A question for people who think Austerity doesn't work

Currently, the issue of national debt is at the centre of American and European politics. When a country takes in less money than it spends, it has a deficit; and that deficit is paid when the country issues bonds (essentially IOUs) to the common market. That is another way of saying that the country is loaning money to cover the deficit.

In recent political discussions, the European sovereign debt crisis, as well as the political Right, has drawn public attention to the deficits of Western countries. In reaction to this, governments have sought ways to reduce the deficit and avoid growing the national debt.

One solution that has been very popular among the Right wing of European politics is austerity. Austerity means that a government makes dramatic cuts to its spending, usually from social programmes such as healthcare and pensions, and from public projects (such as public transportation and infrastructure,) to shrink the national budget and thus avoid growing the national debt.

However, the Left doesn't support austerity politics, and would instead seek ways to either cut down on spending where it doesn't hurt the poor and the middle class, or to increase the revenue taken in by the state, mostly in the form of taxes.

So, if you don't want to support austerity, how would you go about solving the financial crisis?

edited 29th Jun '12 6:52:30 PM by BestOf

The idea that it can be solved is fundamentally mistaken. It's like a pilot trying to 'solve' the fact that his aircraft's wings have both snapped off.

In some cases, Austerity is a good option.

For preventing a debt crisis, its probably the best one.

For solving a debt problem when you already have one, its not always the best option.

Austerity means spending less, a logical and sensible move but one that comes at the cost of a smaller economy.

A small economy can not generate as much money as a large one.

Now obviously a small economy that operates with a small deficit is going to be preferable to a large economy that runs with a large deficit but its still a deficit, things are still getting worse.

The best solution (asides from never getting into this mess in the first place) hoped for is to channel the economy away from things that don't have any returns and into things that pay well for its investment, eventually reaching positive balance.

edited 29th Jun '12 9:30:34 PM by Natasel

Here's the funny thing. Cutting social services in a time of dire financial straits means that you are cutting that which is needed most at the time when you are cutting it. That's why austerity does not work.

No, the problem is very solvable. The simplest solution is to cut taxes strategically at the lower levels while (in this case) raising them at the higher levels, and drastically increasing public spending in order to provide a basis for the economy to find its footing again and begin growing.

It's very simple, actually. My presumption, OP, is that you're familiar with this idea. It's called Keynesian economics.

EDIT:

The public debt and "debt crises" are utterly irrelevant except for Europe, because Europe was dumb and tried to create a unified currency with no unified government to control it.

Public debt doesn't matter, except in the extreme (50-100 years) long-term.

edited 29th Jun '12 9:33:30 PM by DerelictVessel

You already listed two ways in your post, truteal. Also, I'd support things like building more trains. That creates jobs both temporary and permanent. The thing that was just passed is estimated to create 1.9 million jobs.

Also, stop firing teachers. Better the standards for what a teacher is supposed to be, introduce peer review and get rid of the standardized tests. Make the administration hire former teachers instead of people who have never had a job in education getting those positions. HIRE MORE TEACHERS ALL AROUND. All these things will help. First, by hiring more people to begin with. Two, in the long run by providing children with more teachers and thus more attention per individual child. Which means a better education for the children and makes them more able to compete in the economy twenty years down the line.

Since when was 50 years the 'extreme long term'?

Since quite a few people can be grandparents by the time they're fifty. That's a lifetime for some people.

So, how are things in 1935?

50-100 years is two to five generations. That's a very long time, as far as politics and society go.

Remember, 100 years ago the phrase "world war" meant nothing, television didn't exist, and being a millionaire made you king of the world.

Depending on how desperate things are, Pawning/Selling a few things might have to be considered.

Like Hong Kong was given to the Brits or Philippines to the Americans, a nation could give up a few treasures/territory to get some breathing room.

Maybe hand over some crown jewels, a work of art like the Mona Lisa or some historic relic like a first draft of the Constitution.

