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Excel Error Contributes To Problems With Austerity Study
quarterbuck writes "Many politicians, especially in Europe, have used the idea that economic growth is impeded by debt levels above 90% of GDP to justify austerity measures. The academic justification came from a paper and a book by Kenneth Rogoff and Carmen Reinhart. Now researchers at U Mass at Amherst have refuted the study — they find that not only was the data tainted by bad statistics, it also had an Excel error. Apparently when averaging a few GDP numbers in an excel sheet, they did not drag down the cell ranges down properly, excluding Belgium. The supporting website for the book, 'This time it is different,' has lots of financial information if a reader might want to replicate some of the results."
The Excel error is making the rounds as the cause of the problems with the study, but it's actually a minor component. The study also ignores some post-WWII data for countries that had a high debt load and high growth, and there's some fishy weighting going on: "The U.K. has 19 years (1946-1964) above 90 percent debt-to-GDP with an average 2.4 percent growth rate. New Zealand has one year in their sample above 90 percent debt-to-GDP with a growth rate of -7.6. These two numbers, 2.4 and -7.6 percent, are given equal weight in the final calculation, as they average the countries equally. Even though there are 19 times as many data points for the U.K."
No, finite resources do.
When I read the title, I expected a calculation or rounding issue, or an internal range issue from built in components and not "dumb ass user didn't set the range correctly when averaging". That's not an Excel error, that's a user error - Excel did exactly what it was told to do.
Anyone who prefers debt is a fucking idiot and shouldn't be trusted.
That statement is plain daft. It's much too broad. Sometimes debt can be good. For example, getting a mortgage for a home might not be bad. Sure, it would be better to buy with cash and avoid paying all the interest, but if you don't have a pile of cash lying around, you are limited to saving while paying rent. It might actually work out better to get the mortgage.
Also, getting a loan to start a company might be a great way to have enough capital to get to the market quickly and by doing so make a huge profit.
Not all debt is bad. Debt without any plan to pay it off and without evaluating whether the costs of managing the debt outweigh the benefits is bad. The problem is that most political parties these days seem to have a horizon of the next election when it comes to balancing the books. The problem with this sort of debt is that they spend up big and have no real plan to pay it back.
Moved to http://soylentnews.org/. You are invited to join us too!
Economics. The social "science" with a pretension and envy of physics, practiced by those who couldn't cut it at math or physics.
Fuck systemd. Fuck Redhat. Fuck Soylent, too. Wait, scratch the last one.
It's about what you spend it on.
If you spend it on capital goods that allow you to produce more, that's investment.
If you spend it on final use goods, that's consumption
Simple concepts: consumption is not production and not all spending is investment. And yet, look at how Gross Domestic Product is calculated.
GDP = private consumption + gross investment + government spending + (exports - imports)
Set your phasers on "funky"!
In Holland at least, financial products must carry a legal disclaimer stating that past performance is no indication for the future.
What is this entire flawed study? Trying to predict the future, from past performance.
The Dutch economy is an open economy heavily dependent on the performance of the rest of the world. It doesn't much matter what our leaders do, the rest of the world dictates the state of the Dutch economy. So how do you compare its performance with the rest of world? It doesn't matter what our debt is, it matter how many products Germany ships through Rotterdam. But still, these economists try to compare how The Netherlands fared with X debt against the US which has a totally different economy. How different? The US is one of the bigger countries and is #1 in agri culture. The Netherlands is one of the smallest countries and is #2 in agri culture. Why? Every American black and white cow was created by a dutch boy sticking his arm up a cow. And jerking of a bull. The US exports low value agri cultural products, the Netherlands high value.
But it means the SAME industry, is COMPLETELY different. Baby cow production US style is cowboys and homo sexuality in the prairy. Dutch baby cow production is bestiality and high tech in the desolate north.
It is interesting to note that politicians who claim to want the best for big business are NEVER themselves successful big business owners AND that the successful big business owners never ever agree with them. Wallstreet likes the Republicans supposedly (but the two top financial newspapers advised voting against Romney because even a socialist in the white house would be better) but people like Warren Buffet and Richard Branson sing a very different tune. They think the best way to beat a recession is to spend. Not spend recklessly but invest in the future not in handing out tax cuts to buy votes.
