,420
    Denmark 101,084
    Sweden 91,487
    Austria 90,128
    France 74,619
    Finland 68,960
    Germany 57,755
    Australia 52,596
    New Zealand 52,300
    Greece 47,636
    United States 47,568

    Notice the taxes (% of GDP) are the highest in the nations with
    the highest debt per capita.

    Denmark 49.0 48.2 48.2
    Sweden 47.9 46.4 47.1
    Italy 42.6 43.5 42.8
    Belgium 46.8 43.2 44.3
    Finland 43.6 43.1 43.1
    Austria 43.4 42.8 42.8
    France 44.6 41.9 42.8
    Iceland 40.4 41.4 36.7
    Norway 43.6 41.0 42.2
    Netherlands 39.8 39.1 (2008) 39.1
    Hungary 37.3 39.1 40.4
    Slovenia 39.3 37.9 37.3
    Luxembourg 36.5 37.5 35.6
    Germany 40.6 37.0 39.3
    Portugal 37.0 35.2 (2008) 36.7

    United States (all levels) 26.9 24.0

  69. AtlasRocked says:

    @Joe Friday – You said I welched 3 times, that’s a bald faced lie you printed here.

    I have the supplied the data to show debt never came down in the 30s, like you said, so you sullied your reputation by supplying bad data.

    Now, you said there were two other cases, let’s go ahead and walk through those, and see who lied 3 times, OK?

  70. gman says:

    “Per capita debt – Notice the economies the liberal program advocates
    want us to copy policies from are at the top of the world’s worst
    debtor nations:

    Luxembourg 3,696,467
    Ireland 519,070
    Monaco 471,428″

    Atlas not only do you fail to understand many of the theoretical underpinnings of macro, you also DO NOT know what “economies the liberal program advocate what us to copy” means! Ireland and Monaco! They are BOTH TAX HAVENS with policies most “conservatives” dream of.

    Also by many metrics Denmark w/ its “high taxes” is one of the most prosperous nations on earth.

    Economies are very complicated, and your fetish w/ just debt and taxes are way out of line.

  71. gman says:

    “I have the supplied the data to show debt never came down in the 30s,”

    Like I said the ABsOLUTE LEVELS OF DEBT never have to come down. During booms the debts will grow much more slowly than the GDP causing it to shrink as a % of GDP.

    Currently the debt service as a % GDP for the US government is at 30 year lows.

    http://macromon.files.wordpress.com/2011/10/us-as-greece.jpg

  72. gman says:

    Many 3rd world nations have very low taxes and low debts yet their economies and living standards suck.

    Mexico has very low taxes yet huge % of its citizens choose to live in a high tax state w/i a higher tax nation..California!

  73. gman says:

    In mexico it is very hard to get a home loan!..no debt always = good ..Right!

  74. AtlasRocked says:

    You have all supplied a lot of interesting facts, but ZERO success stories. You are advocating a solution that has a 100% record of failure. Adamantly.

    Just find an example of success in any major economy, say the G20, at any time in history. As you research think about how the tax math works against EVER being able to pay back:

    Our current tax rate is around 15% of GDP. If we borrow a trillion, we need growth to yield a trillion in new tax revenue to pay it back, right? That means the GDP would have to grow $1 trillion /0.15 = $6.66 trillion in growth to yield a $1 trillion in debt repayment.

    Every dollar of the trillion borrowed needs to return 6.66x, and ALL of that would have to go to debt to balance the ROI for the tax payer. Our current $15 trillion of debt requires $100 trillion of new GDP (not growth rate) to balance. Why don’t one of you genii go do the math on what the growth rate would have to be for the next 20 years to realize $100 Trillion in new GDP?

    Here’s some assumptions to make your study easier, I’ll make it an easy and optimistic problem:

    Assume:
    1. All the new tax revenue goes to deficit.
    2. The current tax rate of 15% stays in effect.
    3. We stop borrowing now.
    4. assume 0 % interest.

    What growth do we need for 20 years to pay back the ROI? This only requires basic algebra, Jr. High stuff.

