The Origins of Neoliberalism
January 18, 2013 2:10 AM   Subscribe

Philip Pilkington writes for naked capitalism: The Origins of Neoliberalism Part I: Hayek's Delusion
Hayek’s entire ideology and career had begun to come apart in the 1930s. His theories were shown to be inconsistent in the academic journals of the time and the practical implications of those theories had shown themselves to be both discredited and dangerous. A man in such a position only has two choices: he can either completely re-evaluate his ideas which, if they were held with unshakeable conviction and constituted a core component of his emotional make-up, as seems to have been the case with Hayek, would have likely resulted in a mental collapse; or, alternatively, he can engage in a massive repression, shut out reality and construct around himself a fantasy world.

Part II: The Americanization of Hayek's Delusion
This made neoliberalism a far more potent political ideology than the purely negative anti-government sentiment implicit in Hayek’s The Road to Serfdom were it left standing alone. Here was an ideology that politicians could buy into because it secured them a place in the schema. They were to become the handmaidens of corporate interests and were absolved from any need to institute proper government reforms – after all reforms were evil. Thus the neoliberal doctrine gave the politicians a very easy job and, most importantly, one from which they could largely absolve themselves from blame should the situation go awry. After all, they were not in charge – the free market was.
Part III: Europe and the Centre-Left Fall under Hayek’s Spell
But rhetoric aside the Austrians largely lost the debate on the unions in Europe, while the ordoliberals won the day. Unlike in the case of monopolies, however, there was substantial opposition from Hayek and his allies. Whereas large corporations were to be accepted as normal by all those of neoliberal persuasion in both America and Europe, the tension over unions within the movement would continue; reaching fever pitch in the administrations of Reagan and Thatcher. These politicians and their allies, in a very real and direct sense, can be seen as purist Hayekians in the context of labour policy where they were not in terms of macroeconomic policy for which they favoured the doctrines of Friedman and the monetarists.
Marks Ames, in Alternet: Stop the Austerity Craze! Massive Budget Slashing Can Lead to Economic Disaster, Violence and Repression
Bruning applied the von Hayek medicine to Germany, and the resulting backlash was so intense he suspended parliamentary democracy and ruled by emergency decree, setting a fine example for the next guy who took power. After just two years of “austerity” measures, Germany’s economy had completely collapsed: unemployment doubled from 15 percent in 1930 to 30 percent in 1932, protests spread, and Bruning was finally forced out. Just two years of austerity, and Germany was willing to be ruled by anyone or anything except for the kinds of democratic politicians that administered “austerity” pain.
Susan George, A Short History Of Neoliberalism, 1999.

A Primer On Neoliberalism - "Going Bust - The Global Financial Crisis Shakes Confidence"

Neoliberalism On Trial(PDF)
I cannot convince anyone by philosophical argument that the neoliberal regime of rights is unjust. But the objection to this regime of rights is quite simple: to accept it is to accept that we have no alternative except to liver under a regime of endless capital accumulation and economic growth no matter what the social, ecological, or political consequences.
posted by the man of twists and turns (136 comments total) 96 users marked this as a favorite

 
Thanks for posting this.
posted by clarknova at 2:35 AM on January 18, 2013


This was really interesting, I also found David Harvey's A Brief History of Neoliberalism an interesting read of its application in the last thirty/forty years. He also looks at its adoption in China.
posted by amil at 2:58 AM on January 18, 2013 [1 favorite]


After just two years of “austerity” measures, Germany’s economy had completely collapsed: unemployment doubled from 15 percent in 1930 to 30 percent in 1932

Here's a google graph showing Greece's current levels of unemployment.
posted by The River Ivel at 3:13 AM on January 18, 2013 [10 favorites]


Try adding Spain to that graph as well.
posted by brokkr at 3:21 AM on January 18, 2013 [3 favorites]


This ideology would later become known in Europe as “social partnership” and would prove, in Germany especially, as a remarkably effective way to keep wages low by indoctrinating union leaders into believing that doing otherwise would necessarily result in their workers being laid off.
Lots of interesting stuff here, but this jumped off the page at me. The enormously successful German economy does indeed have powerful unions that work with management to keep productivity up and labour costs down. They do indeed think that otherwise that production will move to places like China or Poland or Turkey.

But I don't think this is foolish neoliberal ideology, I think it's absolutely correct. My evidence is the enormous success of the German economy over the last twenty years compared to other EU states like France, which have not made similar efforts to keep labour costs under control.

I'm picking on this point in particular because I think it's demonstrably false and because I think it illustrates that this article is very interesting but is essentially a polemic against Hayek because the author hates austerity measures.
posted by alasdair at 3:39 AM on January 18, 2013 [7 favorites]


Let’s start with the most catastrophic of all austerity programs in history—the one austerity program none of the Austerity Snake Oil peddlers want you to know about. It was the disastrous austerity program tested out in Germany way back in 1930, under Chancellor Heinrich Bruning, himself an austere centrist.

Why not start with a more recent example of austerity and one which is perhaps a bit more relevant than 1930s Germany?

"Estonia’s relatively successful experiment with austerity (its GDP is going to grow by about 3% this year) shows that Paul Krugman and other Keynesians are wrong to dismiss it."

One trick ponies don't dismiss other tricks, they just can't perform them.
posted by three blind mice at 3:51 AM on January 18, 2013 [1 favorite]


Is austerity in the Baltics really all that successful?
posted by delicious-luncheon at 4:03 AM on January 18, 2013 [9 favorites]


Why not start with a more recent example of austerity and one which is perhaps a bit more relevant than 1930s Germany?

That's an interesting quote from the article you linked, but I think the summary at the end says something slightly different than the quote seems to indicate.

However on a larger scale I think there are some more meaningful lessons, and they are as follows: if Estonia is really the best example that austerity defenders can come up with, then either 1) they need to urgently come up with a better example or 2) their preferred policy is a failure.

Estonia has substantially under-performed a chronically noncompetitive and resource-dependent behemoth that, in large sections of the mainstream press, essentially functions as a by-word for primitiveness and corruption. And almost all of the defenses that austerity supporters use to defend Estonia (it was growing too quickly before the crisis! there was a giant bubble! the currency was overvalued!) are at least as applicable to Russia, if not more so.

I think it’s perfectly fair to note that other countries shouldn’t have to abide by the same calculus and that the much-hyped “Estonian boom” isn’t really a boom at all since Estonia still hasn’t regained its pre-crisis level of economic activity.

posted by dubold at 4:04 AM on January 18, 2013 [7 favorites]


Estonia and Latvia: Europe's champions of austerity?

Why Are Estonians Emigrating?

Let's look at another country: from 2009: Bulgaria's Austerity Wins Voter Approval
Mr. Djankov has frozen government wages and pensions, mothballed costly state investment projects, and slashed government spending by 15%. The result is an 81% reduction in Bulgaria's budget deficit to $76.5 million in August from $412 million in July.

Amid those measures, the government has earned accolades from Western economists and drawn the highest approval ratings at home since the fall of communism two decades ago. Recent Gallup polls put the government's approval at 64%.
So what's happening now? Summer 2012:Once Bulgaria hoped to be like Greece; now it just hopes to survive

Bulgaria Economy to Stagnate in 2013
Bulgaria's gross domestic product marked an anemic growth of 0,4% (2010), 1,7% (2011) and 0,5% (2012) in the wake of the slump in the euro zone, but growth below 3% does not sustain the employment rate and is practically stagnation, according to experts' estimates.
posted by the man of twists and turns at 4:04 AM on January 18, 2013 [4 favorites]


It's interesting that in areas where cause and effect are so hard to tease apart, people speak with such absolute certainty. Religion reigns in the absence of science. With the type of writing in these articles, one could just as easily substitute labels and codewords to map to articles written by 'the other side'. Yes, ideological blindness is dangerous; neoliberal, socialist, what have you. However, when consequences and counterfactuals are poorly understood (usually the case), you are left with nothing but guesses motivated by axioms (unfounded beliefs necessary for deduction). I see why one might confidently believe one set of hypotheses over another: you assume enough axioms until your hypothesis is necessarily true. However, I don't see how one could justify being so confident in the axioms; most political and moral beliefs seem to have a cluster of axioms that have enough 'truthiness' to feel reasonable.

For some things, it's fairly clear what government should control -- e.g. a monopoly on violence. I would think few people are in favour of price controls on t-shirts. For most things, we don't know (lack of expert consensus) and/or the discussion is simply too coarse. What makes or breaks most institutional policies are in the details. Small divergences can result in widely disparate results down the line, and it is very hard to see which divergences matter. For instance, US vs Canadian healthcare.

In the specific context of austerity I ask: how do you separate the consequences of 'austerity' (is this term specific enough to be meaningful?) from the conditions that allowed such policies to occur in the first place? It is incredibly hard to work around endogeneity.
posted by helot at 4:11 AM on January 18, 2013 [2 favorites]


And neoliberalism is apparently also ruining football in Britain.
posted by acb at 4:33 AM on January 18, 2013


In the specific context of austerity I ask: how do you separate the consequences of 'austerity' (is this term specific enough to be meaningful?) from the conditions that allowed such policies to occur in the first place? It is incredibly hard to work around endogeneity.

Probably because they're inseparable. The same financial interests that collapsed the economies of Europe want the people of Europe to pay for their folly. It's just an extension of the policy.
posted by clarknova at 4:40 AM on January 18, 2013 [13 favorites]


Look, you must live within your means. The amount of goods and services you take out, over a long period of time, can't exceed what you put in by very much, or it damages the economy. This is true from the smallest of entities to the largest, from individual workers up to whole countries.

Playing games with money doesn't change that. And that's what the anti-austerity people really mean, that to keep the economy active, money should be printed. But the economy got in trouble for a reason to begin with, and the pain is signaling that things need to change, so printing money actively prevents those changes from occurring, damaging the economy. Further, the existence of the new supply of cash is destabilizing, because it's a short-term inflationary impulse (as it's lent into circulation) and then a long-term deflationary impulse (as it must be repaid). So once you get started on printing money to fund operations, it is damnably hard to stop. And it becomes a method by which you're trying to evade paying the economy back for the things you've taken out of it, which is fraud.

