Not so smart as everyone and their cat?

September 22, 2011 11:34 AM

"It is this failure of political will both in the EU and US which is starting to make the contemporary economic scene resemble that of the 1930s. " The Eurozone and the US are heading into a bad economic decade, argues John Lanchester (wiki).

Governments and the financial sector are choosing bad strategies, with open eyes.
"The next scenario – the one we are on course for at the moment – is not so much the next-best as the next-least-worst."
Is he right?
(Lanchester previously on MetaFilter)

posted by doctornemo (49 comments total)

I find nothing creates political will quite like a city burning.
posted by Naberius at 11:42 AM on September 22, 2011 [1 favorite]

The Eurozone and the US are heading into a bad economic decade, argues John Lanchester.

Is it bitter of me to note that my immediate thought upon reading this sentence was, "well, no duh"?
posted by EmpressCallipygos at 11:42 AM on September 22, 2011 [2 favorites]

We're continually re-defining 'bad'.
posted by doteatop at 11:53 AM on September 22, 2011 [2 favorites]

I was certain that I had read this two years ago. But searching shows that it is indeed new.
posted by Splunge at 11:56 AM on September 22, 2011 [3 favorites]

I find nothing creates political will quite like a city burning.

Naberius, examples? The allegorical Nero isn't one. Qaddafi fleeing while Tripoli falls - nope.

Frankly, I think nothing creates the desire to ignore the problem and run, like a crumbling situation.

In democracies (switching metaphors), we do it by flipping parties in power, which is only useful if one side of the coin is worth more than the other...
posted by IAmBroom at 11:57 AM on September 22, 2011

Is it bitter of me to note that my immediate thought upon reading this sentence was, "well, no duh"?

Dunno, but I often think "Duh" when I discover that certain financial/political prognosticators are shocked at the results of political decisions that myopically favor the already-privileged at the expense of everyone else without regard for long term consequences.

Hey, let's get rid of all these illegal immigrants! What? There's no one left to pick the crops? Who knew? Hey, let's have massive layoffs to improve our bottom line! What? Consumer confidence is down and no one is spending money on Christmas this year? Who could have foreseen that?
posted by treepour at 11:58 AM on September 22, 2011 [5 favorites]

Is it bitter of me to note that my immediate thought upon reading this sentence was, "well, no duh"?

Economist is the new weatherman.
posted by gauche at 12:00 PM on September 22, 2011 [3 favorites]

I like the Lewis Black skit about weathermen being replaced with chimps. You could do it with economists too. They throw darts at a board with labels like, "austerity" "stimulus" "new new deal" etc and then the press reports what the new plan is.

And then when it fails, well what are you going to do? Your economist is a fucking chimp.

Its not like you could look back in history and see exactly how to generate mass numbers of jobs in a short period of time.
posted by Slackermagee at 12:10 PM on September 22, 2011

Its not like you could look back in history and see exactly how to generate mass numbers of jobs in a short period of time.

cough, military conflict, cough
posted by Reasonably Everything Happens at 12:12 PM on September 22, 2011

So, what the article is saying, is that I'm likely to spend my entire adult life in a broken, bickering country without any money or prospects to earn it? Great.
posted by codacorolla at 12:17 PM on September 22, 2011 [4 favorites]

I find nothing creates political will quite like a city burning.

Is that you, Ghost of Mussolini?
posted by Apocryphon at 12:25 PM on September 22, 2011 [1 favorite]

i'm just gonna throw my mostly uneducated opinion out there..

oil is trading at a now 4-week low near $80/bbl. inflation is low, interest rates might as well not exist; and yet growth doesn't exist. so let's just imagine that in a world where a huge Saudi Arabia-sized oil field is just magically discovered under, let's just say, Peoria, IL. so in this theoretical world, more supply (eventually) comes on line, barrel prices fall, and the stuff (energy) that makes consumption possible gets much cheaper. everyone has the same amount of money, but the stuff they buy and the fuel they use to buy, produce, sell, ship, etc all of it is now cheaper. kaboom, growth happens, and everyone pays off their debts and whatever problems there are with faulty investments and whatever else gets papered over by the real wealth created by all that consumption.