  75. DeDude says:

    McMike;

    Yes there is absolutely no difference in the economic boast from a dollar of private spending vs. a dollar of government spending. Some will suggest that there are different multiplier effects, but then the debate should be about multipliers. Government spending on infrastructure and education can have huge multipliers whereas private individuals purchase of some stupid toy produced in China has a very low multiplier.

  76. gman says:

    Atlas,

    “What growth do we need for 20 years to pay back the ROI? This only requires basic algebra, Jr. High stuff.”

    http://delong.typepad.com/sdj/2012/03/the-basic-arithmetic-of-self-financing-fiscal-policy.html

    I hope this answers your questions. I have other things to do other than teach you macro 101. I have to get back to the markets.

  77. AtlasRocked says:

    Success story, Please, gman. If it works, we know it has been used frequently and there should be an abundance of proof.

    I’m lowering the bar for you, gman: There should be at least one case, anyway.

    Go ahead, keep documenting for all the readers “you aint got nothing”. It’s the greatest fraud ever in the history of planet earth: Widely used, 0% success record, and a huge mob of proponents steadfastly advocating it as a certain cure.

    Yes, I agree: We do have too much religion in government policy.

  78. gman says:

    Success? It is very rare when the multiplier is neg?

    Every cyclical downturn in the Western world since ww2 had inherent counter cyclical stabalizers embedded in the system. It produced the longest least volatile economic expansions and increases standards of living the world has ever seen.

    “you aint got nothing” haha..you should not be so hard on yourself, at least you are trying to learn in a great forum like this.

  79. AtlasRocked says:

    @Gman :

    Supply the graph of the debt falling after the recession that was ended by Keynesian policy – this can include tax cuts like Reagan did. You said it happens all the time, it should be low hanging fruit. You claimed mountains of success, but can’t show an example. Remember it has to be as a recovery for a recession or worse.

    Hint: Use the world wide web and google. Fill in the blanks for us all to read. I’ll send you $50:

    Keynesian stimulus was used in the
    “country _____ in the years ______,
    during a __ recession/__ depression,
    then the economy turned around within 2
    years and then produced ___ years
    of lasting growth after this. The
    increased tax revenue was enough to
    pay off all the deficit the stimulus
    had created within ______ years.”

    Wars don’t count, sorry. Wars are not recovery policies.
    Only liberals have tried to use WWII to make this case, by the way.
    Sad, right?

    ———————
    Please everyone don’t make fun of Gman –

    He’s a liberal that is talking policy, that is good, we all need to talk.

    Gman is providing an important example for the entire Western world of why we are failing, you should send him a note of gratitude. It’s hard to find liberals that will engage in adult conversations like this.

  80. Joe Friday says:

    AtlasRocked,

    Sorry, but your obsession with debt has absolutely no relevance as to wether or not “Keynesian stimulus” was a success or not. The independent non-partisan CBO has made it perfectly clear which failed public policies are responsible for our massive federal debt.

    Four times now I’ve proven with two different examples that it has been a smashing success, while your advocated polices are failing once again right before our eyes in nation after nation around the globe.

    You will not be taken seriously until you put down that goal post you keep moving around and stop being a fool.

  81. gman says:

    “Supply the graph of the debt falling”

    Debt does not have to fall in absolute terms for it to be an economic success.

    Your cute little Q & A posted quite commonly on the web, is it original?

    I am a trader and an asset manager first and my politics come a distant second.

  82. AtlasRocked says:

    gman: Google the words in my example bro. Tell us all where you get a hit on it, ok? I think I saw it on

    http://www.you_whiffed_again.com

    Oh, and you want to go in a different direction since you can’t find a success story where ROI was created from keynesian spending. Go ahead, “make my day”.

    So we have to inflate our way out of the debt after the “success” is achieved? is that the skirmish line you wish to retreat to? Make your case how we inflate away $15 trillion, and let’s examine your math. I posted mine, bro.

    Pick some assumptions to simplify the analysis, and let’s take it apart.