What anti-austerity really boils down to is this: change is painful, so we will do our best to prevent change to whatever degree we can. It's the most conservative of all possible stances, dressed up as liberalism. And it's precisely that kind of thinking that has a large fraction of the First World in very deep debt crisis, getting deeper by the day. Pain today, to this way of thinking, is always worse than twice as much pain tomorrow.

When your economy is in pain, you can change now, or you can be forced to undergo much more painful changes later. You can't avoid change. All you can do is defer it, and make it worse.
posted by Malor at 4:52 AM on January 18, 2013 [3 favorites]


The same financial interests that collapsed the economies of Europe want the people of Europe to pay for their folly. It's just an extension of the policy.

This part is absolutely true; Greece is being put into, essentially, debt slavery. The loans being made to Greece are bad for that country, long-term, not good. They should absolutely declare bankruptcy, stay on the Euro, and then live within their means going forward. They will be almost completely cut off from lending to run the government, but that's the cost of not being debt slaves for a generation. Sometimes debt is unpayable, and when that happens, you stop paying it, and start trying to get your life back in order.

Iceland has had very good results from simply letting their big bank fail, and letting the chips fall where they willed. They've recovered faster than anyone else, pretty much, and the last time I saw a report on them, they were looking pretty healthy, with solid growth and low debt.
posted by Malor at 4:59 AM on January 18, 2013 [2 favorites]



Look, you must live within your means. The amount of goods and services you take out, over a long period of time, can't exceed what you put in by very much, or it damages the economy. This is true from the smallest of entities to the largest, from individual workers up to whole countries.

Playing games with money doesn't change that. And that's what the anti-austerity people really mean, that to keep the economy active, money should be printed.


Or that taxes should be increased.
posted by dng at 5:11 AM on January 18, 2013 [7 favorites]


Or that taxes should be increased.
posted by dng at 5:11 AM on January 18 [+] [!]



...and the stimulative effect of raising taxes is what again?
posted by otto42 at 5:24 AM on January 18, 2013


Not having to cut spending.
posted by TheJoven at 5:25 AM on January 18, 2013 [14 favorites]


otto42: ...and the stimulative effect of raising taxes is what again?

Very, very positive in the context of the United States where 1) taxes are low, 2) taxes don't need be raised all that much and 3) the money will be spent on highly stimulative things.

Continental Europe is a different position.
posted by spaltavian at 5:27 AM on January 18, 2013 [6 favorites]


Malor: Further, the existence of the new supply of cash is destabilizing, because it's a short-term inflationary impulse (as it's lent into circulation) and then a long-term deflationary impulse (as it must be repaid). So once you get started on printing money to fund operations, it is damnably hard to stop.

This isn't the 70's. Inflation is historically low. A little inflation is an excellent trade-off for a medium term stimulus. We're essentially going to "borrow" from inflation or from employment. Whichever one is out of whack hurts the economy more- right now that's unemployment, not inflation. It seems like you're treating inflation as inherently bad and it's just not.
posted by spaltavian at 5:31 AM on January 18, 2013 [5 favorites]


otto42: ...and the stimulative effect of raising taxes is what again?

Any curtailment on growth prospects as a result of raising taxes needs to be balanced against the alternative. Here in Ireland the dilemma is we either raise taxes for those who can afford it (and I include myself in that bracket), or try to cut an equivalent amount from state spending. The problem is that state spending overwhelmingly goes to those in lower income brackets and is strongly stimulative to the economy because it all gets spent locally and usually quickly. Those on state support are not squirreling their "stimulus" away, they simply can't afford to. You almost couldn't design a more perfect boost for local small and medium enterprise than the core payments which form part of social protection in modern social democracies (I wouldst that I could class Ireland as one of those...).
posted by nfg at 5:34 AM on January 18, 2013 [8 favorites]


...and the stimulative effect of raising taxes is what again?

Our infrastructure (roads, electrical grid, water system) is desperately in need of repair. Not only could a slight tax increase fund the fixing of these things, this would also employ many workers in projects that, when completed, will benefit everyone, especially industry.
posted by Legomancer at 5:36 AM on January 18, 2013 [16 favorites]


You know those near-future dystopian novels, where the world is governed by immense corporations and banks, and what semblance there may remain of a representative government resembles a town-council rubber-stamping anything the money guys want?

I keep getting the feeling that we're living in the prequel book that explains how we get to that point.
posted by Thorzdad at 5:39 AM on January 18, 2013 [25 favorites]


Inflation? What? Here in the UK, unemployment is at 2.5m, we have austerity measures, and inflation is still there and higher than they predicted. In fact, the given rate is a myth, as the actual prices in the shops have rocketed way way beyond inflation levels for the last 4 years. Just compare a basket of items from tesco in 08 with today. So the idea that austerity kills inflation is a myth.
posted by marienbad at 5:39 AM on January 18, 2013 [4 favorites]


"... he can either completely re-evaluate his ideas [---] or, alternatively, he can engage in a massive repression, shut out reality and construct around himself a fantasy world."

What did Hayek do? I can't bear the suspense ... Irony aside, this is an important subject and I will read the link.
posted by Termite at 5:57 AM on January 18, 2013


What anti-austerity really boils down to is this: change is painful, so we will do our best to prevent change to whatever degree we can. It's the most conservative of all possible stances, dressed up as liberalism.

Come on, not all change is equal. Privatising profitable companies is not the same as privatising wasteful companies. Raising indirect taxes isn't the same as raising direct taxes. Slashing spending can be egalitarian or decrease equality.

And money may have short-term effects, but easing the pain of transition while waiting for the medium-term effects of reforms to kick in isn't bad a priori.
posted by ersatz at 5:57 AM on January 18, 2013 [3 favorites]


What anti-austerity really boils down to is this: change is painful, so we will do our best to prevent change to whatever degree we can. It's the most conservative of all possible stances, dressed up as liberalism. And it's precisely that kind of thinking that has a large fraction of the First World in very deep debt crisis, getting deeper by the day. Pain today, to this way of thinking, is always worse than twice as much pain tomorrow.

You speak of pain without qualifying it. What is this pain? Is pain paying slightly higher taxes on your investment earnings, or is it going hungry because your government-provided pension has been eliminated?

Anti-austerity is about minimizing the latter kind of pain and maximizing the former kind of pain because it's unfair to inflict the financial burdens of this "change" on those who are neither responsible for it, nor able to afford it.
posted by RonButNotStupid at 5:59 AM on January 18, 2013 [22 favorites]


The problem with the belief in the stimulative effect of taxes is that I do not believe it.

The reasons for the disbelief aside, my economic decisions (save this amount, spend that amount, etc.) reflect this disbelief.

I don't believe in the stimulative effect of higher taxes, therefore I believe the economy's growth will slow, therefore I save instead of spend.

My saving offsets the effects of the stimulus.

Aggregate the the spending and saving decisions of all of us disbelievers (for the sake of simplicity, call them conservatives) and you have a pretty large anti-stimulative private sector offset to the public sector stimulus.
posted by otto42 at 6:01 AM on January 18, 2013


The problem with the belief in the stimulative effect of taxes is that I do not believe it.

The reasons for the disbelief aside, my economic decisions (save this amount, spend that amount, etc.) reflect this disbelief.

I don't believe in the stimulative effect of higher taxes, therefore I believe the economy's growth will slow, therefore I save instead of spend.

My saving offsets the effects of the stimulus.

Aggregate the the spending and saving decisions of all of us disbelievers (for the sake of simplicity, call them conservatives) and you have a pretty large anti-stimulative private sector offset to the public sector stimulus.




I was taught it is pointless to argue with someone about faith and religion.
posted by absalom at 6:06 AM on January 18, 2013 [26 favorites]


otto42, if you can afford to save, you're not the target of public sector stimulus. Pound for pound, those at the middle and lower end of the economic specturm have a more immediate stimulative effect because almost all their income goes directly into the economy: rent, mortgage, clothes, food, transportation, consumer goods, etc.

People who can afford to keep their powder dry were more likely than not already spooked by the terrible economy and have been conservative with their investment dollars anyway. Once the economy is stablized by the stimulus, all you Go-Go Reagan-naughts will start investing again regardless of higher taxes or not.
posted by spaltavian at 6:08 AM on January 18, 2013 [5 favorites]


Absaolm, you're missing his point, which is that money is guided by preception. To a degree he's right, as much as the John Galts of the world like to see themselves as purely rational actors, their financial decisions can be guided by their ideologies, at least in the short term.

I just don't think that's going the be the case over the medium-to-long term; because of two things that I hinted at above:

1) the economy is going to improve with stimulus, making investors more confident despite themselves and
2) this will eventually become the new normal for the investment class, and they'll forget that they once thought a 39% marginal tax rate would usher in a thousand years of darkness. (Just like they forgot that people were still getting rich when we had the much higher marginal tax rates during most of the 20th century).

So, yeah, the market might take a hit in the short term with new stimulus, but everyone will start making money again and be happy. It's impossible to predict the actions of an individual, but not the actions of a large group.
posted by spaltavian at 6:20 AM on January 18, 2013 [1 favorite]


otto42, if you can afford to save, you're not the target of public sector stimulus. Pound for pound, those at the middle and lower end of the economic specturm have a more immediate stimulative effect because almost all their income goes directly into the economy: rent, mortgage, clothes, food, transportation, consumer goods, etc.

People who can afford to keep their powder dry were more likely than not already spooked by the terrible economy and have been conservative with their investment dollars anyway. Once the economy is stablized by the stimulus, all you Go-Go Reagan-naughts will start investing again regardless of higher taxes or not.
posted by spaltavian at 6:08 AM on January 18 [+] [!]


I am a little confused by the wording but I think I understand what you are trying to say.

Needless to say, you are missing my point, which is that public sector stimulus is offset by private sector caution.

Also, unless public spending is intended to stimulate the whole economy and not just those on the lower parts of the spectrum, the spending is not stimulative and only a transfer payment.
posted by otto42 at 6:24 AM on January 18, 2013


"It is not hard to discern whether Hayek was lying or simply deluded. He was not lying – at least not consciously. For the rest of his life he was driven by a genuine belief in the idea, put forward in The Road to Serfdom, that economic planning was what had led to totalitarianism in Europe."



"You are now living in an age when bunk has reached its zenith.