Be wary of any leader who leads out of an ideology and not what is needed right now. Would you go to a doctor whose every answer is "lets amputate"? No? Then why vote for a politician whose every answer is "cut taxes, spend less, except on the pork project I need to get re-elected"? Real leadership is looking at what needs to be done and then do it. Not just have a one size fits all slogan.
MMO Quests are like orgasms:
You may solo them, I prefer them in a group.
"""
Paul Ryan's Path to Prosperity budget states their study "found conclusive empirical evidence that [debt] exceeding 90 percent of the economy has a significant negative effect on economic growth."
"""
Nope. "has a[n] effect" is a claim of causation. In reality, all they found was a correlation. And by "reality", I of course mean "made up fantasy land where they can't use excel properly".
-- FatPhil (AC, as I'm away from home and don't remember my password)
Attempting to justify more theft of the public and increased government spending.
It's simple to answer this question, do you want to incur debt or spend money that you have? Anyone who prefers debt is a fucking idiot and shouldn't be trusted.
Wow this brings stupidity to new levels. A report is widely used to justify government cut backs. The report proves to have mistakes in it that would have given a different result - so pointing out the error is "Statist Bullshit"? There would be some justification in arguing that the report does not matter, though for people who previously used it to argue their case this would be hypocritical. But to argue that we should continue to use the incorrect report because correcting it is statist is just dumb.
Yes, all interest-bearing debt is BAD.
Muzzie, are you?
Carmen Reinhart: (Chief Economist) Bear Stearns -> IMF -> Harvard
\-> married with Vincent Reinhart: FED -> (Chief US Economist) Morgan Stanley.
famous quote: "Secretary Paulson Makes the Right Call" The Wall Street Journal, Sept. 16, 2008:
"In other words, some government aid might ultimately have to be directed toward financial firms whose failure would otherwise threaten the financial system.
The politicians now running for office should also appreciate that their grand ambitions for new spending programs or tax cuts may have to be tempered by the need to rescue financial firms."
Kenneth Rogoff: IMF -> Harvard
Reinhart and Rogoff have certainly been warning of high debt levels, but it's wrong to give this study too much credit for what "austerity" there has been across Europe. Most cuts in places like Greece and Spain were fait accompli, once it was clear that the ECB was not going to budge on its inflation target to neither try and boost nominal growth nor to crudely relieve nominal debt levels.
I will grant that the 90% debt/gdp trigger is most likely non-existent, but the rest of their book does yeoman's work in cataloging financial crises. It's a useful antidote to the mass psychological amnesia that is perpetually recurring. "Our new investments our safe and returns will never fall" inevitably leads to "what perfidy caused this?" The cycle has been repeated in remarkably similar ways for nearly a millenium now. We should appreciate the detailed financial history they have created, and chide them for the dubious massaging of the data. Just don't overstate its political implications.
I got a catholic block.
Does High Public Debt Consistently Stifle Economic Growth?
No, finite resources do.
High public debt drains away valuable resources faster than low public debt
Given the same amount of initial resource, a country with high public debt will have smaller chances for recovery
But then again, most economies (other than that of North Korea) are dynamic, and the amount of resource fluctuates
Muchas Gracias, Señor Edward Snowden !
When you're cooking the data, try not to make too many obvious mistakes. Of course, had the original propaganda piece, I mean "study", been peer-reviewed by someone who "could do the math" (obviously NOT any economists), this would have been pointed out as total nonsense in the first place.
It's "affect" Mr Highly Educated.
But they said "Anyone who prefers debt is a fucking idiot and shouldn't be trusted."
Not has debt, uses debt or takes on debt, but prefers debt. There is a significant difference.
Actually if you get a mortgage at a low rate and invest the rest of your money over the 30 years you would have made more money then if you were just buy the house, and invest your existing money.
If something is so important that you feel the need to post it on the internet... It probably isn't that important.