but that magic oil field in the midwest (or anywhere else) almost certainly doesn't exist. and EVERYONE knows it, whether or not they want to admit to that or be overly optimistic about it. we have nothing that replaces the energy density of oil. and so if demand for oil picks up, so do the prices because of the basic laws of supply and demand. which makes everything more expensive and yet the consumers still have the same amounts of money to spend. back in 2008, when oil spiked to close to $150/bbl, it is widely viewed as a major contributor to the cratering of the growth trend.

so that leaves us here. there's less demand for stuff, and less money to consume it. at the same time, the things we do consume are not made by fairly-paid labor, so we are sending our money away to companies that don't spend like consumers and neither do their 'employees'. so in a country that used to manufacture most of the stuff we bought, we aren't even sending the money back to our friends and neighbors.

the staggering unemployment is in direct correlation to the lack of growth. yeah that's been said over and again. but returning to 'normal' growth accelerates oil price spikes, food price spikes, climate change, and this is I believe the sort of invisible barrier the world economy is running up against. just because 'stuff' is more expensive doesn't mean business can pay the workers more to make it. they have to charge more because everything involved in production and distribution costs more.

so yeah, ENERGY IS THE PROBLEM. and we grew out of the 30s with a MASSIVE war, and then decades of cheap energy and domestic manufacturing that made cars and suburban houses and STUFF cheaper. that world is over.
posted by ninjew at 12:29 PM on September 22, 2011 [3 favorites]

We made this choice when we decided to hollow out our economy in return for cheaper TVs and unargumentative labor. In many ways, a future in which China is the worlds leading economic superpower is one of the more benign outcomes: for one thing, they're huge on doing the things we have no will to do, such as build infrastructure and develop green technology. Unfortunately we will have nothing to trade for it, except maybe land.
posted by George_Spiggott at 12:32 PM on September 22, 2011 [2 favorites]

I like the Lewis Black skit about weathermen being replaced with chimps. You could do it with economists too. They throw darts at a board with labels like, "austerity" "stimulus" "new new deal" etc and then the press reports what the new plan is.

Over ten years old, still relevant.
posted by gauche at 12:43 PM on September 22, 2011 [2 favorites]

Yes, governments are choosing bad strategies. There are however many voters who see all the government programs that don't directly benefit them as illegitimate. All that spending has largely resulted from a moral hazard embedded in Keynesian economics. We're learning that, if you spend like a recession all the time, the population might withdraw their support during a real recession, meaning we cannot avoid that flip side of Keynesian economics. I donno..

We could try financial warfare with big nation states rampantly manipulating the markets against one another, that sounds non-violent and fun. And you'll even create manufacturing since imported chips, harddisks, etc. all arrive with viruses designed to steal you financial secrets.
posted by jeffburdges at 12:43 PM on September 22, 2011

The United States can currently borrow at record lows. 10yr bonds are at something like 1.7% (see bloomberg)

Investors do not know what to do with their money and, because of market volatility, are extremely risk averse, so much so that they are willing to lose a little bit a money in the long term to inflation in return for a "risk-free" investment.

This country needs to invest heavily into R&D, aggressively seeking out new innovations. The market is much too skittish to do it, and, if anything, the bond market is strongly urging the American Government to take on the risk of R&D.
posted by Shit Parade at 12:54 PM on September 22, 2011 [1 favorite]

I'd short the world but it probably wouldn't crash fast enough.
posted by surplus at 1:26 PM on September 22, 2011

I was certain that I had read this two years ago.
Is it bitter of me to note that my immediate thought upon reading this sentence was, "well, no duh"?

I actually had similar reactions when reading the article this morning. It seemed blue-worthy for a couple of reasons. First, it's a current update on an unfolding crisis. Second, Lanchester's a fine writer, and the piece has plenty of good explanations of both present and recent aspects of the problem. Third, his predictions seem noteworthy, both for their detail and his record of good analysis.
posted by doctornemo at 1:45 PM on September 22, 2011

I agree about the huge power of peak oil, ninjew. That's one piece missing from Lanchester's analysis.

What a trio of deep problems: financial woe, climate change, peak resources!
posted by doctornemo at 1:53 PM on September 22, 2011 [1 favorite]

I find nothing creates political will quite like a city burning.

Burning cities can create a mindless panic which is not conducive to rational thought.

Your economist is a fucking chimp.

