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Thread: Austerity or no Austerity

  1. #1
    Mandyloo

    Default Austerity or no Austerity

    Should governments with high debt and fiscal troubles pursue austerity? Does it really work?

  2. #2
    LittleDrummerGirl

    Default

    That seems to be what the US government is doing already, and I don't think it's working. Our debt just keeps skyrocketing every passing minute... I don't know much about economics, so I can't present an alternative. Auaterity would work for small debt - maybe a growing country or a business - but not for us now.

  3. #3
    Mandyloo

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    Quote Originally Posted by LittleDrummerBoy View Post
    That seems to be what the US government is doing already, and I don't think it's working. Our debt just keeps skyrocketing every passing minute... I don't know much about economics, so I can't present an alternative. Auaterity would work for small debt - maybe a growing country or a business - but not for us now.
    Well not with Obama's plan. He saves when and where necessary. In the UK, it's definitely not working

  4. #4

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    Quote Originally Posted by Mandyloo View Post
    Should governments with high debt and fiscal troubles pursue austerity? Does it really work?
    Certainly a government should ensure that they are not wasting money on ineffective programs or pork spending or loopholes that allow those who shouldn't be able to tap into certain programs to do so.

    But austerity in a time of economic downturn is a horrible idea, and it worsens and prolongs the downturn. It's been massive government spending that's gotten at least the United States out of recessions and depressions over the last century. During the Great Depression, FDR's government had managed to dramatically lower unemployment until more conservative elements convinced him to stop spending and start cutting budgets. World War II and the massive "Throw money at it until we win" government spending that came with it are what ushered in the prosperity of the 1950s. Building the Interstate Highway network helped curtail and stave off recession during the late 1950s (the same recession was part of what killed the Edsel). Ronald Reagan's profligate spending on military capability and armament is arguably a big contributing factor to the United States coming out of the recession of the late 1970s.

    Conversely, debt-financed tax cuts usually are reasonably ineffective, as shown by George W. Bush's government's lackluster job creation rates. W responded to economic shock by cutting taxes and writing taxpayers a $600 check out of Clinton's budget surplus. People largely used it to pay down bills or threw it in the bank, and it didn't have nearly the effect that was promised.

    The best way to fight a bad recession seems to be the same strategy that wins wars: Throw money at it until we win, and print it if we have to. Use the revenues we have during good times to pay off the debt.

  5. #5
    Mandyloo

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    Quote Originally Posted by xbabyx View Post
    Certainly a government should ensure that they are not wasting money on ineffective programs or pork spending or loopholes that allow those who shouldn't be able to tap into certain programs to do so.

    But austerity in a time of economic downturn is a horrible idea, and it worsens and prolongs the downturn. It's been massive government spending that's gotten at least the United States out of recessions and depressions over the last century. During the Great Depression, FDR's government had managed to dramatically lower unemployment until more conservative elements convinced him to stop spending and start cutting budgets. World War II and the massive "Throw money at it until we win" government spending that came with it are what ushered in the prosperity of the 1950s. Building the Interstate Highway network helped curtail and stave off recession during the late 1950s (the same recession was part of what killed the Edsel). Ronald Reagan's profligate spending on military capability and armament is arguably a big contributing factor to the United States coming out of the recession of the late 1970s.

    Conversely, debt-financed tax cuts usually are reasonably ineffective, as shown by George W. Bush's government's lackluster job creation rates. W responded to economic shock by cutting taxes and writing taxpayers a $600 check out of Clinton's budget surplus. People largely used it to pay down bills or threw it in the bank, and it didn't have nearly the effect that was promised.

    The best way to fight a bad recession seems to be the same strategy that wins wars: Throw money at it until we win, and print it if we have to. Use the revenues we have during good times to pay off the debt.
    Fully agree with you. Unfortunately, David Cameron doesnt get it.

  6. #6

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    Quote Originally Posted by Mandyloo View Post
    Well not with Obama's plan. He saves when and where necessary. In the UK, it's definitely not working
    I disagree, the government can't actually create money (well they can print it, but that's a bad idea for so many reasons) All they do is absorb up investment that could be used for the private sector. I had this argument with someone on facebook a week ago or so. At the current moment the economies are coming down from a huge high of false money. It isn't going to be pretty, but if you want the alternative, look at Greece.