But then again, most economies (other than that of North Korea) are dynamic, and the amount of resource fluctuates
That depends on what you mean by "resources." An MBA Romney-style corporate raider considers "resources" to mean "cash and credit" while someone who isn't a rent-seeking parasite considers things like timber, ore, fuel, and available labor to be resources. The only real resources that fluctuate are labor and renewables.
Free Martian Whores!
I agree with you, debt without evaluating the cost and a plan to manage it is bad news.
However you say "it would be better to buy with cash and avoid paying all the interest"
Sure buying with cash avoids paying interest, however it also avoids collecting interest on whatever else you would have invested in. Essentially buying a house with cash can be considered as investing in property at the mortgage rate of interest. If you can beat that in the market (with a suitable level of security/liquidity) then it's worth condiering a mortgage and investing.
Of course differential tax treatment, stamp duty on house purchase, duration you expect to hold the house/asset, etc all feed in to make it a more complex analysis. YMMV, this is not financial advice, etc
Thank you for using your brain, far too many around here don't bother.
Doesn't anyone who supports big government socialism see that the people encouraging all the debt and deficit spending are *not* the same people paying the taxes, ever? Anyone? Hello?
Good grief.
Debt without any plan to pay it off and without evaluating whether the costs of managing the debt outweigh the benefits is bad. The problem is that most political parties these days seem to have a horizon of the next election when it comes to balancing the books. The problem with this sort of debt is that they spend up big and have no real plan to pay it back.
Therein lies the problem. In my opinion, borrowing should be done to acquire capital for investment; not to simply acquire nice things. I think most people are so used to doing that (e.g. credit card debt,) that they don't really pay attention when the government does it either. Many are even fine with the idea that they can just spend until they are upside down, and then file chapter 7. Governments can't do that (if they did when they do - there will be hell to pay.)
Nice things would be (and this is a classic example libertarians point out) things like national endowment of the arts. If any given artwork isn't worth anything to anybody, then why on earth are we paying somebody to make it? I really don't know if any nice things have come of it, but in the end that is all it is - just a nice thing that we don't actually need in the classical sense, and that money should be going towards paying back debts.
Sadly that is lost among posters like the one just above you, who I think probably constitute a majority. I hear many talk about how a subset of Americans don't want to adopt European policies just for the sake of not being like Europe. Ignoring that the reverse is also true (it certainly is) there is also that subset who want to simply follow Europe's lead just for the sake of doing so. I don't think that is a wise idea given the current Eurozone crisis.
There was a time when the roles were reversed - the US tended to follow Keynesian thought more than Europe. That was the great depression. And as it turns out, the US fared far far worse than Europe.
The great depression wasn't caused by the stock market crash, by the way. The crash simply created a panic, but on its own it didn't cause the mess that followed. After the crash, the unemployment rate was about what it is now - floating between 9 and 10 percent, even showed signs of recovery for a brief period. Things didn't get really bad until the government tried to "fix" things. Smoot-Hawly for example, designed to create jobs, raised domestic prices dramatically and dropped exports by half. Domestic production and exports rise and fall with one another, for those who don't know. That followed by heavy deflation, prohibition, FDR declaring bullion as contraband, the new deal, among a bunch of other things that were supposed to "improve humanity" (the prohibitionists identified themselves as progressives, by the way) and only made things much worse.
Notice below how you see the dow begin to recover up until Smoot-Hawly
https://en.wikipedia.org/wiki/File:1929_wall_street_crash_graph.svg
(Strange world we live in how Republicans wanted tariffs, Democrats did not, and now things are reversed with Unions heavily lobbying for tariffs to protect their jobs.)
What do I know though, I'm just another one of those libertarian whackos who still believe that Keynesian theory was shattered when it proposed that stagflation can't possibly happen, but it did anyways.
Careful with names containing L slashdot.org/~AiphaWolf_HK slashdot.org/~AlphaWoif_HK slashdot.org/~AiphaWoif_HK
http://en.wikipedia.org/wiki/Confirmation_bias
The researchers got the result they wanted, so they didn't bother to check if they were actually correct.
And actually, that's being kind.