Bunk has reached the inflation of its capaci­ty equal to the circumference of its explosion.

Bunk is something that you can hear but you cannot see. You can swallow it, but it doesn’t feed you.

Bunk is the cud the people of the world have been chewing on for hundreds of years. The smart-alecks call it finance."


-Lawson.
posted by clavdivs at 6:29 AM on January 18, 2013


otto42, your point was perfectly addressed. The people who can afford to be cautious are already doing so. But poor people spend money.
posted by the man of twists and turns at 6:31 AM on January 18, 2013 [6 favorites]


It's impossible to predict the actions of an individual, but not the actions of a large group.
posted by spaltavian at 6:20 AM on January 18 [+] [!]


I would say the opposite. Especially when it comes to economic decisions.

Of course this predictability is useless.
posted by otto42 at 6:32 AM on January 18, 2013


"You are now living in an age when bunk has reached its zenith.
Bunk has reached the inflation of its capaci­ty equal to the circumference of its explosion.
Bunk is something that you can hear but you cannot see. You can swallow it, but it doesn’t feed you.
Bunk is the cud the people of the world have been chewing on for hundreds of years. The smart-alecks call it finance."
-Lawson.


Nigella was making a duck risotto when she said this, if I recall correctly.
posted by aught at 6:32 AM on January 18, 2013 [4 favorites]


If you think being able to predict the actions of large groups is useless, maybe commenting on economics isn't a good idea for you.
posted by Pope Guilty at 6:35 AM on January 18, 2013 [15 favorites]


But poor people spend money.
posted by the man of twists and turns at 6:31 AM on January 18 [+] [!]


Poor Person Spending - Me saving = zero stimulus.



You can tax me a $1.00 and give it to a poor person to spend. Just don't call it stimulative.
posted by otto42 at 6:37 AM on January 18, 2013


Obviously the solution is to tax everyone exactly enough they can't save anything any more.
posted by dng at 6:39 AM on January 18, 2013


If you think being able to predict the actions of large groups is useless, maybe commenting on economics isn't a good idea for you.
posted by Pope Guilty at 6:35 AM on January 18 [+] [!]


Individual / Highly Predictable / Low usefulness

Group / Low Predictability / High usefulness
posted by otto42 at 6:40 AM on January 18, 2013


Very, very positive in the context of the United States where 1) taxes are low, 2) taxes don't need be raised all that much and 3) the money will be spent on highly stimulative things.

Continental Europe is a different position.


This doesn't explain the stimulative effect of taxes. There are stimulative effects to spending. The two things are necessarily linked, but not interchangeable.
posted by 2N2222 at 6:41 AM on January 18, 2013


Poor Person Spending - Me saving = zero stimulus.



You can tax me a $1.00 and give it to a poor person to spend. Just don't call it stimulative.


Why not? You lost a dollar you were going to do nothing with. Somebody else gained a dollar they're going to do something with. What exactly do you think "stimulus" means?
posted by Tomorrowful at 6:46 AM on January 18, 2013 [21 favorites]


If you tax someone who's sitting on underutilized money $100 and the net economic impact of spending those taxes is $101 then yes it is stimulative.

What anti-tax individuals don't seem to realize is that net impact of public sector spending often carries with it an economic multiplier effect as it courses through multiple transactions.

Government taxes person A $100 and then goes to buy $100 dollars worth of goods and services from some company, this results in increased profits for that company and wages to their workers which get spent on the local economy, turned into new tax revenue, etc.

Money gets churned and it makes more money.

One of the things that I've read on many of the Austerity programs is that the net aggregate reduction of each dollar "saved" is resulting in greater than one dollar in terms of less economic growth.

Simply put the models that the Austerity = Double Plus Good guys were using are bad and need to be sent back to the drawing board.

I don't think anyone is suggesting that massively inflationary policies should be adopted but there is quite a bit of evidence out there that government pump priming during a recession is much better for employment and economic recovery than saving, saving, saving. But Keynes is seen as some sort of communist by many leaders that have drunken too deeply of the Austerity kool-aid.
posted by vuron at 6:51 AM on January 18, 2013 [1 favorite]


Why not? You lost a dollar you were going to do nothing with. Somebody else gained a dollar they're going to do something with. What exactly do you think "stimulus" means?
posted by Tomorrowful at 6:46 AM on January 18 [+] [!]

Who said I was not going to spend it?

It is only stimulative if it was not going to be spent.

Even then, the stimulative effect (the multiplier) is not necessarily greater than 1.
posted by otto42 at 6:57 AM on January 18, 2013


2N2222, presumably taxes are generally being used to spend on public goods and services. Now if the government was taxing the citizens and just putting those tax monies into a big metaphorical piggy bank then yes taxes wouldn't necessarily mean more stimulus but very few countries are adopting those sort of strategies where they are just saving huge amounts of money in non-productive accounts simply because there is a pretty broad understanding that money sitting around in accounts that aren't drawing interest aren't really that useful.

Now some people might say that those monies could be more effectively invested by private individuals rather than the state and there might be some truth to that but taxes are often meant to also redistribute wealth rather than purely drive economic decision-making so I'm okay if there is less than perfect efficiency in terms of government decision-making.

Plus you know the state through collective action can provide public goods that can't be effectively allocated by private investment (stuff like highways) or won't be allocated by private investment (stuff like parks, schools, etc).
posted by vuron at 6:59 AM on January 18, 2013


Hooray, I've been saving these Pilkington posts in my reader, promising myself to make some time to read them soon! But now Metafilter can do all the hard work for me!

Corey Robin also had some interesting Hayek posts a few months ago that were very eye-opening.
posted by mittens at 7:00 AM on January 18, 2013


Otto, I understand that your saving (and the antistimulus effects of people like you) is in the opposite direction of stimulus, but you have done nothing to convince me that the magnitude of this behavior is at all equivalent.

Considering that the economic planning I listen to directly addresses the propensity of people to save or pay down debt right now, I'm not sure that calling stimulus-minus-saving a zero balance is justified. (That said, promoting consumer capitalism as a save-the-economy measure makes me want to take a shower.)
posted by daveliepmann at 7:03 AM on January 18, 2013 [1 favorite]


otto42, alright, you may or may not have spent it. Giving it to a person who definitely will spend it means that at worst there will be no loss in activity, and at best a gain. What's the problem with that?
posted by forgetful snow at 7:04 AM on January 18, 2013


The multiplier effect isn't always above 1 but in many cases it can be.

The IMF has recently released statement concerning their use of economic multiplier effects.

"IMF staff reports, suggest that fiscal multipliers used in the forecasting process are about 0.5. our results indicate that multipliers have actually been in the 0.9 to 1.7 range since the Great Recession. This finding is consistent with research suggesting that in today’s environment of substantial economic slack, monetary policy constrained by the zero lower bound, and synchronized fiscal adjustment across numerous economies, multipliers may be well above 1."

additionally

"In trying to explain the unexpected weakness of GDP growth over this period, it is natural to ask whether it was caused in part by [fiscal] tightening – either because it turned out to be larger than we had originally assumed or because a given tightening did more to depress GDP than we had originally assumed.
In answering the question, we are concerned with the aggregate impact of different types of fiscal tightening on GDP (measured using so-called ‘fiscal multipliers’) and not simply the direct contribution that government investment and consumption of goods and services makes to the expenditure measure of GDP. This direct government contribution has been more positive for growth than we expected, rather than more negative."

In the US there are many government policies that generate well over a multiplier of 1. A temporary increase in food stamps would have an estimated multiplier of 1.73. In contrast keeping the Bush tax cuts would have the meager impact of 0.29.

So yes government can definitely engage in taxation and stimulus policies that result in increased growth at least in the short term.
posted by vuron at 7:08 AM on January 18, 2013 [3 favorites]


vuron, could you link to that statement?
posted by the man of twists and turns at 7:15 AM on January 18, 2013


I suspect that austerity is great for a country when your trading partners are growing strongly and you are small. Business turn to the export market, where there is demand. Reduced government spending usually means money goes to business investment, and more people are seeking jobs in the private sector, so there is a supply of workers. See: Sweden in the 1990s.

I suspect that austerity when everyone else is doing it too is a terrible idea. No demand. Declining trade. Decreasing confidence. Indebtedness. No way out.

So comparing Estonia or Sweden with the United States is probably wrong. Generally, international comparisons are very very difficult to make. Specifically, these look like very different cases.

It follows that austerity for the USA would be absolutely awful for the world economy, and the austerity in the Eurozone is damaging.

Aside: whether the UK's policies are austere or not depends on your politics. You'll notice that Osborne keeps having to announce that he's failed to balance the budget, for example, and the Bank of England keeps printing money. I think Osborne was banking on recovery in the Eurozone, which hasn't delivered. Could we afford more borrowing? As a country with pretensions to world power and lots of pensioners with investments, probably not. For the young man in the street with no savings or job, probably yes.
posted by alasdair at 7:18 AM on January 18, 2013 [1 favorite]


the man of twists and turns: "vuron, could you link to that statement?"
Page 43.
posted by brokkr at 7:20 AM on January 18, 2013 [2 favorites]


Otto, I understand that your saving (and the antistimulus effects of people like you) is in the opposite direction of stimulus, but you have done nothing to convince me that the magnitude of this behavior is at all equivalent.

I am not trying to convince you of the "magnitude" of this behavior. I am just saying it exists. I am glad you see it exists now too.

Lets consider the magnitude though. If the country is split pretty evenly between Republicans and Democrats, and the behavior roughly correlates with political affiliation, then the magnitude should be pretty large I would suspect.
posted by otto42 at 7:21 AM on January 18, 2013


If the country is split pretty evenly between Republicans and Democrats, and the behavior roughly correlates with political affiliation, then the magnitude should be pretty large I would suspect.

This is begging a number of questions at once.
posted by Nomyte at 7:24 AM on January 18, 2013 [7 favorites]


This is begging a number of questions at once.
posted by Nomyte at 7:24 AM on January 18 [+] [!]


No questions are being begged. Just trying to keep it simple.
posted by otto42 at 7:29 AM on January 18, 2013


Needless to say, you are missing my point, which is that public sector stimulus is offset by private sector caution.

otto42, I addressed your point quite well. You're missing my point(s):

1) the private sector is already holding back because the economy is terrible. Therefore, your assertion that it's a zero-sum game is dead wrong.