Sigh. We might have had some chimpesque (chimpy?) economists in the last few decades, starting with the Reagan years (Voodoo economics), but completely dismissing the entire science of economy in itself is a prelude to a return to the stone ages.

The recent Tea Party mania for slashing the current deficit is in defiance of essential Keynesian Theory, and if not stopped, it is a recipe for catastrophe, and the end of the world as we know it.
posted by ovvl at 5:24 PM on September 22, 2011 [1 favorite]

But there has been a failure of economic thought, ovvl. Not every economist by any means, and not right at this second. But the economists who spent years teaching our current crop of politicians and opinion leaders that Keynes was discredited and government spending held the economy back did fail. And the consequence of their failure is a generation of leaders who keep on pushing austerity as a solution to every situation, even when it just makes things worse.
posted by Kevin Street at 5:56 PM on September 22, 2011 [1 favorite]

Doom! Our economic nightmare is just beginning.
posted by homunculus at 6:49 PM on September 22, 2011 [1 favorite]

Economic Bleeding Cure: Austerity is inflicting vast pain now, and killing our future, too.
posted by homunculus at 6:51 PM on September 22, 2011 [1 favorite]

John Lanchester's essays on the dire state of the economy are extremely pleasurable to read. Back in the run-up of the Iraq War, when every news-cycle was more depressing than the last, I could soothe myself by saying: "Well, at least The Daily Show tonight will be hilarious." It's sort of the same now with the economy: "Well, yet another sector of the global economy is tanking... can't wait to read what John Lanchester has to say about it!"
posted by Kattullus at 7:55 PM on September 22, 2011

http://bottomline.msnbc.msn.com/_news/2011/09/22/7900826-recessions-second-act-would-be-worse-than-the-first
posted by Brian B. at 8:11 PM on September 22, 2011

It is an extremely well written article. This John Lanchester does seem to know what he's talking about.

We don't even need both of the things he prescribes to fix the current situation. We'd ultimately be better off with both of them, and re-regulating the financial sector is the best way to make sure another crisis of this kind won't happen again, but ultimately what the world needs most right now is the stimulus spending. That would at least get people working, and get the rusty gears of the economic machine turning.
posted by Kevin Street at 8:34 PM on September 22, 2011

Bring back the WPA. Pay anyone who's willing to work a decent wage + benefits for unskilled labour and put them to work on bringing the infrastructure back up to scratch. No public/private partnership bullshit. No construction companies with their hands in cookie jars suckling at the government teat. No local counties and cities shovelling good money after bad to the local business magnates. Build a new middle class from scratch and the rest will follow.

But does the US have the collective political will? You've got to be joking.
posted by Talez at 10:39 PM on September 22, 2011 [1 favorite]

Talez: yep. And that's why we should have a universal jobs guarantee.
posted by wuwei at 11:05 PM on September 22, 2011 [1 favorite]

I'm not sure why MeFi loves this guy so much. He may be an excellent novelist and journalist, but he doesn't seem to be particularly well-informed about this subject. E.g.

Everybody and his cat knows that the eurobond is the only way out of the crisis for the eurozone in the medium term

Not everybody "knows" that. Here's VoxEU: Eurobonds: Wrong solution for legal, political, and economic reasons. Marginal Revolution: "a non-starter which could not make it off the drawing board"

Eurobonds are yet another bailout. If Greece and Southern Europe default, the banks holding their bonds suffer. One point of Eurobonds is to get Northern European taxpayers to pre-emptively bail out those banks. The other is to bailout the governments themselves.

A lot of the agitators for Eurobonds are people who would benefit from another bailout, and the arguments for it generally concentrate on the bad things that will happen if there's no bailout. But what of the problems if there is a bailout? Moral hazard is an issue: if borrowers know they will always be bailed out, they're just going to keep taking more and more risks, the "doom loop" again.

What if the bailout doesn't work? So far every bailout has just greated demands for a bigger bailout. National bailouts didn't work, because it turned out the weaker national governments couldn't afford it. So now they want Eurobonds: a international bailout. But what if even Europe isn't big enough?

I think Lanchester is taking the gimme-a-bailout-or-else cries a bit too uncritically, and jumping to the conclusion that those silly politicians must be dysfunctional for not just giving them another bailout.