These two numbers, 2.4 and -7.6 percent, are given equal weight in the final calculation, as they average the countries equally. Even though there are 19 times as many data points for the U.K."
Why should the UK be given more weight? There's only one such country, not 19 such countries. And the UK data in question is highly correlated (it all comes from the same debt over the same span of time, not 19 different points in the UK's history).
In addition, the rebuttal ignores two stretches of data:
RR examines three data samples: 20 advanced economies over 1946{2009; the same 20 economies over roughly 200 years; and 20 emerging market economies 1970{2009. We repli- cate the results only from the first sample as these are the most relevant to current U.S. and European policy debates, and they require the least splicing of data from multiple sources. We focus exclusively on their results regarding means because these have generated the most widespread attention. On their website, Reinhart and Rogo provide public access to coun- try historical data for public debt and GDP growth in spreadsheets with complete source documentation.3 However, the spreadsheets do not include guidance on the exact data series, years, and methods used in RR.
It's worth noting here that the rebuttal is willing to take data from the period just after the Second World War where a number of countries had high debt and were transitioning from a total war economy (that is, an economy totally focused on winning a particular war to exclusion of everything else, including economic growth) to a normal one - including the 19 year series of the UK mentioned above, and periods of excluded (excluded that is from the original study for unknown reasons) data from Australia, New Zealand, and Canada. All of these incidentally show high economic growth combined with high debt.
If we're excluding data series due to their irrelevance to current economies, why should these be counted? The US and Europe haven't been in a total war economy since the end of the Second World War. So it is to be expected that one would not see the economic gain (whether or not the debt is present) that one saw in the immediate post-war period.
The original research seems weak for a number of reasons, but I'm not willing to call it "fishy" on the basis of a rebuttal which makes its own "fishy" assumptions.
He never said he was an english major. Though I feel the bigger problem is his lack of a real line of reasoning. "Austerity doesn't affect me. i'm highly educated. therefore, austerity doesn't affect the highly educated." I'm sure there are a bunch of people who are highly educated that *are* affected by austerity. There is no reason to come to his conclusion based off of the assumptions given.
As a historical note, christianity used to have nearly identical rules concerning usury; and the deep suspicion of interest-bearing loans is a least as old as Aristotle(who was Not A Fan).
As time went on, though, a number of... increasingly creative... legalisms were hacked together to allow contractual arrangements that were loans at interest in everything but name. In the case of christianity, the charade was so transparent, and the amount of obviously-loan-backed economic activity so significant, by the early modern period, if not earlier, that almost everyone bowed to the inevitable and "usury" stopped meaning 'charging interest' and started meaning 'charging lots and lots of interest'(and even 'lots and lots' has proven to be pretty flexible).
Islam has not (yet) reached the 'eh, fuck it, sure we charge interest' stage; but let's just say that they are doing some downright jesuitical work at the 'So, what sophistry can we spin to make interest not look like interest?' stage. The range of products dubbed 'islamic finance' won't say 'interest'; but it will look like a duck and quack like one.
The only real resources that fluctuate are labor and renewables
I guess you are not in the high tech field
As one in the tech field since the 1970's, one very real resource that I count on is BRAIN-POWER, aka, ideas
Timber can cut into wood for burning, or could be turned into tables and chair by carpenters, or could be used for building a dormitory, or, in the hands of master crafter like Stradivarius, becomes his world famous violins
Muchas Gracias, Señor Edward Snowden !
It means less flexibility.
More liability.
Less freedom.
More waste.
Say what you will about this study, the governments of the western world are living beyond their means.
The US government for example is spending about 50k per US household.
The median income of US households is about 49k.
That alone should tell you there is a problem.
To paraphrase Emperor Augustus: "things that can't go on forever - don't."
These governments are spending well beyond their means and the only way they can presume to maintain it even for a time is through massive inflation. Which will harm the economy, raise interest rates, and generally transition any country that chooses this path into a second world country.
And even this won't be enough because having destroyed your credit and dealing with increasingly higher interest rates it will only be a matter of time before you can't inflate the currency fast enough to paper over your debt.