2) While in the short term they may be non-rational actions by the investment class (further caution with investment dollars due to increased government action int he economy), this will sort itself out because the economy will improve due to the stimulus, causing investors will spend money again (even if they stubbornly insist the stimulus had nothing to do with it.)

If the country is split pretty evenly between Republicans and Democrats

Middle and working class Republicans need new microwaves and school clothes as much as anyone. Ideology can cause temporary non-rational actions, but over the long term, trends will assert themselves.

It's impossible to predict the actions of an individual, but not the actions of a large group.
posted by spaltavian at 6:20 AM on January 18 [+] [!]

I would say the opposite. Especially when it comes to economic decisions.

Of course this predictability is useless.


You're totally backwards on this. Individuals are idiosyncratic. The economist or policy maker cannot tell anyone how otto42 will react to something, but it's almost trivial to say how the markets and economy at large will react to something.

If you don't believe that, you can't even make your point: your personal savings in the face of stimulus is meaningless. Arugments about economic policy can only be made in the context of groups and trends.

(Also, you probably wouldn't save nearly as much as you think you will. As inflation rises, your savings will give you smaller and smaller returns. You'll put it somewhere, even if it's US government bonds. That's prefectly fine, because you're lowering the cost of borrowing money, there by actively contributing to the stimulus plan.)
posted by spaltavian at 7:30 AM on January 18, 2013 [1 favorite]


Not only is otto's Republican/Democrat 50/50 split making several highly questionable assumptions, it's also missing my second point: stimulus methods and analysis are already taking this behavior into account. Thus the tax breaks for new home buyers, for instance. We know there's a tendency to save when things are bad.

I ask because I'm not sure--isn't that part of why interest rates are so low right now? It's hard not to lose real dollars over time if saving instead of investing or spending, right? And is this generally expected to change once we're out of the recession?
posted by daveliepmann at 7:30 AM on January 18, 2013


2N2222: Very, very positive in the context of the United States where 1) taxes are low, 2) taxes don't need be raised all that much and 3) the money will be spent on highly stimulative things.

Continental Europe is a different position.

This doesn't explain the stimulative effect of taxes. There are stimulative effects to spending. The two things are necessarily linked, but not interchangeable.


Read point 3 again; no one in the US is talking about raising money to increase our debt payments. If all a government is doing with new tax revenues is paying debt, they're not following a stimultive program. This is what the Tories are doing, and they'll lost the next election for it. I should have said continental Europe may be in a different position, because their taxes are higher and the Germans are demanding austerity, so I don't really know how it would play out.
posted by spaltavian at 7:37 AM on January 18, 2013 [1 favorite]


> No demand. Declining trade. Decreasing confidence. Indebtedness. No way out.

Sounds dreadful, and I'm sure it would be dreadful. But in the scenario of permanent, massive global economic contraction we're saved from global warming. And, realistically, only in that scenario. Starve or burn, choice is yours.
posted by jfuller at 7:41 AM on January 18, 2013


Or that taxes should be increased.

That would work too. It's better than lying and printing money to take what you want, because inflation effectively takes things from poor people. With taxes, at least you know who you're taking the goods from.
posted by Malor at 7:42 AM on January 18, 2013 [1 favorite]


otto42, alright, you may or may not have spent it. Giving it to a person who definitely will spend it means that at worst there will be no loss in activity, and at best a gain. What's the problem with that?
posted by forgetful snow at 7:04 AM on January 18 [+] [!]


Very simply, transfer payments are not stimulative.

Economic activity and stimulus are not synonymous.

Each party in the economic transaction has to perceive there was an equal exchange of value in the transaction.

If I spend my dollar on a can of Coke, by default, I perceive an equal exchange.


If I give the dollar to someone else, and they buy a can of Coke, their was no equal exchange of value.

The two sides have to be "happy" for there to be economic growth.
posted by otto42 at 7:47 AM on January 18, 2013


Slowing economic development only means a temporary slow-down of demand for fossil fuels and considering a good percentage of our demand for energy is pretty inelastic I'm not sure that wanting an economic slowdown to forestall global warming is really the best policy.

Especially if some of the the more pessimistic models are correct and we need to take active measures to slow and reverse the current warming trend.

Considering that the private sector is horrible with factoring in externalities into their businesses and Global Warming is like an externality to end all externalities I think you could even argue that a response to global warming has to include government action and public policy and one method for achieving that would be through taxation policies (maybe slowing down demand for fossil fuels) while pursuing policies that favor more clean energy that isn't really economically competitive without subsidies. In the case that we actually need to engage in massive building projects to deal with rising sea levels or we want to engage in massive scale carbon sink processes having a government actor being willing to make massive expenditures on tech and projects that have limited return on investment sure would be handy.
posted by vuron at 7:50 AM on January 18, 2013 [2 favorites]


So what you are saying is that the economic transaction of the state taxing the individual needs to be pareto-optimal? I.E. that for every $1 of money that you give up in the form of tax revenue you need a voucher for $1 worth of public goods or services? And that you need that voucher up front and before the churn of cumulative economic transactions?

I'm sorry taxation policies don't really work that way. Some tax monies are spent on projects with long time horizons so that the primary benefit of those expenditures will be out children and grandchildren, some will be spent on items that we don't necessarily want unless we really need such as the common defense, some are spent to make sure that there is at least some redistribution of wealth from the wealthy to less well off.

You might not really like that sort of thing but let's be honest it's making an investment. It's not an investment in a factory but an investment in your fellow citizen. If your fellow citizen is fed, clothed and educated he's liable to contribute much more to the economy than he would if he's struggling to survive.

The sooner that we realize that we all benefit from making sure that everyone has access to a minimum level education and nutrition and housing we can move past some of the bullshit about crap like scapegoating the 47% or whatever you want to call it.
posted by vuron at 8:01 AM on January 18, 2013 [4 favorites]


If I give the dollar to someone else, and they buy a can of Coke, their was no equal exchange of value.

If you give your dollar to someone else, and with it they get a much-needed flu shot that prevents them from missing work for a week, you're saving an employer many dollars in lost productivity. You're also saving that person many dollars in lost wages, which will be spent buying many Cokes.

I would think that this is the very definition of an economic multiplier.
posted by RonButNotStupid at 8:11 AM on January 18, 2013 [2 favorites]


"… inflation effectively takes things from poor people."

How so? Doesn't inflation favor the debtor, so that money I borrow today is actually worth more than the money I pay back with tomorrow? If it actually works the other way, why aren't the wealthy interests pushing for vastly more inflation?
posted by mittens at 8:12 AM on January 18, 2013 [2 favorites]


Very simply, transfer payments are not stimulative.
...
The two sides have to be "happy" for there to be economic growth.


Then why was the greatest period of economic growth in the United States experienced at the same time of the highest income tax rates from 1950-1980?

When you give a millionaire ten thousand bucks, he's more likely to spend it on something with zero stimulating effect (a rare but useless object) or throw it in the bank or a financial instrument where it also does nothing. It's even more likely to end up in an over leveraged financial scheme, which will be ultimately more damaging for everyone as they experience the down-cycle after the bust while they have to pay to rescue the over-leveraged firms.

Give one hundred dollars to one hundred working class people and there will be far more increased economic activity, even if they spend it on commoditized useless items: there's still more money supply in the active economy instead of being sunk into the value of rarities that have close to zero economic utility.

Your ideas about economics fail basic thought experiments and recorded reality for decades of available data across dozens of nations of all shapes and sizes. I don't understand why you still value those ideas, and I definitely don't understand how you can expect anyone interested in data to believe them either.
posted by tripping daisy at 8:16 AM on January 18, 2013 [4 favorites]


So what you are saying is that the economic transaction of the state taxing the individual needs to be pareto-optimal? I.E. that for every $1 of money that you give up in the form of tax revenue you need a voucher for $1 worth of public goods or services? And that you need that voucher up front and before the churn of cumulative economic transactions?

The $1 given must buy $1+ worth of public goods in order for it to be stimulative. $1 for a new bridge is stimulative.

The $1 given to someone else via the government so that they can buy a coke is a transfer. It is not stimulative. I could or would have done the same thing (buy a can of coke) with that dollar if it was not given to someone else.


some are spent to make sure that there is at least some redistribution of wealth from the wealthy to less well off.

This may be the case and it may be wonderful, but it is not stimulative.

You might not really like that sort of thing but let's be honest it's making an investment. It's not an investment in a factory but an investment in your fellow citizen. If your fellow citizen is fed, clothed and educated he's liable to contribute much more to the economy than he would if he's struggling to survive.

The sooner that we realize that we all benefit from making sure that everyone has access to a minimum level education and nutrition and housing we can move past some of the bullshit about crap like scapegoating the 47% or whatever you want to call it.
posted by vuron at 8:01 AM on January 18 [+] [!]


We don't have to make this about politics. We can keep the thread about economics and common sense.
posted by otto42 at 8:23 AM on January 18, 2013


common sense.

I thought it was about beliefs? And didn't you bring up the politics? And the nonsensical "stimulative tax" idea, that has so effectively drawn the thread around it?

If it actually works the other way, why aren't the wealthy interests pushing for vastly more inflation?

Wages tend to be stickier than prices. When prices go up, but not wages, those on the thinner edge of the wage spectrum get whacked.
posted by the man of twists and turns at 8:27 AM on January 18, 2013 [2 favorites]


Very simply, transfer payments are not stimulative.

Yes, this statement is very simple. That's why it's wrong. Tranfer payments can be stimulative. (And if you're on the left side of the Laffer curve, like the US, they almost always are.) If I take a dollar from a rich person, they don't notice it as much as giving a dollar to a poor person. This isn't a zero-sum game.

You keep repeating the same argument, ignoring the people who have addressed it, and then say we're missing the point.
posted by spaltavian at 8:29 AM on January 18, 2013 [4 favorites]


and the behavior roughly correlates with political affiliation

Do you have some data to support this, say the personal savings rate by state, are you just arguing by assertion while telling us we don't have to make this about politics?
posted by Kid Charlemagne at 8:31 AM on January 18, 2013 [2 favorites]


Oddly enough if we look at transfer spending on a roughly state by state basis those sections of the country that tend to be most reliably Republican (which in theory maps to fiscally conservative although I have my doubts) also tend to bring in much more spending in the form of transfer payments than those sections of the country that have been reliable Democratic (which very loosely corresponds to liberal in theory).