Same goes for this bit.

...the agreeably frisky Belgian 0.7 per cent. Why is that, if you’ve been following the story, laugh-aloud funny? Because Belgium doesn’t have a government. Thanks to political stalemate in Brussels, it hasn’t had one for 15 months. No government means none of the stuff all the other governments are doing: no cuts and no ‘austerity’ packages. In the absence of anyone with a mandate to slash and burn, Belgian public sector spending is puttering along much as it always was; hence the continuing growth of their economy. It turns out that from the economic point of view, in the current crisis, no government is better than any government – any existing government.

First there are other factors than the lack of government: Belgium's banks may have been less exposed to problems. But also Belgium's lack of government, and lack of austerity measures, has meant its "automatic stabilizers" like inflation-linked pensions have essentially carried out an exceptionally long, exceptionally large Keynesian stimulus. But this also means Belgium is racking up exceptionally large amounts of debt. In the long term, that's either going to have to be paid back with an exceptionally harsh austerity programme, or its going to mean default on its debt.

Belgium's path gives short-term benefits with a long-term cost. It's too simple to say "hey, look how well they're doing in the short term, that must be the best thing to do".
posted by TheophileEscargot at 1:47 AM on September 23, 2011 [2 favorites]

Based on the FPP, I was hoping for a little discussion about why so many features of the political landscape (not just the fact we seem to be heading for a decade(s) long depression) reflect the climate of the 1930's:

a deep and systemic crisis in capitalism brought about by the deflationary economics of reactionary politicians;

in the 30's it was stubborn clinging to the gold standard and protectionist tariffs;

a crisis in democracy with many countries turning towards right-wing authoritarianism with a strong flavor of racial nationalism;

in the 30's a failure to build consensus gridlocked many parliamentary democracies - many of them quite young as constitutional republics - which resulted in the rise of fascism;

a communist economy (China) that is outgrowing and outproducing Western capitalism;

in the 30's, the Soviets were making visible progress with industrialization and had strong growth (as well as concealed horrendous repression and famine) while western capitalist economies shrank and stagnated.

I'm not claiming the parallel is exact. I'm saying the similarities are striking. Since the beginning of summer, I've been reading up on western 20th century history: The Age of Extremes (Hobsbaum), Postwar (Judt), Dark Continent (Mazower.)

Something that all three of these books emphasize is that WWII did not end the Depression. The wartime economy sort of masked it with a high fever, but the structural problems of the deflation were not solved by the war production. In the case of England in particular, winning the war exhausted their financial reserves and delayed the postwar recovery.

It appears that the western postwar recovery pivoted on a couple of things: debt repudiation by many of the countries that were devastated by occupation and the massive extension of credit by the US through the Marshall Program. Debt forgiveness and the creation/extension of credit are the two things that ended the Great Depression and are the two policies whose avoidance did the most to continue it.

It seems like another grim example of how those who study history are condemned to watch it repeated by those who ignore its lessons.

The whole craze for austerity and debt reduction (which is really a form of upward wealth transfer) is founded on the misconception that reducing the debt is more important than paying it off. Most of the bogus arguments involve the fallacy of imagining the world economy is an open system (like a household economy) instead of the entire system. It's as if nobody ever learned anything of macroeconomics.

Americans are so self-centered that the obsession with the insanity of the Tea Party obscures the fact that there has been a global trend of governments shifting to the right. Most of this is happening by a combination of racial nationalism (you can call it other things, but it's really exclusionary definitions of citizenship being used to create fake parliamentary majorities) and deflationary upward wealth transfer.

Ick.
posted by warbaby at 5:34 AM on September 23, 2011 [7 favorites]

Bring back the WPA.

As a writer and theater worker, allow me to add: "Only if we have a program like Federal Project Number One as part of it."

(Because not only would I maybe get more work in those fields, but also because some of the stuff produced by the WPA artists and by Federal Theater ROCKED.)
posted by EmpressCallipygos at 5:48 AM on September 23, 2011 [3 favorites]

moral hazard

Debt forgiveness

crisis in democracy


I believe this is the relevant political economy axis
posted by Reasonably Everything Happens at 5:50 AM on September 23, 2011

As an expat living in Brussels, I like his semi-humourous flattery of The Belgian System Or Lack Thereof, but seriously folks, don't try it at home.