And when that happens... anarchy... blood... social collapse.
People need to stop deluding themselves that they can magic the debt away as if it won't exist if you don't believe in it.
It isn't a six year old's imaginary monster. It's our civilization's very real debt. And it will bring us low if we don't bring it under control.
I also love that they're whining about these austarity measures when many of these countries are still increasing the amount of debt they owe. In many cases, they're simply slowing down... not reversing course.
If a country can at least tread water without building additional net debt then it's got the situation under control.
But many do not. The US does not. We spend more every year and the tax recipes and economic growth are not remotely keeping up.
I know I'm going to get hate mail for this... It's what comes of having an open forum.
But you can't wish the numbers away through denial. It's like arguing with the Sun.
I've decided to stop wasting my time responding to AC trolls/sockpuppets... so if you want a response from me... login.
Does £2,000 per household per year to pay for just interest on the debt (in UK in 2012) say that it's stifling economic growth?
The UK has had much higher debt ratios in the past. It equalled 30 years of tax revenue after the war with France and Spain in the early 19th century. It took most of the century to pay it off, when Britain had more than the US' current stature in the world and was plundering everybody else's resources. It also reached over 200% GDP after the Second World War. Thank goodness for favourable loans from the US to fund the debts from war, that were finally paid off in the last decade.
As everybody can see from the situation with Greece and the other European PIGS, excessive debt means you've surrendered control of your own destiny. You're forced to service those debts which is a distraction from promoting growth.
Obligatory: http://xkcd.com/326/
I didn't even bothered to read the submission, just posting this to tell everyone that after working 16 years with that piece of software, I need therapy
Professionals don't use excel for data analysis
The great depression wasn't caused by the stock market crash, by the way.
Indeed. It was caused by the very same actions that caused the 2008 meltdown. There's an excellent history of the 1920s written shortly after the crash that was required reading in a class I took at SIU about 40 years ago, Only Yesterday. It's a good read, and an eye-opener about our own time.
After the crash, the unemployment rate was about what it is now - floating between 9 and 10 percent
I'd be very interested in a citation -- everything I've read (and my grandparents, who were born about the turn of the century) said it was more like 25-35%.
Notice below how you see the dow begin to recover up until Smoot-Hawly
That was enacted in 1930, your graph shows no such thing. Read the book I linked, the full text is there.
Free Martian Whores!
Stupid? Really? I see you cleverly avoided answering the question.
My point was that no report is necessary to make the correct conclusion, errors in Excell are not relevant, nor is the report.
Deficit spending is bad, debt is bad, big government statism is bad, unless you are one of the thieves of course.
And you present no argument otherwise, except for calling me stupid. Nice.
Fuck off.
OK so you can know what's good and bad without regard to any facts. I'll let others decide whether that is stupid or clever.
If you are paying interests below inflation, you should pile up debt, if possible long term, as much as you can. In fact, this is a clever way to cheaply roll over older, more expensive debt.
Also, in a semi-depressed economy, any kind of spending by the government, even on inane things, will turn out to help recovery, provided enough people get to dip in. Of course if you spend on unemployment benefits and on re-training of workers, you get much more immediate returns.
The other argument, is that Governments should "spend" on capital projects in the bad times to help the economy, and then "save" in the good times whilst private "industry" promotes growth.
So far, "austerity" isn't working, one recent example, Ireland. GDP falling, causing cuts to Government spending, causing GDP to fall, causing cuts in government spending etc etc.
6 years later, they're still cutting and still falling, If it's not working, change the medicine, don't give them more of the same.
Yes, because we should be bitter about government not pretending to our misunderstanding of economics. And inflicting massive pain on tens of millions of people is OK. It is for a GOOD cause: decreasing the debt, which is ALWAYS BAD.
Rich economies are rich. One of the side effect of being rich is that you can pile on proportionately more debt. Which is completely fine, and in any case an infinitely better use of money than bullion in vaults.
You know that Germany has relatively low unemployment compared to the rest of Europe because many youth learn trades instead of being jobless? Same for Austria and Switzerland.