But you'll still get people in states that are benefiting from a massive influx of federal dollars to pay for all manner of public goods and services as well as direct transfer payments also going my taxes are too damn high.

Wealth redistribution is pretty firmly framed as a negative in our current discourse but it's honestly a good thing that the state is willing to provide a number of goods and services that can help provide a hand up to those less fortunate or can provide a stop-gap during those periods where contraction or shifts in the economy can lead to job loss in various areas of the country or in job sectors.

For example extended unemployment insurance has been seen as a major stimulus to job recovery and termination of that policy would've likely resulted in pretty significant contractions in the economy likely resulting in further job losses.

I understand that nobody likes to give up money from their paychecks but if the increased demand from giving that money to someone else means that you have a paycheck it seems like a pretty good idea right?
posted by vuron at 8:42 AM on January 18, 2013 [1 favorite]


Here, let me help you out. Here's the nest egg index of the 50 states sourced from AG Edwards. If there was some correlation between political affiliation and savings you'd expect to see red states clump on one side of the list and blue states on the other, right?

Of the bottom 25 states there were six blue states, New Mexico, New York, Florida, California, Nevada and Maine. The highest raking red state is Utah at 13th. So, yeah, I'd say there is a strong correlation with political affiliation alright.
posted by Kid Charlemagne at 8:47 AM on January 18, 2013


Yes, this statement is very simple. That's why it's wrong. Tranfer payments can be stimulative. (And if you're on the left side of the Laffer curve, like the US, they almost always are.) If I take a dollar from a rich person, they don't notice it as much as giving a dollar to a poor person. This isn't a zero-sum game.



Sure, a transfer payment can be stimulative. But it can never be as stimulative as a commercial transaction between two ready willing participants. The game's sum gets closer to zero if a participant is not willing.


Consider a transaction.
>I exchange $1 for 1 can of coke.
>I am satisfied by some immeasurable amount. (it must be more than $1 or else I would not have parted with it.)
>Coke is satisfied by a measurable amount, which is its profit. (if there was no profit than they would not have sold me the coke.)
>The overall economic growth is therefore the immeasurable happiness (utility) from the coke plus the profit made by coke.

Consider a transfer.
>$1 is taken from me and given to someone. (I am less than satisfied by an immeasurable amount.)
>That someone gives the $1 to Coke. That someone and Coke are both happy.
>The overall economic growth is therefore the immeasurable happiness (utility) from the coke from that someone who received my dollar plus the profit made by coke, net of my dissatisfaction (the loss of the utility of my $.)



Not for anything, and the simplest convincing any one should ever need is the fact that transfer payments are not included in the calculation for GDP.


Do you have some data to support this, say the personal savings rate by state, are you just arguing by assertion while telling us we don't have to make this about politics?
posted by Kid Charlemagne at 8:31 AM on January 18 [+] [!]


It was just a simple example. Use any breakdown you want.
posted by otto42 at 9:00 AM on January 18, 2013


What blows my mind is how The Road to Serfdom should have so completely discredited Hayek in so many ways, but instead seems to have had the opposite effect. Note that The Road to Serfdom was written in 1944, just at WWII was ending. It predicted that government intervention in the market and the creation of expansive regulations and welfare states would inevitably lead to totalitarianism to keep it afloat. What happened after WWII? Post-war western europe adopted expansive, highly-regulated welfare states that depended on high rates of unionization. Had Hayek been correct, the effect of this after 50 years would have been totalitarianism. Which is exactly what did not happen.

You can tax me a $1.00 and give it to a poor person to spend. Just don't call it stimulative.

Honestly, if rich people having low taxes could save the economy, then they would have saved the economy already (though, actually, it's probably a bad time to raise taxes until unemployment gets below 6 percent).

Sure, a transfer payment can be stimulative. But it can never be as stimulative as a commercial transaction between two ready willing participants.

But in a recession, there is the case where there is only one willing participant, and the government might want to spend money to create a second willing participant.
posted by deanc at 9:12 AM on January 18, 2013 [7 favorites]


otto42, in the transaction, you left out the person who would've been able to buy a Coke under the transfer...he still exists (and is going thirsty), right?
posted by mittens at 9:12 AM on January 18, 2013 [1 favorite]


You can tax me a $1.00 and give it to a poor person to spend. Just don't call it stimulative.

How about instead of psuedoscientific rambling about "immeasurable happiness" we just look at some real analysis?

The industry research firm Moody's Economy.com tracked the potential impact of each stimulus dollar, looking at tax rebates, tax incentives for business, food stamps and expanding unemployment benefits.

The report found that "some provide a lot of bang for the buck to the economy. Others ... don't," said economist Mark Zandi.

In findings echoed by other economists and studies, he said the study shows the fastest way to infuse money into the economy is through expanding the food-stamp program. For every dollar spent on that program $1.73 is generated throughout the economy, he said.

posted by Drinky Die at 9:13 AM on January 18, 2013 [7 favorites]


net of my dissatisfaction (the loss of the utility of my $.)

I guess that's the crux of the argument. In an era when the gap between the rich and the poor is historically high (and lets include corporate savings here as well), there is a giant pool of under-utilized money out there. The redistribution-stimulus idea hinges on the condition that the recipients can make more productive use of the money than the stock market can, and I think that's currently the case.
posted by Popular Ethics at 9:13 AM on January 18, 2013 [2 favorites]


So taking money from the rich produces dissatisfaction, but giving money to the poor does not produce satisfaction?
posted by mek at 9:20 AM on January 18, 2013


Here's a graph comparing percent Obama voters to the nest egg index. and there absolutely is a correlation.
posted by Kid Charlemagne at 9:21 AM on January 18, 2013 [3 favorites]


The more I think about it, the more I like the Coke example, because it's a nice, simple demonstration of the way transfers can be stimulative.

Person A has two dollars; Person B has none. Both are thirsty, and both would be satisified by one Coke. Person A could buy two Cokes--but decides instead to save a dollar. The Coca-Cola company, keeping a close eye on demand, plans to manufacture only one Coke. Person B, as mentioned above, goes thirsty, Person A is satisfied.

But if the government decides to balance things through a transfer: Person A loses one dollar, but still has a dollar to spend on Coke. Person B gains a dollar, and now has a dollar to spend on Coke. The Coca-Cola company delightedly ramps up production because demand has doubled, hiring more people and building more plants.

I suppose the downside would be that Person A, feeling this is unjust, might work or invest less in order to avoid paying out that one dollar in tax...but how likely is that, as opposed to things working in the opposite direction, Person A seeking to make more money so as to have more left over after taxes (which then puts slightly more money into the system to be transferred to Person B, who can then buy slightly more Coke)?
posted by mittens at 9:22 AM on January 18, 2013 [10 favorites]


It was just a simple example. Use any breakdown you want.

i.e., I'm just making this up, so don't bother with any "facts"?
posted by adamdschneider at 9:27 AM on January 18, 2013 [2 favorites]


Otto42, I don't think you're listening or responding to the substantive critiques of your stance. And I point this out not so that you change your mind, but so that anyone skimming this thread doesn't make the mistake of assuming that you are.

Dollars are worth different things to the economy as a whole when they rest in different hands. Some dollars are not productive. Other dollars get removed from the local economy (city, state, country), making their productivity of limited use within that local context. Reliably, the closer you get to the top of the financial heap, the money increasingly becomes sequestered, wasted, and removed from the contexts that matter for growth and development.

Whether or not anyone is pleased with this reality isn't particularly relevant. You don't get to choose your own facts, and this concept is as close to a fact as the field of economics can produce.
posted by jsturgill at 9:27 AM on January 18, 2013 [4 favorites]


i.e., I'm just making this up, so don't bother with any "facts"?

That correlates well with my data.

Damn red states need to learn some fiscal responsibility.
posted by Kid Charlemagne at 9:29 AM on January 18, 2013 [1 favorite]


 Person B, as mentioned above, goes thirsty, Person A is satisfied. Person B begs for pennies outside the Coke factory where he has been laid off due to a lack of demand. He sees Person A leaving with a shiny new Coke, and in his desperation, follows him home. He sneaks in the back, hoping to quickly make off with some trinkets, maybe a Fresca, while Person A is in the garage. But Person A hears him, and has a gun.

There is a struggle. A shot is fired. Another. Both men slump to the ground. The Coke shatters on the marble floor, and mingles with their blood.
posted by mek at 9:35 AM on January 18, 2013 [9 favorites]


Before I even read: wow! Will get back after reading
posted by mumimor at 9:39 AM on January 18, 2013


The growing parable of the coke bottle is awesome.
posted by vuron at 9:47 AM on January 18, 2013 [1 favorite]


People, I've gotten into analogical arguments with otto42 before. He/she is utterly unwilling to cite any data from any source to back up their thought experiments. Don't waste your time.
posted by no regrets, coyote at 9:49 AM on January 18, 2013 [1 favorite]


Damn red states need to learn some fiscal responsibility.

Well, sorta. They need to exercise fiscal responsibility by voting for a return to sensible progressive tax policies. After all, their communities would be in even more trouble without the excess tax on Blue States that maintains their core infrastructure through the Federal government.
posted by tripping daisy at 9:49 AM on January 18, 2013 [2 favorites]


I will try to get this thread back to my main point, which admittedly was not the original main point of this thread.



My main point is, if a government tries to stimulate an economy through spending, people who do not believe government spending is stimulative will spend less.


Public sector spending goes up. Private sector says that is bad. Private sector spending goes down.

(Does the whole private sector think govt spending is bad? Of course not. Could enough think it is to matter? Sure.)


What is there to argue?
posted by otto42 at 9:56 AM on January 18, 2013


I get the sense that European austerity thinking has sort of merged with anti-Americanism and ecocentrism. Like the world had fallen under a spell of American consumerism and irresponsible spending that is destroying the planet, and the solution is we need to go back to a time of modesty and balanced budgets.

It's interesting that in areas where cause and effect are so hard to tease apart, people speak with such absolute certainty. Religion reigns in the absence of science.