Without meaning to derail, the reason for the 15-month deadlock is basically a resurgence of Flemish nationalism and some populist politicians who have decided to make hay from exacerbating the situation as a way of proving that the system is broken. After reading War is a force that gives us meaning, the parallels to the early stages of the Balkanisation of former Yugoslavia were quite depressing. Do Not Want.

Back to the subject at hand, TheophileEscargot, long term you may be right about Belgian debt but I believe the point of the article was that "austerity now" is pro- and not counter-cyclical, and hence a bad idea? The relatively low prices of Belgian debt bely the need for Belgian austerity right now. Belgian debt has hovered around 100% of GDP for a relatively long time now, since even before the Euro, and nobody's ever questioned the ability or willingness of the Belgian state to repay.

(As an aside: ironically, before the Euro, it could never have taken this long to form to form a government, because concerns over political stability would express themselves directly in the market via the exchange rates for the Belgian Franc...)
posted by ianso at 6:42 AM on September 23, 2011

...long term you may be right about Belgian debt but I believe the point of the article was that "austerity now" is pro- and not counter-cyclical, and hence a bad idea?

Yes-ish, assuming that we know what the cycle is.

Basically Keynesian stimulus works by shifting economic activity in time. You create economic activity in the short-term by deficit spending, but you destroy an equal amount in the long term when you pay it off that debt. But that's OK if it's during the boom phase of the cycle, you don't really need the extra economic activity then.

Keynesian stimulus helps you in the short term, hurts you in the long term. Austerity hurts you in the short term, helps you in the long term.

But when he says things like this I wonder if he really grasps it:

A decade-long slowdown would accelerate this shift in global wealth and power and would be a grim thing to live through, but from a world-historical perspective it might not be a game-changer: it might just be the non-scenic route to the place we’re going anyway.

What makes the process so frustrating is that the measures which might be taken to avoid the years of stagnation seem fairly obvious. The first of them is to embark on a medium-term plan of stimulus and spending to help growth...

It's not really feasible to have a decade-long stimulus, you'd never pay it back. A Keynesian stimulus right now doesn't help us over the next decade. It hurts us over the next decade, as that's when we're paying it back.

If you're an optimist about growth over the next decade, you should be arguing for a greater stimulus this year, as we'll easily be able to afford to pay it off.

If you're a pessimist about growth over the next decade, you should be arguing for austerity now, because we're not going to be able to pay back for a stimulus.

But Lanchester seems to be a growth pessimist who also wants a big Keynesian stimulus right now, which doesn't really make sense.

My impression is that he doesn't really have a firm grasp of the economics. He's a non-specialist who's done some reading and research, but he's too quick to report some disputed opinions as if they were plain fact, and he's slightly confused over the timescales.
posted by TheophileEscargot at 7:03 AM on September 23, 2011

Poignant.
posted by Talez at 7:53 AM on September 23, 2011

TheophileEscargot, I appreciate the criticism, as someone still trying to figure out macro-.
Do you think this best move would be for Greece and perhaps another PI(I)GS to default, or for their politicians to successfully implement more austerity?

NB: this is a serious question, at least from me.
posted by doctornemo at 8:18 AM on September 23, 2011

Bring back the WPA. [...] But does the US have the collective political will? You've got to be joking.

I dunno. I've heard a lot of very conservative people saying similar things lately. These are not normally the sort of people who are in favor of Big Federal Spending Projects, but it's becoming apparent even to the conservative side of Main Street that unemployment is a really serious problem, far more serious than any of the shit that Washington is occupying itself with. (I tend to think this is behind Obama's popularity slide and the lack of enthusiasm for many would-be challengers. None of them have taken up the jobs issue in a way that resonates.)

There's a definite appetite for something WPA-like, and I think you could get broad support if it was sold in the right way. Unfortunately, the way that you'd need to sell it, if you wanted to get conservatives on board, would probably not be the way liberals would prefer to see it ... you'd need to position it as a more rigorous alternative to traditional welfare, maybe say something about getting "back to basics" and changing our "handout culture." Get some antediluvian Representative from Pigs Knuckle to mutter something on a radio show about "welfare queens" and you'd have it sold overnight.

