Austerity has never worked

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demandside
demandside's picture

"It’s not just about the current economic environment. History shows that slashing budgets always leads to recession [...]

As for the need to cut social spending to revive growth, there is no historical evidence to support it either. From 1945 to 1990, per capita income in Europe grew considerably faster than in the US, despite its countries having welfare states on average a third larger than that of the US. Even after 1990, when European growth slowed down, countries like Sweden and Finland, with much larger welfare spending, grew faster than the US.

As for the belief that making life easier for the rich through tax cuts and deregulation is good for investment and growth, we need to remind ourselves that this was tried in many countries after 1980, with very poor results. Compared to the previous three decades of higher taxes and stronger regulation, investment (as a proportion of GDP) and economic growth fell in those countries. Also, the world economy in the 19th century grew much more slowly than in the high-tax, high-regulation era of 1945-80, despite the fact that taxes were much lower (most countries didn’t even have income tax) and regulation thinner on the ground.

The argument on hiring and firing is also not grounded in historical evidence. Unemployment rates in the major capitalist economies were between 0% (some years in Switzerland) and 4% from 1945-80, despite increasing labour market regulation. There were more jobless people during the 19th century, when there was effectively no regulation on hiring and firing."

to read the article by Ha-Joon Chang published in: The Guardian, June 4, 2012, click on

http://www.guardian.co.uk/commentisfree/2012/jun/04/austerity-policy-eur...

http://www.freembtranslations.net

Comments

Phaedrus76
Phaedrus76's picture
Austerity works to destroy

Austerity works to destroy the social safety net, and lower tax payments for the very wealthy.

Scappoose
Scappoose's picture
Exactly. Austerity works

Exactly. Austerity works exactly as planned - as a Robin Hood for the rich strategy it is highly effective.

Funnel money to the top.

Sell off highly desirable assets to their buddies for a dime in the dollar.

Lower Life Expectency. Dumb down the average citizen.

Pit people against their neighbors.

Exactly as planned and highly effective.

CollegeConservative
CollegeConservative's picture
Neither has socialism.

Neither has socialism.

Bush_Wacker
Bush_Wacker's picture
Austerity never works because

Austerity never works because it's all smoke and mirrors.  Nobody ever actually cuts spending.  They re-route where the spending goes.  They take money away from those who need it and give it to those who crave it.  This is a great deal between Big business and politicians.

All that money the taxpayers think they will save in Wisconsin is going to go into other preferential pockets.  The result will be less money for the average joe to spend and therefore less tax revenue and therefore less jobs and therefore more people needing to latch onto the government teet and therefore a downward spiral into recession. 

That will of course be the Democrats policies which are the cause.

Phaedrus76
Phaedrus76's picture
Socialism works fine in

Socialism works fine in Sweden, Denmark...

CollegeConservative
CollegeConservative's picture
What'stheir stsndard of

What'stheir stsndard of living like and what's their debt ?

stwo
stwo's picture
Austerity is working in

Austerity is working in Estonia.

Entitlement Society
Entitlement Society's picture
Of course austerity has

Of course austerity has negative shortterm consequences. However, it's not done for the shortterm. It's done to settle longterm problems.

chilidog
I think this was part of Bob

I think this was part of Bob Dole's campaign for President in 1988.  He lost to that pinko commie who raised the top income tax rate to 31%...

pshakkottai
pshakkottai's picture
Reply to collegeconservative:

Reply to collegeconservative: India's constitution is :

 WE, THE PEOPLE OF INDIA,  having solemnly resolved to constitute India into a SOVEREIGN SOCIALIST SECULAR DEMOCRATIC REPUBLIC and to secure to all its citizens:

     JUSTICE, social, economic and political;

     LIBERTY of thought, expression, belief, faith and worship;

     EQUALITY of status and of opportunity;

     and to promote among them all

     FRATERNITY assuring the dignity of the individual and the unity and integrity of the Nation;

     IN OUR CONSTITUENT ASSEMBLY this twenty-sixth day of November, 1949, do HEREBY ADOPT, ENACT AND GIVE TO OURSELVES THIS CONSTITUTION.

and in India it works.

 

chilidog
I don't know anything about

I don't know anything about India.  How well did this work from 1949 to 1990?

lovecraft
Countries can't cut their way

Countries can't cut their way to prosperity-they grow their way to prosperity.

pshakkottai
pshakkottai's picture
Pretty well. The rate of

Pretty well. The rate of growth was small but education was free. I got my masters degree in physics at no expense (and with a small stipend.) Everybody was poor and didn't know about it.  Even now India is much poorer than other countries but it does not seem to matter.

mauiman58
mauiman58's picture
So all you who are against

So all you who are against austerity, what are you going to do about the 1 trillion dollar yearly shortfall we have in the US?  I think most of us agree that is unsustainable.