  7. #7

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    Quote Originally Posted by SonicBear View Post
    I disagree, the government can't actually create money (well they can print it, but that's a bad idea for so many reasons) All they do is absorb up investment that could be used for the private sector. I had this argument with someone on facebook a week ago or so. At the current moment the economies are coming down from a huge high of false money. It isn't going to be pretty, but if you want the alternative, look at Greece.
    Hyperinflation is a risk, but controlled printing of money is a completely viable tool for central banks and governments to manage an economy. The trick is having something of an economy to manage in the first place. Zimbabwe and their famous hyperinflation (I have two examples of the 100 TRILLION dollar bill they printed toward the end) shows that if you don't have a functional economy in the first place, printing more money will just make things worse. However, the United States has a functional economy. The amount we'd have to print to get it fired up again versus what it would take to drive us to drastic inflation warrants us firing up the printing presses. We're a long long way from even being in a bad debt situation, let alone being in a hyperinflation scenario. I mean, Japan still has a first-world economy and a premium credit rating, and their debt is something like 220 percent of GDP. We've only recently passed 100 percent debt to GDP, and the only reason our credit rating got tarnished was because jackass Republicans threatened to stop paying the bills.

  8. #8

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    Quote Originally Posted by xbabyx View Post
    Hyperinflation is a risk, but controlled printing of money is a completely viable tool for central banks and governments to manage an economy. The trick is having something of an economy to manage in the first place. Zimbabwe and their famous hyperinflation (I have two examples of the 100 TRILLION dollar bill they printed toward the end) shows that if you don't have a functional economy in the first place, printing more money will just make things worse. However, the United States has a functional economy. The amount we'd have to print to get it fired up again versus what it would take to drive us to drastic inflation warrants us firing up the printing presses. We're a long long way from even being in a bad debt situation, let alone being in a hyperinflation scenario. I mean, Japan still has a first-world economy and a premium credit rating, and their debt is something like 220 percent of GDP. We've only recently passed 100 percent debt to GDP, and the only reason our credit rating got tarnished was because jackass Republicans threatened to stop paying the bills.
    The problem is that its a politically easy thing to print/borrow money, as opposed to actually paying it off. You can't keep doing it, as eventually something will break. Recession's are usually 'corrections' of what went wrong during the booms (i.e. the banks lending money to people who couldn't pay it back) Because we bailed out the banks rather than letting them fail (which admittedly would have been an unmitigated disaster), the correction hasn't quite happened in the same way. So the base to rebuild isn't quite as strong as before. We also have the problem in the UK that we don't make much, which certainly doesn't help the economic front. At least the Japanese do make things.

  9. #9

    Default



    Quote Originally Posted by SonicBear View Post
    The problem is that its a politically easy thing to print/borrow money, as opposed to actually paying it off. You can't keep doing it, as eventually something will break. Recession's are usually 'corrections' of what went wrong during the booms (i.e. the banks lending money to people who couldn't pay it back) Because we bailed out the banks rather than letting them fail (which admittedly would have been an unmitigated disaster), the correction hasn't quite happened in the same way. So the base to rebuild isn't quite as strong as before. We also have the problem in the UK that we don't make much, which certainly doesn't help the economic front. At least the Japanese do make things.
    In fairness, I don't know anything about the relationship of the UK's central bank and the UK's central government. In the United States, the Federal Reserve is an autonomous agency (subject to a few congressional controls that are never exercised). This largely removes the political pressures that a central bank with closer ties to the central government would face. In the United States, that has allowed the Fed to do a variety of things, such as the couple of rounds of Quantitative Easing, various debt buy-backs, tweakery of long-term interest rates via debt buy-backs, et cetera, that a central bank with closer ties to the central government would be unable to do. It also means that the central bank (the Fed for us) has ultimate control over the size of the money supply, not the central government.

    Like I said, I don't know how the UK's central bank and central government relate to each other, so perhaps there are greater political risks and considerations with regard to the money supply and fiscal policy than there are here. (Note that all of this is a big part of why Ron Paul's economic policy positions are absolute garbage, too. He wants a politically compliant Federal Reserve, which is a disaster waiting to happen. I would assert that part of his desire is based on knowing how a politically compliant Fed would work and hoping that he and like-minded individuals would be the ones effectively in control of monetary policy via the gold standard, which was regulated by Congress.) But, since the UK still is considered a first-world economy, I would imagine that there is at least some flexibility and potential in terms of printing money and the economic consequences of doing so.

  10. #10
    Mandyloo

    Default



    Quote Originally Posted by SonicBear View Post
    I disagree, the government can't actually create money (well they can print it, but that's a bad idea for so many reasons) All they do is absorb up investment that could be used for the private sector. I had this argument with someone on facebook a week ago or so. At the current moment the economies are coming down from a huge high of false money. It isn't going to be pretty, but if you want the alternative, look at Greece.
    There must be a visible hand in the economy. Karl Polanyi said that.

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