The problem is that the Democrats, in particular, don't market themselves or their ideas very well, despite the fact that their ideas are, in a literal sense, far more beneficial to more people than what comes from the other side of the aisle, and that a lot of self-described conservatives actually agree with them if they're framed in the right way. But that framing sometimes requires that you speak a certain language, use certain terms, and those terms and that language can be pretty ugly.

In the past, the American left did a pretty good job of that; you had high-minded rhetoric coming from up top, aimed at the gin-and-tonic Manhattan crowd, but you also had various low-level operatives, whether in organized labor or just occupying a barstool in the local pub, who framed things in terms that appealed and resonated with the individual voter drinking cheap beer and feeling put-upon. The Republicans do that today, and they do it so well, they can get people to vote in ways that are clearly and stunningly contrary to their rational best interests.
posted by Kadin2048 at 8:44 AM on September 23, 2011 [1 favorite]

The biggest problem is that minimum wage + benefits is something in the realm of $19,000/year. To employ 14.1 million unemployed (not unemployable which far outnumber that, just citizens currently looking for work) Americans at that level would be around $250 billion/year. $10/hour? $350 billion. $15/hour? Half a trillion dollars.

In perspective, $250 billion/year is slightly less than 1/3 of the DoD's budget. And that doesn't include the $126 billion for the "War on Terror". But it's still a scary high number for those conservatives foaming at the mouth for more austerity.
posted by Talez at 9:53 AM on September 23, 2011

Not to mention conservatives always play political one-upmanship simply because of the danger of not playing the game.

All it takes for one dyed-in-the-wool small government nutjob to call them out and say "CANDIDATE X SUPPORTS WASHINGTON PORK WASTE AND GIVING AWAY EVEN MORE MONEY TO POOR PEOPLE WHO ARE JUST GOING TO STAND AROUND ALL DAY WITH FIVE OTHER MEXICAN GUYS SUPPOSEDLY FIXING POTHOLES" and semi-moderate Republican candidate now has a primary challenger.

You'd never find support for a WPA around conservatives with the Tea Party being even remotely relevant.
posted by Talez at 9:58 AM on September 23, 2011

Where's today's Dorothea Lange? Hard times have spawned great art — but not these hard times, it seems.
posted by homunculus at 10:14 AM on September 23, 2011

How does austerity supposedly help over the long run? Are you claiming it eliminates inefficiencies?

Yes, there are many inefficiencies like counter productive subsidies that benefit harmful corporations, but afaik austerity won't impact those. It'll simply slow take money from those who contribute the most to the velocity of money.

Austerity for the defense contractors, farm subsidies, for-profit schools, insurance companies, etc., sure. Any idea how you'll score those?
posted by jeffburdges at 10:32 AM on September 23, 2011

How does austerity supposedly help over the long run? Are you claiming it eliminates inefficiencies?

Because all that money you borrowed stimulating your economy and giving your citizens jobs in the short term will either become crushing interest payments or need to be inflated away unless you pay it back in the good times.
posted by Talez at 10:42 AM on September 23, 2011

From homunculous' link:

In our own times, when Iraq and Afghanistan war vets are suffering double-digit rates of unemployment, you can't find much mention of those veterans and their struggles in our movies.

....Um....Didn't this guy hear of The Hurt Locker? Or Bug?

Even musicals like "Gold Diggers of 1933" (which gave us the song "We're in the Money") is structured around the story of war heroes who were shamed by the need to seek inadequate public assistance.

The thing is, though, that primarily Gold Diggers was an escapist film. And most other films of the 1930's were escapist fantasy -- the kind of entertainment that is being filled today by the Real Housewives Of The East Jersey Shore kinds of voyeuristic reality TV. The more "political" stuff is out there, the thing is that we haven't got the lens of history focusing on us now; so we don't see the smaller, more "statement" films because everyone's going to see Iron Man or what have you.

Also, the difference between the 1930's and today is that the artists he points to, like Dorothea Lange, had their art sponsored by the government. Dorothea Lange's portrait of the migrant farm woman was done through the WPA.

Today, though, Dorothea Lange would be too tired after coming home from her day job as a Starbucks Barista and too depressed to read that the NEA was being slashed yet again to want to go take pictures on the weekends.
posted by EmpressCallipygos at 11:14 AM on September 23, 2011

There is however the small problem that all your existing government revenues assume some level of prosperity. Austerity that inhibits spending directly reduces tax revenues. Austerity should thus also require reducing inefficient spending, increasing taxes, or inflation.