Austerity affects everyone. It kill opportunities, it stifles social mobility, it removes funds from research and long term investments. There are no good aspects to austerity, except that at the top you fall less than those at the bottom so you are comparatively better off. But to rejoice in that makes you a horrible person.
You are entitled opinions, but not facts.
Not much I can add, except that maybe people who use the term, "Libertards" seem universally to be idiots. But that's just an entitled opinion of mine.
So you want the government to pay for billions (or trillions) of dollars worth of things by having that cash sitting around in an account all year long in preparation for the bill?
Debt spending is not the same thing as deficit spending. Keep on speaking your mind about it, though! People voicing opinions like yours, above, are reason the libertarian "movement" is so generally laughable.
I'd be very interested in a citation -- everything I've read (and my grandparents, who were born about the turn of the century) said it was more like 25-35%.
Not six months after the crash. Those high levels of unemployment came later in 1932 and 1933.
I have yet to meet a libertarian that was not a greedy asshole (the pretend ones) or lived in a parallel universe (the true believers).
I wouldn't expect you to recognize a situation where you had.
An error with an Excel spreadsheet looses Belgium, and the corresponding warp in the data space plays with the world economy? The only logical explanation is someone in Heaven has hired Douglas Adams to make reality 'more interesting'.
I don't normally support Microsoft but in this case I think they're innocent. Excel might have a small error but why isn't the work being duplicated on other statistical programs like Libre Offices spread sheet or programmed using R. For the work to be valid it has to be reproducible across a wide variety of programs and measurement techniques. I call this one in the name of bad form, just switch programs and the problem could go away.
The loans from the USA to the UK after WWII where anything but favourable. They where under incredibly harsh terms that impeded economic growth and lead almost directly to the loss of empire.
.
Sounds a lot like the Passover requirement for the removal of all grains which are Chametz from one's household being performed over time in various ways: -- Bi'ur = burning one's chametz: actually searching for all chametz and actually destroying it (by fire, preferably)
-- Bittul = nullifying one's chametz: if there's any chametz left in this house, I renounce my ownership of it.
-- Mechirah = selling one's chametz. "Until five-twelfths of the way through Passover Eve one may sell or give ones chametz to a non-Jew, and it is no longer ones responsibility."
-- and an extra twist to Mechirah One who keeps the sold chametz in his or her household must seal it away so that it will not be visible during the holiday. After the holiday, the non-Jew generally sells the chametz back to the original owners, via the agent; however, he is under no obligation to do so.
This brilliant charade of observance is also carried out at the governmental level (see http://en.wikipedia.org/wiki/Chametz#Mechirah_practices ):
For chametz owned by the State of Israel, which includes its state companies, the prison service and the country's stock of emergency supplies, the Chief Rabbinate act as agent; since 1997, the Rabbinate has sold its chametz to Mr. Jaaber Hussein, a hotel manager residing in Abu Ghosh, who puts down a deposit of 20,000 shekels for chametz worth an estimated 150 million dollars.These may also be called legal acrobatics as phrased in the article in the independent entitled "The Muslim guardian of Israel's daily bread" : Through legal acrobatics, the forbidden goods belonging to the Israeli state are simply sold to Mr. Hussein for the duration of Passover and then revert back to the state once the holiday is over. Like the governmentâ(TM)s adherence to the Sabbath and to dietary laws, the ceremony sets Israel apart as a Jewish state that upholds religious traditions.
Bad for who?
I have an uncle who was the finance director for a large oil drilling company and he gave me a useful piece of advice:
"never pay off your debts"
Why pay the mortgage off after 25 years? Why not extend the debt, use the equity, and hopefully die before it's all paid off? Inflation takes care of the payments, hopefully. Locked up equity is no good to anyone apart from the creditor.
It's a game and some of the rules can be decided by the debtor.
I'm on my forth mortgage. I've used the equity to pay for holidays, new kitchen and bathroom, and a host of other things. I pay less per month today than I did 15 years ago because of inflation.
It's a gamble. And as I smoke like a chimney, a good gamble.
This post contains benzene, nitrosamines, formaldehyde and hydrogen cyanide.