And please don't give me the box standard "tax the rich" and "reduce the military" answers please.  You can only reasonably cover about 20% of the gap with those two moves.

chilidog
Well, taxes have to be raised

Well, taxes have to be raised for the purpose or redistributing the wealth.  Even if all the taxes went to paying down the debt, that effects the same result.

But I know we disagree on that point.

However, I am starting to come around to the idea that, wealth distribution aside, maybe we are spending too much money.

There was a thread a while back with a link to a Forbes report that suggested that total household wealth of all Americans is between $50 and $70 trillion (IIRC the $70 trillion was before the housing market collapse, so $50T is closer to reality IF Forbes is to be believed.)

The Tax Foundation, again, IF they are to be believed, calculates all government spending Federal, State, and local comes out to about $5T for 2012. 

So I don't know if spending 10% of everything you've got is a good idea.  And if you raise taxes, which  I advocate, that $50T becomes less than $50T, so we would be spending more than 10%.

Do we throw Grandma out on the street? No.  Do we need 11 aircraft carriers? No.  And even if we raise tariffs and start rebuilding our manufacturing base, I don't know if that will make that $50T bigger or smaller.

 

smilingcat
Those who still think

Those who still think socialism doesn't work should go visit places like Coppenhagen, Helsinki, Oslo, Stockholm and other very pretty, clean safe place where most everyone is happy and content and without worries of healthcare cost.

If you relocate to Sweden, they even have free language classes and culture classes to help immigrants  integrate into their society.

Lutefisk and Akvavit (aquavit) anyone?? SMELLY fish!!! :) :D

 

douglaslee
douglaslee's picture
They all have surplus

They all have surplus budgets, too. Last year growth was about 6.5%, this year about 5% so far. They just agree to pay for things instead of borrowing. A few years ago the local news DID have a story on the homeless person. I have never seen any homeless in 18 years. When we go to the states, my wife and I have  to explain why the man is going through the garbage can in the street. And why there were bands of vets begging on the corners when we were driving by. "Why are they shaking cups? What does support the troops mean?" "Why do they have carboard signs?"

It's surströmming

Combad57
Combad57's picture
In 1934 the FDR admin was

In 1934 the FDR admin was somehow convinced to embark on a period of austerity at a time when the Great Depression was showing signs of recovery. The policies immediately threw the country back into depression and extended it by at least 3 years. So we have a historical example in this country on how well it works.

It was only when the austerity measures were withdrawn that the economy improved at all. There are those who say WWII was the factor that ended the Depression. That's probably not absolutely true. Yet even if it is somewhat true, what was the economy like during the war years? It was massive government spending on the war effort which is anything but austerity.

pshakkottai
pshakkottai's picture
That is not the way money

That is not the way money works. Only deficits make the economy grow because
(Federal Deficits = Net Private Savings+ net imports), applies to USA and other nations that have their own currencies.
Govts create money and the private sector uses it. Our PLUS is govt's MINUS and vice versa.
Govt debt is GOOD. Our debt is BAD. And the cumulative sum of all years of govt_DEBT is the same as national WEALTH. For proof see
http://pshakkottai.wordpress.com/2012/02/27/national-debt-and-national-wealth-compared/
and
http://pshakkottai.wordpress.com/2012/03/30/another-proof-of-mmt-4/

The govt has borrowed money from itself and given to the people. People own the money and collect interest. They DON'T have to pay any debt back. The govt is in debt to itself and has to do NOTHING. All this is called modern monetary theory and is well known to the treasury and fed.
The national debt everyone frets about is NOT real.
Right now everyone thinks that govt budget and household budgets are similar which actually couldn't be more different. Scare words like “unsustainable debt”, “living beyond our means”, “debt crisis” etc. are used and comparisons made to household budgets, a totally incorrect analogy.
Modern Monetary Theory is true. Lots of data is conformity with it. Govt_deficits are good, govt_surplus is bad, govt_debt implies private sector wealth, national debt need not be paid back, USA does not need taxes to spend, the (debt/GDP) means the same thing as (private wealth/GDP), for a monetarily sovereign nation, China does not fund our economy, inflation is not a risk until full employment is reached, USA can afford to bailout the states and stop all austerity. 

The best way of understanding money is to see how the game monopolis works. In this game,  govt is the score keeper and the players are the private sector and money is the SCORE.

Playing Monopolis Monopoly:at
http://neweconomicperspectives.org/2012/05/playing-monopolis-monopoly-an-inquiry-into-why-we-are-making-ourselves-so-miserable.html

CollegeConservative
CollegeConservative's picture
Have u ever been to those

Have u ever been to those countrys? I have and there is little to none middle class there. There is only the uber rich and the living poor. The average person does not have a home car ac. The cost ofliving in thes cities is so high there is little to no disposable income for the average person.