Anti-austerity is about minimizing the latter kind of pain and maximizing the former kind of pain because it's unfair to inflict the financial burdens of this "change" on those who are neither responsible for it, nor able to afford it.

Counter-acting "business cycles" and bubbles with stimulation and austerity at the appropriate times makes sense to me. Now is not the time for austerity, 1999-2000 was the time for austerity. As bogus as macroeconomics seems to be at times, mainstream economics as taught and researched in our best academic institutions is the closest thing we have to a scientific rational approach to addressing these questions. So I personally would trust the most respected main stream economists (Bernanke, Stieglitz, Krugman, etc, I'm sure there are conservative economists I'm not aware of) more than anyone. It seems to me we could have fallen into a massive depression by now if not for the stimulation and expansionary policies in the US and China. It's easy to forget how bad it looked in 2008. Maybe the whole thing could have been prevented with prudent "austerity" and regulation before 2008, who knows.

I guess that's the crux of the argument. In an era when the gap between the rich and the poor is historically high (and lets include corporate savings here as well), there is a giant pool of under-utilized money out there.

If some of the under-utilized money is sitting in banks and helping them meet reserve and "stress test" requirements it may still be serving some use. It would surprise me if banks don't still have a lot of junk assets on their books. It was only a few years ago when we learned a sudden fall in derivative prices can push the entire financial system into seeming insolvency.

If there is a giant pool of un-utilized money, at bit of inflation and money expansion is a good thing. It forces capital to be used or lost over time.

The redistribution-stimulus idea hinges on the condition that the recipients can make more productive use of the money than the stock market can, and I think that's currently the case.

It seems to me we could also be doing more to incentivise investment in things like sustainable energy and agriculture and penalize things like carbon emissions to put free market competition and the stock market to good use.
posted by Golden Eternity at 10:00 AM on January 18, 2013 [1 favorite]


otto42: What is there to argue?

There's nothing to argue, now that you have conceded that this is an innacurate statement:

My saving offsets the effects of the stimulus.

As prior commenters have demonstrated, while some private entities may curtail spending, under current economic conditions it is likely that the increased government spending will result in more economic activity than the drop in private spending reduces economic activity.

Since you removed the "offset" idea from your model, which was a core facet of your argument against government stimulus, I take it you've conceded that increased government spending can result in a stimulus. So yeah, there's nothing left to argue.
posted by PCup at 10:08 AM on January 18, 2013 [1 favorite]


People, I've gotten into analogical arguments with otto42 before. He/she is utterly unwilling to cite any data from any source to back up their thought experiments. Don't waste your time.
posted by no regrets, coyote at 9:49 AM on January 18 [1 favorite +] [!]



I think excessive government spending will lead to an increase in inflation. Therefore I am putting my savings into inflation adjusted bonds.

Data that is good enough for me.


Investors should be alert to the long-term inflationary thrust of such check writing. While they are not likely to breathe fire in 2013, the inflationary dragons lurk in the "out" years towards which long-term bond yields are measured. - Bill Gross - Pimco - Worlds Largest Bond Fund.


My expectations (right or wrong) have shaped my investment decision. The broader economy's trajectory is modified, however so slightly.
posted by otto42 at 10:10 AM on January 18, 2013


Public sector spending goes up. Private sector says that is bad. Private sector spending goes down.

(Does the whole private sector think govt spending is bad? Of course not. Could enough think it is to matter? Sure.)

What is there to argue?


That this doesn't happen. Are you going to provide concrete, non-anecdotal evidence that private sector spending and/or investment falls when public sector spending rises, or can we assume that you don't have anything to contribute to the thread but emotional and fact-free arguments?
posted by zombieflanders at 10:16 AM on January 18, 2013 [7 favorites]


MeFi favorite Charles P. Pierce:
Austerity Now, Austerity Forever FEB 2012
But there is one thing about Europe that a lot of conservatives — and too many quasi-liberals, and too goddamned many pundits of all stripes — really have come to dig about the way Europe does things, and that's the way that the people running the "struggling" economies of the European democracies have made the "tough choices" and fastened upon their people "austerity" regimes. Oh, they love that kind of talk over here. This is in concert with their profound terror of The Deficit, which will eat their children in their beds, and it is born out of the profound success that modern conservatism has had at convincing the country that government can't do very much of anything and, therefore, it shouldn't try. In Europe, they had crooked bankers. In this country, we had crooked bankers. In both places, except for Iceland, the really crooked bastards got away with most of what they stole.
Austerity: The Beatings Will Continue FEB 2012
We have had our little fun with David (King Of Pain) Gregory, who believes in his journalist's heart that the American people must suffer so that The Deficit will not come in the night and eat his face. In his own judicious, polite, and oh-so-objective way, he keeps recommending a kind of austerity-lite regime for his fellow citizens. The problem, of course, is that this kind of thing simply does not work. It makes economic conditions worse, not better, for the great majority of the people living under such a regime. It squashes any hope of recovery., and it doesn't do sweet anything about curing the basic economic problem of Fk The Deficit. People Got No Jobs. People Got No Money.
The Social Costs Of The Austerity Agenda DEC 2012
The far left frontier of acceptable Democratic thought is the president's telling us that 'we" all have to make sacrifices, while the far Right frontier of acceptable Republican thought resides somewhere over the horizon, beyond the curve of the earth, and well past the plane of the ecliptic. It's a wonder that, one day, the American political spectrum doesn't keel over altogether to starboard and plunge to the bottom of the Laurentian Abyss. This time it's a bit surprising, though.

Not all that long ago, we had a national election in which the idea that we are all equal partners in the ongoing creative act self-government out of which comes a political commonwealth suited to the needs of the majority of the country was extensively litigated and, at the end of it, the question was decisively settled in the affirmative.
posted by the man of twists and turns at 10:22 AM on January 18, 2013 [5 favorites]


if a government tries to stimulate an economy through spending, people who do not believe government spending is stimulative will spend less.

What?

This makes not a lick of sense unless you somehow believe that "government spending" = "truckloads of cash delivered to Random Citizen's door for no particular reason."
posted by soundguy99 at 10:26 AM on January 18, 2013


Jacobin: The New York Times Tries Anti-Capitolism
This picture of a monstrous, parasitic capital city siphoning resources from honest producer folk once had progressive — chiefly antimonarchist — uses. But in twenty-first century America, it’s faux-populist Tea Party catnip.

Besides this, it’s just plain inaccurate. What the diagnostically neoliberal articulation of “Government versus Real Economy” misses is the central role the state plays in structuring capitalism.
is a reaction to this piece: Washington’s Economic Boom, Financed by You in the NY Times.

goldflood, people!
posted by the man of twists and turns at 10:31 AM on January 18, 2013 [2 favorites]


You know what makes people spend less most reliably? Not having a job or any money to spend. Much more reliably than when some investors don't like government spending.
posted by Drinky Die at 10:33 AM on January 18, 2013 [1 favorite]


My main point is, if a government tries to stimulate an economy through spending, people who do not believe government spending is stimulative will spend less.

So if I gave a poor Republican $1,000 he wouldn't spend it because it "came from Obama?" Or are you making the argument that millionaires will suddenly stop trying to make money because they have to pay the same tax rate as everyone else?

Both of those hypotheses are equally ridiculous.
posted by tripping daisy at 10:34 AM on January 18, 2013


That this doesn't happen. Are you going to provide concrete, non-anecdotal evidence that private sector spending and/or investment falls when public sector spending rises, or can we assume that you don't have anything to contribute to the thread but emotional and fact-free arguments?
posted by zombieflanders at 10:16 AM on January 18 [+] [!]



Investors should be alert to the long-term inflationary thrust of such check writing. While they are not likely to breathe fire in 2013, the inflationary dragons lurk in the "out" years towards which long-term bond yields are measured. - Bill Gross - Pimco - Worlds Largest Bond Fund.

I will translate:

Investors should be alert to the long-term inflationary thrust of such check writing.

The government is spending money they do not have. Therefore to pay bills they have to print more money. If you print too much money, you have too much of it chasing to few goods. The price of these goods will go up even though there is no change in the value of these goods. This is called inflation.

While they are not likely to breathe fire in 2013, the inflationary dragons lurk in the "out" years towards which long-term bond yields are measured.


Do not by bonds that only pay a fixed coupon. Buy a bond that has a coupon that adjusts as inflation adjusts.

>The inflation adj. fixed income security that I feel comfortable buying are those issued by the US Govt. --- The only type you can buy in size are issued from the US Govt. If Pimco is following its own advice then it is buying inflation adj. US bonds.

The bottom line is that Pimco's expectation for inflation is driven by its belief in the effects of the stimulus. These expectations effect the private sector.
posted by otto42 at 10:43 AM on January 18, 2013


"These expectations effect the private sector."

In other words, "I am scared of the effects of the government spending money, so I am going to loan the government as much money as possible."
posted by mittens at 10:48 AM on January 18, 2013 [2 favorites]


In other words, "I am scared of the effects of the government spending money, so I am going to loan the government as much money as possible."
posted by mittens at 10:48 AM on January 18 [+] [!]

That is correct. Every other security trades at a spread to the US gov't security. The gov't security trades at a spread to the inflation expectation.

This makes gov't securities safer than non-govt securities.


That is, the gov't spread can only widen against inflation. However, the non govt securities spread can widen against the inflation expectation and the spread against the govt bond.


Example:

Inflation expectation out 1 year = 300 bps
1 year T bill trades 5 bps wide to inflation (total 305 bps)
AAA Corp. 1 year Bond Spread = 25 bps to T-bill.
Total AAA Spread = 330 bps.

The most spread you can lose with the T-Bill = 5 bps.

The most spread you can lose with the Corp. = 30 bps.

Therefore, govt bonds are still considered safer.
posted by otto42 at 11:02 AM on January 18, 2013


Sure, a transfer payment can be stimulative. But it can never be as stimulative as a commercial transaction between two ready willing participants.

That's what government stimulus is for: when there isn't enough commerical transaction. You know, like recessions.
posted by spaltavian at 11:05 AM on January 18, 2013 [5 favorites]


This makes not a lick of sense unless you somehow believe that "government spending" = "truckloads of cash delivered to Random Citizen's door for no particular reason."