You know that Germany has relatively low unemployment compared to the rest of Europe because many youth learn trades instead of being jobless?
You know that Germany has relatively low unemployment compared to the rest of Europe because many youth work instead of being jobless?
Seriously, folks who "learn trades" in Germany become highly skilled experts in what they do, and are valued for it. This is an incredible asset to their economy, and it is reflected in the quality of what it produces. You don't need a university education in Germany to make a reasonable living.
I think a lot of other countries could really learn a lot from this model.
Of course, I should note P.J. O'Rourke's observation on former East Germany. It was something like:
"You know communism is bad, because it took a nation full of Germans, and made a poor country out of it."
Schroedinger's Brexit: The UK is both in and out of the EU at the same time!
post-WWII data for countries that had a high debt load and high growth
It would be hard to not have had high growth after WWII for most of Europe. Given most of those economies had been pounded into next to nothing by the war. If you have a GDP of $1 in 1945 and $2 in 1946, why that is 100% year over year growth!
Next debt load and austerity are not the same thing. The UK had a high debt load post WWII and was also rationing food. So it had high debt AND austerity. Using debt to invest in critical infrastructure like roads and basic sanitation for example you don't have or is no longer workable, and perhaps providing minimal nutrition to the needy is an entirely different proposition than making sure every dope who masters long division gets to hang out for four years at University.
Public debt is not always bad when there is clear ROI on where the revenues for its issuance are being directed. Debt should not be used to fund blue sky efforts, nor should it be used to provide comfort. If 'austerity' today had any relationship what what it meant in the 1940s-1950s than I might be included to agree it would be going to far for the present situation to justify, but as its used today it might as well just be a synonym for 'waste'.
Repeal the 17th Amendment TODAY! Also Please Read http://www.gnu.org/philosophy/right-to-read.html
The problem is with this model that government spending is higher than revenues, hence to close the gap someone somewhere has to lend the government the extra cash. The problem comes when nobody is willing to lend the government that cash, or only at interest rates that are punitive then what?
So yes there is something of a downward spiral with "austerity" but the notion that the countries worst effected can just borrow more and spend there way out is plain nonsense. There problem is they cannot borrow the extra so they are having to make cuts. More specifically they can borrow something but it comes with a whole bunch of strings attached from the people doing the lending, which mostly are around cutting spending. If they don't cut the spending they won't get the loans and they will have to cut spending even more.
In short "austerity" is what happens when you have so much debt nobody is willing to lend you more money.
Employees are our greatest resource.
rewriting history since 2109
Would point out that the authorities lost the deep suspicion of interest-bearing loans is a least as old as Aristotle(who was Not A Fan)..
When they worked out to use fractional reverse banking to rob the system blind.
"La dette publique, on ne sait pas comment elle est arrivée, mais elle disparaîtra d'elle-même."
translation: Public debt, we don't know how it arrived, but it will disappear of itself.
He was called Guy Mathot. This genius died in 2005.
He was a member of the same political party than the late Michel Daerden who had a youtube hit with his drunk speech.
On a more serious note I think "5000 years of debt" from David Graeber is an interesting read. It just doesn't take away the general feeling that we got ripped by our government.
> Sometimes debt can be good.
Sure. One of our radio stations here runs Dave Ramsey, who of course believes that all debt is evil. I respect him and understand his logic, but on the other hand, sometimes it DOES make sense. We bought a car on credit, but the mileage is so much better than our old vehicle, I can show you hard figures: we are definitely saving money every month.
As for this article, this study completely misses the point. Just like my wife and I with that new car, government borrowing can make sense ... depending on what it's used for. That's what this whole debate is missing.
If the borrowing is for infrastructure, you can argue that this could pay for itself (even if indirectly) down the road. But borrowing just so that a politician won't have to tell his/her voters that no, the government CAN'T afford to give you everything you want (who wants to hear that???), is just insanity.
Cogito, igitur comedam pizza.
BZZZT! Wrong
Red to red, black to black. Switch it on, but stand well back.