Phaedrus76
Phaedrus76's picture
CollegeConservative

CollegeConservative wrote:

Have u ever been to those countrys? I have and there is little to none middle class there. There is only the uber rich and the living poor. The average person does not have a home car ac. The cost ofliving in thes cities is so high there is little to no disposable income for the average person.

I am sorry, are you referring to the Amercan South? 

 

Phaedrus76
Phaedrus76's picture
List of countries by home

List of countries by home ownership rateFrom Wikipedia, the free encyclopedia  This article includes a list of references, related reading or external links, but its sources remain unclear because it lacks inline citations. Please improve this article by introducing more precise citations. (April 2010)

This is a list of countries by home ownership rate, the ratio of owner-occupied units to total residential units in a specified area.[1]

RankCountryHome ownership
rate(%)Date of
Information1 Bulgaria972011[2][3]Hungary91.92001[4]Singapore872010[5]Palestine842000[6]Ireland8320026 Slovenia8220027 Italy7820117 Spain782001[7]Norway7720029 Brazil742008[8]10 Belgium71200210 Israel71200211 United Kingdom69200211 Australia69200212 United States68200213 Canada67200213 Finland67200014 New Zealand652004[9]15 Portugal64200216 Japan60200017 Sweden602000 

Phaedrus76
Phaedrus76's picture
Transportation Statistics >

Transportation Statistics > Cars (most recent) by countryVIEW DATA:  Totals Definition     Source      Printable version       Bar Graph  Map  Correlations 

Showing latest available data.

Rank  Countries  Amount  # 1    Italy:539 per 1,000 people  # 2    Germany:508 per 1,000 people  # 3    Austria:495 per 1,000 people  # 4    Switzerland:486 per 1,000 people  # 5    Australia:485 per 1,000 people  # 6    New Zealand:481 per 1,000 people  # 7    United States:478 per 1,000 people  # 8    France:469 per 1,000 people   Transportation in France  # 9    Canada:459 per 1,000 people  # 10    Belgium:448 per 1,000 people  # 11    Sweden:437 per 1,000 people  # 12    Norway:407 per 1,000 people  # 13    Finland:403 per 1,000 people  # 14    Japan:395 per 1,000 people  # 15    Netherlands:383 per 1,000 people  # 16    United Kingdom:373 per 1,000 people  # 17    Denmark:353 per 1,000 people  

Phaedrus76
Phaedrus76's picture
Sorry, the charts got jacked

Sorry, the charts got jacked up.

On Home Ownership, the US is right in the pack with UK and Canada and Ireland, which is odd, since we are a huge nation, with lots of empty land. It must be our tax laws that encourage hoarding.

.ren
.ren's picture
I feel for your efforts,

I feel for your efforts, Phaedrus. I am so frustrated by the software limitations of this site I just walk away shaking my head sometimes. It can make fools of us all.

Your linked data at the Wiki site illustrates the bald-faced fallacious assertions of the poster's remarks you quoted in post #22.  Of course, they tend to be ever careful not to make clear who or what they are responding to so they'll have some way of ducking what they mean, thus your efforts to throw a rope on him with facts will sail past.  But that's how they work their rodeo clown trade.

In your above post, I think this is worth clarifying that the U.S. is ranked number 12 (but is actully number 15 on the list because of ties) in home ownership on a graph at the following Wiki link, here are the first 7 (Spain and Italy are tied, so there are actually eight countries listed by rank):

List of countries by home ownership rate (from Wikipedia)

Rank     Country     Home ownership rate%

1.         Bulgaria         97%

2.        Hungary          91.9%

3.         Singapore       87%

4.        Palestine         84%

5.         Ireland            83%   

6.         Slovenia          82%

7.          Italy                 78%

7.          Spain              78%

chilidog
I don't know how meaningful

I don't know how meaningful the metric of "homeownership" is when evaluating a society.  For example, in your Wiki article, look at the lowest rates of homeownership: Germany, Holland, Denmark, etc.  I'd prefer to live in any of those places than Bulgaria, Hungary,  Palestine,

Secondly, that article is essentially worthless in that only 4 countries' data is from after 2004.

.ren
.ren's picture
I don't know how useful home

I don't know how useful home or car ownership metrics are either, but those appear to have been the metrics CC was using to make his claims.

CollegeConservative wrote:

The average person does not have a home car ac

 

douglaslee
douglaslee's picture
How many in Manhattan have

How many in Manhattan have cars? Do limousine services count as car ownership? We have excellent public transportation, cars are not a necessity. Our roads are excellent, I have seen nary a pothole. After the winter season, resurfacing began. I thought it was still ok, but then in comparison to third world grade  infrastructure  in the US, my judgement may be skewed.