There is definitely an case for using austerity to make the economy more efficient. I doubt anyone could implement that approach politically though. An outright depression with austerity could reduce some frivolous government spending. Ain't an ideal scenario not necessarily that effective.
posted by jeffburdges at 12:15 PM on September 23, 2011

Talez": The biggest problem is that minimum wage + benefits is something in the realm of $19,000/year. To employ 14.1 million unemployed (not unemployable which far outnumber that, just citizens currently looking for work) Americans at that level would be around $250 billion/year. $10/hour? $350 billion. $15/hour? Half a trillion dollars.

In perspective, $250 billion/year is slightly less than 1/3 of the DoD's budget. And that doesn't include the $126 billion for the "War on Terror". But it's still a scary high number for those conservatives foaming at the mouth for more austerity."

But at least this burrowed money would produce real, lasting value. Millions of Americans lifted out of poverty into at least financial sustainability. All the new products and services they'll consume added to GDP, and new infrastructure and green industries that will serve as the core for the next generation of economic activity. An excellent return on investment.
posted by Kevin Street at 2:18 PM on September 23, 2011

U.S. Pushes Europe to Act With Force on Debt Crisis
posted by homunculus at 9:15 PM on September 23, 2011

....Um....Didn't this guy hear of The Hurt Locker? Or Bug?

I haven't seen Bug yet, but as I recall Hurt Locker spent very little time on the guy while he was back in the US before he went back to Iraq. I was surprised too, because I had the impression going in that that was going to be a large part of the film.
posted by homunculus at 9:46 PM on September 23, 2011

jeffburdges: How does austerity supposedly help over the long run? Are you claiming it eliminates inefficiencies?

As Talez says, if you're running a deficit, the money you're borrowing every year has to be paid back in the long term. During the payback period, a significant fraction of your tax revenue has to go to debt repayments, rather than education, infrastructure, welfare, pensions or something you'd actually want to spend it on.



doctornemo: Do you think this best move would be for Greece and perhaps another PI(I)GS to default, or for their politicians to successfully implement more austerity?

That's a difficult question. Default isn't a good option. But it may be the least worst option.

The problem is: if you're running a deficit, default isn't an alternative to austerity. Every day, you're spending more money than you're taking in taxes to keep the government running, borrowing the difference. If you default, no-one will lend you any more money. So, you have to make instant spending cuts. It's very difficult for a large organization to cut spending overnight: even laying people off usually means compensation payments. So over the short term, a year or two, a default means hyper-austerity.

The advantage comes after that, when you've stabilized the government. You're no longer spending so much money on debt repayments over the coming decades, so you can afford lower taxes or better public services without that drag. But you have a year or two of horror before that.

So, default isn't a great option.

Another option might be to take some kind of EU bailout, maybe Eurobonds. But to get their money back, whoever lends you the bailout money is going to insist on moderately harsh austerity for a long period, probably decades. Over that time, a lot of your income is going on debt repayments, and you lose a degree of sovereignty as the bailers-out are going to insist on strict conditions.

So neither option is great. Default means a year or two of hell, followed by a return to something normal. Accepting a bailout means decades of enforced moderate austerity.

It's hard to even do a cost-benefit analysis of which option is better, because it depends on so many variables. How long before the markets will lend again after a default? At what rate will they lend? What are the growth rates in each scenario? There's so much uncertainty it's almost impossible to know which option is best financially.

If I were in Greece, I'd probably be leaning to the default option: at least that way you get the pain over with and you retain your sovereignty; your country's not being run by the Germans or the EU or the IMF. But that's more of an emotional leaning than a practical assessment.
posted by TheophileEscargot at 2:15 AM on September 24, 2011

"Default means a year or two of hell, followed by a return to something normal. Accepting a bailout means decades of enforced moderate austerity."

Maybe standing politicians would be able to sell voters on the latter, arguing that they kept their people from the former. And opposition politicians, out of office, would argue for default, hoping to get into office in a year or so on the upward economic swing.
posted by doctornemo at 9:52 AM on September 25, 2011