It's the long term, but I wouldn't say it's the extreme long term.

But this is a semantics derail, back on topic.

Natasel, you have no concept of how these things work. The government doesn't need money. It makes money. That's the Eurozone's problem: nobody can make money, so suddenly their debt is a tangible, immediate problem. The US and... well, everybody else, really, does control its own money, and so it doesn't need to worry about the debt at all except for in the long-run.

How this works is simple. When things get bad, you cut taxes on the people who actually buy things and spend money to put them to work. When things are better, you raise taxes again and cut spending that is relatively easy to get rid of. Thus, you kill the so-called "boom and bust" cycle and make it into a stable line, instead.

That's the most efficient way for the government to reign in the stupidity of capitalist markets.

edited 29th Jun '12 9:53:23 PM by DerelictVessel

"Make Money" as in print more money isn't going to work on its own.

Money is supposed to represent value, increasing money without increasing the value its supposed to represent just leads to inflation.

edited 29th Jun '12 10:08:21 PM by Natasel

Yes, it will cause inflation, but inflation in and of itself is not necessarily bad (unless you're rich and people owe you money; then God forbid inflation happen. See the connection?).

Besides that, we in the US don't need to print money to fix the debt. We just need to increase revenue. Wall Street alone produces enough "value" to send everyone to college and give everyone healthcare and, Hell, even pay for our stupidly massive military at its current level. We have plenty of money. We just need to take it from those who are hoarding it.

And before you say, "but they earned it!", I'll tell you, no, they didn't. Furthermore, even if they did—and, again, they generally didn't—I don't care.

(No.)

Uh, that sounds a little like Communism (or stealing) and that didn't work so well either.

You can't just go about taking people's money with nothing in exchange. They get upset. And it makes people who are good at making money want to avoid you and hide their money from you.

It's socialism, not communism. Communism has never existed on a large scale in reality. What the Soviet Union and People's Republic of China practiced was what George Orwell eloquently termed oligarchical collectivism.

In any case, they are getting quite a bit for it. Modern infrastructure, an educated and capable workforce, a military capable and properly sized to defend the country, a health population that is happier for it, and all in all a better country.

You act like tax dollars just get piled up and burned. The object is to use them to create good things. Otherwise, it's pointless.

And furthermore, it's not strictly socialism at all. It would simply be a mixed capitalist economy. For it to be socialism would require that we start taking their physical production systems, such as factories and such, rather than just their money. And they can try and hide or run all they'd like. Where are they going to go? Europe already has high taxes and uses it to build things like what I'm proposing, though of course they're in the verge of implosion, and they will be worse off overall in Russia, China, or the Third World. They, frankly, have nowhere to run.

Besides, the people I'm talking about aren't good at making money. They're good at exploiting the labor of other people and skimming off their work. A stock broker produces nothing of value and ultimately society would be better as a whole if his or her job didn't exist and he or she could not take away from the labors of other people who actually do produce things of value.

edited 29th Jun '12 10:33:58 PM by DerelictVessel

When we take that money (taxes), we then already use it for things that everybody uses. Like roads, schools, police, and the fire department (though, this is all local, but much of that is funded by block grants from the federal government to the states and other grants to cities and counties). And yes, some does go to the poor. And do you know what the poor do with money? They spend it. The poor have an extremely high marginal propensity to spend. The rich on the other hand, when given more money, usually just sit on it. Look at it this way: either way, it makes its way to the top, but if it starts at the bottom, at least someone benefits from it.

As far as I can tell, keeping the money moving is pretty much the most important thing to the economy. If it's just sitting around, not being used, it may as well just not exist. And money moves better when more people actually have money to spend, as opposed to just pooling it in the hands of the few, who have so much money that spending it all is essentially impossible.

Taxing the rich, public services? Communism! Multi-trillion dollar war? Freedom. :/

If that was universally true, the joke about "Swiss Bank Accounts" would never have exsisted.