I think it does - if you think "expansionist" policies make economic calamity more likely, you're going to hoard your resources for the day when that comes.
posted by kgasmart at 11:12 AM on January 18, 2013


My main point is, if a government tries to stimulate an economy through spending, people who do not believe government spending is stimulative will spend less.

The free market and profit motive is more powerful than religious beliefs of fringe actors (or even a significant minority of people). There are not enough talk-radio "believers" to outweigh the acts of buying and selling and commercial activity that occurs due to stimulative effects. Sometimes this "market effect" is bad-- bubbles exist not because people are universally stupid (they aren't) but because a bubble basically forces people to follow along because one of the few "rational" decisions to make (unless you're willing to make significant sacrifices which might seem highly irrational and damaging) is to participate in the bubble. But in this case, the "market effect" is good-- in a recession, everyone "knows" you shouldn't be spending and investing. But stimulus starts to make it the "rational" thing to do, and that effect is more powerful than a few actors with ideological/religious taboos against participating.
posted by deanc at 11:15 AM on January 18, 2013 [2 favorites]


"of course
this predictability
is useless."
posted by the man of twists and turns at 11:16 AM on January 18, 2013 [3 favorites]


otto, you aren't making any sense. You're now saying that the safest investments are in bonds backed by the US government. And then you claim that the government is printing money they don't have, but of course fiat currency isn't tied to anything but the full faith and credit of the US government. So you'll trust the US government to repay bonds, but not to guard the value of their currency that they would use to pay the interest on those bonds?
posted by tripping daisy at 11:19 AM on January 18, 2013 [6 favorites]


"of course
this predictability
is useless."
posted by the man of twists and turns at 11:16 AM on January 18 [+] [!]


Does it really matter if Bill Gross is right or wrong with his predictions?


It matters more, what he does with all that money, based on his predictions.


The free market and profit motive is more powerful than religious beliefs of fringe actors (or even a significant minority of people). There are not enough talk-radio "believers" to outweigh the acts of buying and selling and commercial activity that occurs due to stimulative effects. Sometimes this "market effect" is bad-- bubbles exist not because people are universally stupid (they aren't) but because a bubble basically forces people to follow along because one of the few "rational" decisions to make (unless you're willing to make significant sacrifices which might seem highly irrational and damaging) is to participate in the bubble. But in this case, the "market effect" is good-- in a recession, everyone "knows" you shouldn't be spending and investing. But stimulus starts to make it the "rational" thing to do, and that effect is more powerful than a few actors with ideological/religious taboos against participating.
posted by deanc at 11:15 AM on January 18 [1 favorite +] [!]


I don't think Bill Gross is a fringe actor.
posted by otto42 at 11:32 AM on January 18, 2013


All you've shown us is anecdotal predictions from PIMCO that have been proven to be wrong multiple times, not historical data of private/public sector spending correlations.

To repeat: Are you going to provide concrete, non-anecdotal evidence that private sector spending and/or investment falls when public sector spending rises, or can we assume that you don't have anything to contribute to the thread but emotional and fact-free arguments?
posted by zombieflanders at 11:43 AM on January 18, 2013 [5 favorites]



otto, you aren't making any sense. You're now saying that the safest investments are in bonds backed by the US government. And then you claim that the government is printing money they don't have, but of course fiat currency isn't tied to anything but the full faith and credit of the US government. So you'll trust the US government to repay bonds, but not to guard the value of their currency that they would use to pay the interest on those bonds?
posted by tripping daisy at 11:19 AM on January 18 [2 favorites +] [!]



A lot of people would argue that gold and other shiny metals are safer investments in periods of inflation. Even if true though, there is little stimulative effect from buying gold. (ie. a gold bar is not going to go out and hire an employee.)


Yes US gov. bonds are safest even if the gov. is printing. (This assumes the US Gov. is not going to default. - A very standard assumption.)

As I explained. If all investments are priced off of the US Gov. Bond Rate (ie it trades at a spread to treasuries.) Then yes it is the safest. This because of the no-default assumption on the bonds (or the non-guarantee assumption of all other investments.)

You can argue that the US Gov. Bonds are capable of defaulting. At that point though, who cares since every other investment (except gold) has presumably gone to hell.
posted by otto42 at 11:45 AM on January 18, 2013


Does it really matter if Bill Gross is right or wrong with his predictions?

No. Because he can't move the market on his own. People are willing to loan the US lots of money. Banks aren't willing to lend money to others to buy capital because there's no demand for the capital services. But the US government can, with the money that the world is willing to lend it. And since landlords aren't going to turn down rent, and real estate agents aren't going to turn down the opportunities to make sales, and jobless people aren't going to turn down the opportunity to take a job, they will do those things if the money is there to buy them.

Inflation might be a threat in the long term, but I need to eat in the short term. My need to eat now (and the short-term competition for food with other people using stimulus money to buy food) outweighs fears about long term future inflation, which may not even arise until many people who need jobs now have long since retired or died.
posted by deanc at 11:56 AM on January 18, 2013


All you've shown us is anecdotal predictions from PIMCO that have been proven to be wrong multiple times, not historical data of private/public sector spending correlations.

To repeat: Are you going to provide concrete, non-anecdotal evidence that private sector spending and/or investment falls when public sector spending rises, or can we assume that you don't have anything to contribute to the thread but emotional and fact-free arguments?
posted by zombieflanders at 11:43 AM on January 18 [+] [!]


You don't need proof. There might not be any. It might prove me wrong.

Who cares?

As long as Pimco and I believe excessive spending now will lead to excessive printing later, then our expectations of the future will reflect reduced levels of growth, and our current spending plans will be adjusted.
posted by otto42 at 11:59 AM on January 18, 2013


Market-Based Disaster Justice
The market approach poses a problem for advocates of disaster justice for a couple of reasons. First, protection from disaster requires infrastructure, and infrastructure, because its benefits are shared, is hard to fund through private means. Second, justice (in the sense I use the term) requires attention to distributional outcome, and that value is not recognized in a purely market approach. The market approach has been especially hard on urban areas, where reliance on infrastructure is high and diversity is great. Geographer Stephen Graham notes that cities rely on “vast complexes of infrastructure, public works, and hazard mitigation systems,” which we normally take for granted as part of the “public realm.” The neoliberal attack on “big government” resulted in a draining of large- scale public works and social safety net programs on which urban populations rely. Indeed, the most prominent urban policies of neoliberals at the federal level emphasize voluntary services provided by churches and other nonprofit to help the needy. The result of these antiurban policies and fiscal shifts, according to Graham, “has been to make [metropolitan areas] intensely vulnerable to social and natural catastrophe, and to raise levels of violence and disorder.
posted by the man of twists and turns at 12:00 PM on January 18, 2013 [2 favorites]


Power To The People
There’s a particular opportunity for mutual aid in the void in the aftermath of disaster, particularly in a neoliberal state whose safety net has been shredded, where the state simply isn’t there and people step up to take care of each other (not “themselves” as our libertarian friends would have it, and not the rich handing out charity as Mitt Romney wants you to believe, but communities in solidarity). The idea of mutual aid was at the foundation of Occupy as much as the much-debated horizontalism and the opposition to the banks.
posted by the man of twists and turns at 12:01 PM on January 18, 2013 [2 favorites]


As long as Pimco and I believe excessive spending now will lead to excessive printing later, then our expectations of the future will reflect reduced levels of growth, and our current spending plans will be adjusted.

If you were the only two investors on earth and infrastructure investments didn't lead to efficiencies that benefit huge portions of the economy, you would be correct.
posted by tripping daisy at 12:04 PM on January 18, 2013 [2 favorites]


You don't need proof. There might not be any. It might prove me wrong.

Who cares?

As long as Pimco and I believe excessive spending now will lead to excessive printing later, then our expectations of the future will reflect reduced levels of growth, and our current spending plans will be adjusted.


Well, since you're basically admitting that every single one of your assertions regarding anything but your personal economic situation is invalid, then we're done here.
posted by zombieflanders at 12:08 PM on January 18, 2013 [7 favorites]


more naked capitalism
Neoliberalism Kills, Part One
this piece focuses on the Affordable Care Act, aka Obamacare:
The years between 2013 and 2022 show a marked divergence of the uninsured estimates among the Romney, ACA, and benchmark scenarios. The ACA saves hundreds of thousands of lives compared with the benchmark and Romney scenarios; but it still projects an additional 286,000 fatalities through 2022 under the ACA scenario, and a total of 427,000 fatalities from 2010 through 2022. This compares to nearly 800,000 under the Romney scenario and just over 700,000 for the no change benchmark. Certainly, the ACA is much better than the Benchmark or Romney alternatives, but it’s hard to avoid noting that the most striking comparison is between any of these three alternatives, and the Medicare for All alternative. Had that alternative been legislated in 2009 and implemented by January of 2010, we’d be looking at virtually no fatalities due to lack of insurance rather than 400,000 or 700,000, or 800,000.
Neoliberalism Kills, Part Two
It’s because they say that the US Government is constrained in its spending by its need to raise revenue from taxing and borrowing, and its dependence on the bond markets for reasonable interest rates when it borrows. This is the Government Budget Constraint (GBC) which is at the very center of their story, and which drives their reasoning to the conclusion that unless we get the national debt under control, so that the debt-to-GDP ratio stops growing and stabilizes at some reasonable level, our financing from the bond markets will carry prohibitive interest rates. And that if we continue borrowing beyond that our credit will finally collapse preventing us from funding many of of our essential programs and even our common defense.

All the claims, I’ve reviewed here, except perhaps for the last, are based on the idea that this GBC exists. There’s plenty of evidence that it exists, they say. Look at households, look at private businesses, look at non-profit organizations, look at state Governments, look at Greece, Ireland, Spain, etc. They all have GBCs don’t they, and since the Government is just like an enormous household, it has a GBC too, right? Wrong!
posted by the man of twists and turns at 12:09 PM on January 18, 2013 [2 favorites]


"As long as Pimco and I believe excessive spending now will lead to excessive printing later, then our expectations of the future will reflect reduced levels of growth, and our current spending plans will be adjusted."