Entitlement Society
Entitlement Society's picture
chilidog wrote: I don't know

chilidog wrote:

I don't know how meaningful the metric of "homeownership" is when evaluating a society.  For example, in your Wiki article, look at the lowest rates of homeownership: Germany, Holland, Denmark, etc.  I'd prefer to live in any of those places than Bulgaria, Hungary,  Palestine,

Secondly, that article is essentially worthless in that only 4 countries' data is from after 2004.

It's not useful at all. Bulgaria is #1. Enough said.

.ren
.ren's picture
To bring this back to the

To bring this back to the points in the lead post's linked article instead of the fallacies of false comparison:

Ha-Joon Chang in the Guardian wrote:

So, if the whole history of capitalism, and not just the experiences of the last few years, shows that the supposed remedies for today's economic crisis are not going to work, what are our political and economic leaders doing? Perhaps they are insane – if we follow Albert Einstein's definition of insanity as "doing the same thing over and over again and expecting different results". But the more likely explanation is that, by pushing these policies against all evidence, our leaders are really telling us that they want to preserve – or even intensify, in areas like welfare policy – the economic system that has served them so well in the past three decades.

For the rest of us, the time has come to choose whether we go along with that agenda or make these leaders change course.

Do we want a society where 50% of young people are kept out of work in order to bring the deficit down from 9% of GDP to 3% in three years? A society in which the rich have to be made richer to work harder (at their supposed jobs of investing and creating wealth) while the poor have to be made poorer in order to work harder? Where a tiny minority (often called the 1% but more like the 0.1% or even 0.01%) control a disproportionate, and increasing, share of everything – not just income and wealth but also political power and influence (through control of the media, thinktanks, and even academia)?

Maybe we do, but these choices need to be made consciously, rather than by default. The time has come to choose the kind of society we want to live in.

And the link in that first paragraph goes to this statistic-based article showing the results of the current austerity measures in Europe:

Austerity in Europe: what does it mean for ordinary people?

I would like to point out that the implied "other" remedy was already beginning to show signs of wear in the 1970s as the overall measurements economists like to use to prove their high priesthood religious beliefs are correct, economic growth, were slowing.  So we have this binary opposition, neoliberal laissez faire free market measures versus Keynesian government borrowing and economic stimulation measures.

And then we have the Limits to Growth formally recognized in 1972 that these electable leaders seem to be utterly uninterested in at the moment because ordinary people as well as the elite have their respective agendas, eating and basic shelter on the one hand, increasing their wealth on the other, and neither seem interested in accommodating that complication in their desperate considerations.

2052: A Global Forecast for the Next Forty Years

Apocalypse Soon: Has Civilization Passed the Environmental Point of No Return?

Study predicts imminent irreversible planetary collapse

Green decline 'may bring irreversible change'

 

mauiman58
mauiman58's picture
chilidog wrote: Well, taxes

chilidog wrote:

Well, taxes have to be raised for the purpose or redistributing the wealth.  Even if all the taxes went to paying down the debt, that effects the same result.

But I know we disagree on that point.

However, I am starting to come around to the idea that, wealth distribution aside, maybe we are spending too much money.

There was a thread a while back with a link to a Forbes report that suggested that total household wealth of all Americans is between $50 and $70 trillion (IIRC the $70 trillion was before the housing market collapse, so $50T is closer to reality IF Forbes is to be believed.)

The Tax Foundation, again, IF they are to be believed, calculates all government spending Federal, State, and local comes out to about $5T for 2012. 

So I don't know if spending 10% of everything you've got is a good idea.  And if you raise taxes, which  I advocate, that $50T becomes less than $50T, so we would be spending more than 10%.

Do we throw Grandma out on the street? No.  Do we need 11 aircraft carriers? No.  And even if we raise tariffs and start rebuilding our manufacturing base, I don't know if that will make that $50T bigger or smaller.

 

Chilidog, at least you are starting to think that perhaps we are spinding too much money.  Let me throw some numbers at you.

Sorry I cannot find any links to support these numbers but I think they are basically correct. If they are wrong, let me know.

Total income for households making $200,000 or more- 2 trillion

US defense budget- 600 billion a year

Let's assume those making $200,000 or more are paying 25-30% of that in income taxes.

So if you add another 5% to the income tax rate of those above $200,000, that would bring in 100 billion.  And that's a pretty stiff tax hike.

If you cut about 15% out of the military, that would be another 100 billion or so.  And that is a pretty stiff cut in the military.

Where does the other 800 billion come from?  I agree that it does not have to happen overnight, but you do have to lower this shortfall some soon.  And it will take some spending cuts other than to the military to make this happen.

douglaslee
douglaslee's picture
Well, there is a discussion

Well, there is a discussion about subsidies and tax breaks. Most would consider both to be spending, but the guys that sold their sole to Mr Scratch consider not giving welfare is a tax hike.