Hiding your money from the Tax Man is probably a sport about as old as Tax itself.

It may be true that everything you said about the infrastructure, educated work force and other extras are worth it, but if its not in the eyes of the people you want to Tax/Rob, you are going to have to cage them in or see them flee for the horizon with their money.

BTW, China IS a better place for money. Its called an Emerging Market for a reason.

edited 29th Jun '12 10:39:40 PM by Natasel

Of course! Those soldiers are protecting the free market and our multinational corporations right to exploit the natural resources of other countries for our (rich people's) benefit! Whereas, "public services" is just a code phrase for those filthy poors and their leeching off the industrious rich captains of industry who brought themselves up by their boostraps! How dare I suggest that our corporate lords aren't fully and completely to the fruits of our labor, with a bare pittance left over for us if we're lucky? We should be content they don't make us slaves like the plantation owners did back in the 1800s! Aren't we glad the industrialists spare us from slavery? I know I am!

So you declare offshore bank accounts in countries that do not disclose full information about said bank accounts to be tax evasion and jail the lot of them. What now?

I don't care what the rich think is worth their money, because at the end of the day their money is meaningless. They can take the damn paper, but they can't airlift the factories and the workers with them. They want to leave, we can just ignore them and restart the system, and then suddenly their money is worthless with no government backing. They have no standing, if only the government wasn't their plaything.

And China is good to run a business. It's not where the rich people actually want to live.

edited 29th Jun '12 10:42:56 PM by DerelictVessel

Not every rich person can just up and leave a particular country, for a lot of reasons, although they are more able to do so. In any case, giving money to the poor just makes it more likely that they'll spend that money at local businesses. Like, buy more food because now they can make sure they and their children can eat well, instead of getting fast food all the time. Buying more clothes, and nicer ones, because now it won't hurt their budget so much.

Putting money in the hands of the poor helps everyone, due to the fact that it's the poor that aren't buying things because they have no money. And you can do this through projects that create jobs. And you can fund those jobs by raising taxes on the rich. The rich won't like it, but the point of governments and taxes is to benefit everyone, not just the rich.

In any case, we can see what austerity is doing in Ireland and Europe. It ain't pretty, and that's not a road we should be going down.

That's because people are selfish bastards. The services don't really suffer if one person doesn't pay, so it's "fine". However, lots of people, mostly those with lots of money in the first place do this, and then we run into the Tragedy of the Commons.

And then there's the fact that a normal economic activity for many rich people (investing and trading stocks) is taxed at a lower rate than normal income, meaning that many of them pay less than what their normal income tax rate would be without any particular effort to do so.

The problem with austerity is simple: it is based on the idea that public debt at all matters to the economy. In reality, life in the economic world will continue on regardless of how much money the government owes to itself. In the meantime, cutting spending—as businesses do the same en masse—creates a mass self-reinforcing problem, as less and less money is circulating in the economy and thus, less and less money is being made.

Austerity assumes that the problem is supply-side. Problem is, the problem is not supply-side.

Yup. As someone who tries to maintain a sort of supply-side/demand-side balance, there is NONE right now. Everything is ALL demand right now, a big part of this is as we continue to become more and more of service-based economies.

The big thing to know about debt, is that the big indicator of debt problems are debt to GDP ratios. As such austerity measures often decrease the GDP and as such make the ratio worse. I.E. it makes the problem worse. This doesn't HAVE to be...you could have austerity and cut services for the poor and increase taxes for the rich but what you often see is basically services and taxes cut.

This is what people (rightfully) rally against. Quite frankly, this isn't austerity. This is moving wealth from the poor to the rich.

What would I do? I'm most familiar with North American economies so I'll talk about them. The problem is that less money is going into wages, which hurts the tax base. Reaching and keeping full employment is key. The goal is to get that money out of corporate bankrolls and into wages and taxes. Personally, I think that we'll have to go as far as reducing the workweek, but that's just my opinion.