    @Joe Friday: Fill in the blanks on my questionaire, you can’t get the $50 until you fill in the blanks and we can fact check the nearly-continuous stream of crap you post here.

  83. AtlasRocked says:

    It’s not about me, Gman. Just fill out the form with a success example or shoot holes in my math.

  84. gman says:

    Here is my math

    http://delong.typepad.com/sdj/2012/03/the-basic-arithmetic-of-self-financing-fiscal-policy.html

    It is all about real interest rates and multipliers not questionaires.

  85. AtlasRocked says:

    I’ll take a look at it Gman. It can only make my case stronger when you can’t supply a success case for keynesian spending, you can’t find a flaw in my math that guarantees it’s a failure, FDR’s treasury secretary says it’s a failure, all the countries using it are currently failing to produce ROI after 4 years, and …..

    I’m still willing to take a look at yours in good faith. Beware, I’m going to come back and ask you hard questions to support this. You have chosen the skirmish line, don’t run from this too after I do the study.

    You promise to stick with it, right?

  86. Frilton Miedman says:

    A small gift for Atlas – http://www.youtube.com/watch?v=JTFtk55q2Mc

    Fast-forward to 4:30 to hear Ayn Rand’s living protege, Alan Greenspan, testify before Congress that after 40 years there is evidence the completely unregulated les affaires experiment as “fatally flawed”.

    The fantasy is concluded – Ayn Rand was a fiction writer, Atlas can take a rest on a library shelf now, it’s all over.

    The U.S. government was built by the founding fathers to prevent aristocracies, not promote them.

  87. AtlasRocked says:

    Frilton: 0% is your success rate.

    I readily and honestly admit regulated and unregulated capitalism has failures, it just not everyone fails at the same time as they do in socialism.

    Fill out the form, Frilton. Right now you sitting and zero and you think you’re a hero. You are an icon for failure. The #1 attribute of failures is they don’t see their failures.

    Fill out the form, bro.

  88. [...] one gets a real-time demonstration of how two different economic policies compare, but the numbers are hard to argue with: In the “euro area,” where austerity has reigned, GDP growth has declined for each of the last [...]

  89. Joe Friday says:

    AtlasRocked,

    The #1 attribute of failures is they don’t see their failures.

    Oh, you mean like when the FDIC blew your little assertion that the Great Depression was only turned around by WWII to SMITHEREENS ?

    Of course, it was FDR’s ‘NEW DEAL’ (AKA “Keynesian” “stimulus”) that successfully turned the Great Depression completely around by 1939, contrary to just the latest in a LONG STRING of your GOOFY assertions to be exploded.

    Yet, you continue to pretend as if you have a point.

    You don’t.

    BTW, your postings are going from looking ignorant to looking delusional.

  90. Frilton Miedman says:

    Correct, I have a 0% success rate at driving into brick walls, furthermore, I lack the attribute of “heroic” tenacity to continue trying.

    That said, your general, Greensan, is waiving the white flag, you’ll notice fewer and fewer troops at your side…this is no coincidence.

    It’s time to gather your senses and seek a worthwhile fight…have heart, I’m sure we’ll make another pass it inadvertent Fascism/social Darwinism in, say, another 80 years or so.

  91. AtlasRocked says:

    Fill out the success form, bro.

    I’ve already admitted freer markets fail repeatedly, I don’t hold any illusions there are certain and sure failures. But America, 1880 to 1980, was largely a success except for the ideas you guys advocated being used in the 30s, that was all failure – the debt just rose and rose like it is doing now.

    So – post your Keynesian success story. You’re still documented, proud advocates for zero.

  92. AtlasRocked says:

    Imagine a salesperson tried to sell you something but, for all the sales he said he’d made, and for all the bragging about success here and success there, zero successful applications of the product were supportable when held to a clear and reasonable ROI-producing measure of success.

  93. AtlasRocked says:

    @gman: Your article says: μ is the (debatable) standard Keynesian multiplier when monetary policy is at the zero lower bound; and η is the (largely unknown) hysteresis shadow a long, deep depression casts on future potential output.

    What is your opinion of what U and n are? please provide supporting basis of estimate.