But, this is what I don't get. If your curtailed spending results in loaning your money to the government, who then spends it on stimulus, how does your curtailed spending counteract the stimulus?
posted by mittens at 12:09 PM on January 18, 2013 [1 favorite]


The Data Don’t Support That The U.S. Bank Bailouts Were Better Than the Swedish Model
posted by the man of twists and turns at 12:10 PM on January 18, 2013 [1 favorite]


But, this is what I don't get. If your curtailed spending results in loaning your money to the government, who then spends it on stimulus, how does your curtailed spending counteract the stimulus?
posted by mittens at 12:09 PM on January 18 [+] [!]

The govt is not spending it on stimulus. In 2012 they used $2.7 trillion of it to roll over the debt.

That is, when Pimco buys a US Gov. bond, the funds are not used build a bridge or tunnel, the funds are used to pay off the next maturing bond coming due.
posted by otto42 at 12:23 PM on January 18, 2013


So your position is now that the problem is that the government is not redistributing wealth to the lower classes, but rather bankrolling financial speculation? Great, we're done here.
posted by mek at 12:54 PM on January 18, 2013 [3 favorites]


So your position is now that the problem is that the government is not redistributing wealth to the lower classes, but rather bankrolling financial speculation? Great, we're done here.
posted by mek at 12:54 PM on January 18 [2 favorites +] [!]


Yes, you understand my position completely, and eighth grade economics no doubt. I agree we are done here. I am going to go exchange my money for beer, thus contributing to the GDP growth rate.
posted by otto42 at 1:06 PM on January 18, 2013


I guess as a Keynesian (roughly), I am destined to cry in my beer (or otto42's beer). Because I can find no refuge either on the left or the right, and am scorned by both.

Re: the right - the austerity thesis has been disemboweled by reality so often, there is hardly any further need to reiterate why government spending (deficit spending if need be) as an actor of last resort is necessary in order to stimulate growth and get out of deflationary spirals. I'm with the left on that.

Re: the left - hey buddy, have you heard of the ant and the grashopper? When there is a boom, I don't hear the left - at least in the U.S. - argue for raising taxes in order to a) prevent destructive bubbles and b) generate surpluses which then can be applied counter-cyclically during recessions. Of course, that may be, because there is no real left with any political power in this country.

Instead, we have insane recommendations that during times of starvation we must cut back on food (the right) and are happy to ladle out more food during times of gluttony (the left - monty python illustration). Worst of both worlds.
posted by VikingSword at 4:59 PM on January 18, 2013 [4 favorites]


How many times do the Ostrogoths have to cause the downfall of civilization exactly? Because if we could get it over in one hit it'd be greatly appreciated.
posted by Talez at 5:59 PM on January 18, 2013 [1 favorite]


VikingSword, try this thread starting here.
posted by the man of twists and turns at 10:42 PM on January 18, 2013


Thanks for that, TMOTAT, I wasn't aware of those threads. I'm glad to see Keynesian economics discussed with enough depth (about 1mm) that at least countercyclical actions are mentioned during boom times. What depresses me, is that it's been almost 80 years since TGTOEIAM was published and even the most general principles of it have not been accepted, when in fact the need is to refine them (f.ex. greater emphasis on taxation during boom cycles and spending during recessions should be on infrastructure rather than purely employment and monetary/fiscal etc.). It's like trying to move from Newtonian physics to Einstein, except the populace is stuck on Aristotelian physics.
posted by VikingSword at 11:16 PM on January 18, 2013 [1 favorite]


Crooked Timber: The big issues in macroeconomics: the fiscal multiplier

posted by the man of twists and turns at 2:01 AM on January 19, 2013 [2 favorites]


Re: the left - hey buddy, have you heard of the ant and the grashopper? When there is a boom, I don't hear the left - at least in the U.S. - argue for raising taxes in order to a) prevent destructive bubbles and b) generate surpluses which then can be applied counter-cyclically during recessions. Of course, that may be, because there is no real left with any political power in this country.

That's because in America we don't have a left, we have liberals. It's right-right vs center-right. If the conservatives are 10/10 beholden to the whims of financial elites the liberals are 9/10. Maybe 8 in their good years.
posted by clarknova at 12:30 PM on January 19, 2013 [3 favorites]


Worst of both worlds.

Agreed, and the problem is the election cycle, or perhaps elections themselves. Politicians must work to maximize their power. To pick a recent example: why does Clinton care if his reforms in the 90s blow up the economy 20 years later? He'll be long gone, wealthy and connected - and all the more powerful thanks to his good service to the private sector.

Even better if the meltdown happens under the GOP's watch, as then the Democrats can apportion all the blame to the right and sweep back into power.

It's not that it's necessary planned this way, it's just that there is no motivation to look any further than the next election. And if you fail to plan for the next election, competitors will. It's a prisoner's dilemma - if we all agreed to take the long view we'd all be better for it, but those who are short-sighted opportunists are better at winning elections.
posted by mek at 4:49 PM on January 19, 2013


Nigella was making a duck risotto when she said this, if I recall correctly.
No, Pasties. She had the great idea to save 2 cents a unit by crust reduction...but the workers eat 10% less now and pay the same. See, it never pays to cut corners esp. when the cornish are involved.
posted by clavdivs at 12:41 PM on January 20, 2013


The Accelerationist Critique Of Neoliberalism(PDF)
[M]y perhaps uncontentious argument is that financial capital has now irreversibly restructured the capitalist system and that any critical attempt to think it must take into account this shift. This is fairly obvious with the size and scope of the current crisis, yet there is more to the process of financialization than simply the vast amounts of money being tossed around. As I see it, financial capital has now definitively shifted four separate aspects of our economic system, which together constitute a qualitative change inhow it operates.
posted by the man of twists and turns at 4:18 PM on January 20, 2013 [1 favorite]


The Neoliberalized, Debt-plagued, Low Wage, Corporatized University - Anthropologies, Issue 16
Introduction: Speaking of the neoliberal university

Neoliberal Education: From Affordable Education to Expensive Training
It is not lost on the anti-educationalists, including politicians seeking to dismantle what’s left of the welfare state, tech entrepreneurs, and sections of Christian fundamentalists that a good crisis is a terrible thing to waste (c.f. French and Leyshon 2010). This has led to, among other things, the effective privatization of the institutions where we work- in Kentucky, the total state contribution represents less than 30 percent of the cost to educate one student, Students, faced with decreasing levels of state backed financial aid, social pressure to become credentialized for work that previously did not require university education, and sky-rocketing tuition costs, are being funneled into an array of educational profit-seeking ventures of varying levels of quality. Not surprisingly, the students enrolling in these programs come from distinctly different class backgrounds than students who enroll in traditional higher education, particularly at elite private institutions.
posted by the man of twists and turns at 4:26 PM on January 20, 2013


LRB: Lets Call It Failure
And guess what: that’s exactly what the IMF thinks has been happening. In the October edition of its regular World Economic Outlook, the IMF studied the question and announced that governments had been basing their calculations on the effects of austerity using a multiplier of 0.5. So for every £1 billion removed from government spending, GDP would contract by £500 million. The IMF looked at the relevant historical data, and concluded that the real multiplier for austerity-related cuts was higher, in the range of 0.9 to 1.7. So that same package of £1 billion in fact removes as much as £1.7 billion of output. This was a jaw-dropping thing to discover, not just because it was surprising in itself, and because it explained the surprising-to-governments economic damage being done by austerity packages, but also because the people saying so were the IMF.
posted by the man of twists and turns at 3:27 PM on January 21, 2013 [5 favorites]


Part IV: A Map Of Hayek's Delusion - podcast.
posted by the man of twists and turns at 3:04 AM on January 30, 2013


Austerity measures in crisis countries – updates from the Eurozone periphery
The current issue of the online journal Intereconomics features stories about the politics of adjustment in Greece, Ireland, Spain, Italy, and Portugal. Aidan Regan and I contributed the article about Ireland. Each paper outlines the measures that have been taken in recent years, and the major challenges each country now faces. All five countries share many common features of course, including the difficulty of keeping on track with deficit reduction targets in the context of no growth and truly awful unemployment figures. But the challenges discussed by authors are quite varied too: in Greece, for example, it’s governance problems that are highlighted; in Portugal and Italy, productive capacity and export performance; in Spain, problems over sustaining the revenue base of the state.
posted by the man of twists and turns at 2:46 AM on January 31, 2013


Finally, Prominent Economists Are Admitting That the Policy Debate Should Not Focus on the Debt and Deficit
Even though con men like Paul Ryan and his financial backers are undeterred by reality, the good news is that evidence and logic do matter to some people who participate in the public debate. One of the most promising recent changes in the discussion among some economists and analysts is a dawning recognition, among even those in the center of the political spectrum, that our long obsession with deficits and debt is no longer appropriate.
posted by the man of twists and turns at 2:51 AM on January 31, 2013


Quelle Surprise! IMF Always Prescribes the Same Austerity Hairshirt
posted by the man of twists and turns at 3:14 AM on January 31, 2013


It Ain't What People Don't Know That Gets Them INto Trouble - It's What They Know That Ain't So
I can’t tell if Stelzer’s memory has failed him, and he is misrepresenting what Mrs. Merkel believes, or if — and this is an even more frightening thought — Mrs. Merkel actually believes that Hitler came to power, because Germany ran the money presses overtime in the 1930s. But the plain facts are that the German hyperinflation occurred in 1923, and Hitler came to power in 1933 when Germany, after years of deflation, austerity and wage cuts imposed in a futile, and self-destructive, attempt to remain on the gold standard, was still wallowing in the depths of the Great Depression. If Chancellor Merkel’s policy is now premised on the presumed fact that Hitler came to power, not because of the misguided deflationary policies of 1929-33, but the hyperinflation of the previous decade, I tremble at the thought of what disasters may still be waiting to befall us.
via Krugman: It's Always 1923
One thing Glasner doesn’t do, though, is point out not just that Stelzer seems weirdly obsessed with inflation risks despite the complete absence of any evidence, but the unchanging nature of that obsession. A quick bit of googling says that Stelzer has been warning about an inflationary explosion for at least four years (pdf). (In the same piece he also insisted that it would be very hard to find anyone to buy all the bonds the US would be issuing).
posted by the man of twists and turns at 5:52 AM on February 12, 2013 [1 favorite]


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