The thing to remember when hearing about all this "austerity" in Europe is that no country in Europe has tried real austerity .*
Real austerity is cutting spending until outlays match receipts. As the linked chart shows, the overwhelming majority have raised taxes or continued deficit spending. Some have slightly reduced the ratio of deficit spending to GDP and called it "austerity." They're still digging a hole, they're just doing it more slowly.
Politicians are addicted to spending to prop up an unsustainable welfare state. They've seen what the future looks like in Greece and they still refuse to stop spending. And the current government of the United States is right there digging with them.
Austerity hasn't been tried and failed. It's been declared difficult and left untried.
(*with the possible exception of Estonia and one or two other small countries)
Lawrence Person (lawrencepersonh@gmailh.com (remove all "h"s to mail)
http://www.lawrenceperson.com/
Oh, I think it is a very good system which should be emulated. But it is a bit disingenuous to directly compare the rates from countries which have this option for kids, and those who don't.
Germany has undergone many years of internal devaluation, partly because of the costs induced by the integration of East Germany, partly because of pure masochism. Life in many parts of Germany is harsher, and the standards of living lower than in Northern Italy, for example. No parts of Europe is truly a hell hole -- this is not the US. It is also the case that the current imbalances in Europe are due in part to this largely pointless German deflationary strategy.
If you look at a GDP/capita map of Europe, which looks at regions instead of countries, you will see that there is indeed a core and a periphery. The core comprises southern Germany, Western Austria, Switzerland and Northern Italy. The periphery comprises Eastern Austria, Northern and Eastern Germany and Southern Italy. The separation in fates during this crisis comes from 1) unfortunate and fortunate lumping of regions with blocks which could or could not transfer funds when needed 2) Those countries forced into austerity contracted badly.
I would hypothesize that the trend and YOY changes are a lot more important than the debt to GDP ratio. After WW2, the USA had a huge debt to GDP ratio. However, the government cut spending by 60% over the course of 2 years and successfully set themselves on a course to pay down the debt. This helped usher in a new era of economic prosperity.
Currently, the USA debt to GDP ratio is ~1 and the CBO projections indicate perpetual deficits over at least the next decade.
The economic prospects of a nation that is in debt which they are steadily reducing and a nation that is in debt while steadily accumulating more are very different.
Thank you for using your brain, far too many around here don't bother.
Doesn't anyone who supports big government socialism see that the people encouraging all the debt and deficit spending are *not* the same people paying the taxes, ever? Anyone? Hello?
Good grief.
It was Socialist Liberals who gained fame for "Tax and Spend".
But it took so-called Conservatives to up the ante to "Spend and not Tax". Or "Tax Cut and Spend".
At least the Liberals realized that stuff had to be paid for sooner or later.
Germany also has Greece, Spain, etc to thank for a small portion of its competitiveness. With the euro exchange rate influenced by these member countries flirting with disaster, German exports are cheaper outside the euro zone. If they get their act together, the euro will rise and Germany will suffer.
The source of most of the federal government debt is renegade government spending. Federal outlays have more than doubled since 2000. They increased spending by 18% in 2009 alone!
If these A$$#0lZ in Washington D.C. had kept their insane spending in line with private sector GDP growth, they would now have a balanced budget.
http://www.whitehouse.gov/omb/budget/Historicals
(in XLS format)
I ask you this; if the state was truly interested in increasing access to healthcare why didn't they simply and immediately cease collecting income taxes on that portion of income spent on healthcare related expenses? A simple thing to do, immediate and across the board impact directly to the people (which was what they said they wanted to do). Anyone care to guess why they didn't do this?
Yes that's rhetorical.
Because it already applies. Medical expenses are tax-deductible once they exceed a percentage of your income. And have been for a long, long time.
However, that doesn't help people whose incomes are limited because injury or chronic illness limits their abilities to earn, since you cannot pay for medical care with what you didn't have to begin with. And because people who are close to poverty to begin with have more important things to spend their limited resources on than maintenance medicine, even when it means that they will eventually incur higher expenses due to lack of preventative treatments.
As to why Obamacare doesn't do anything more useful, ask the people who originally designed it and now want to repeal it.
The only problem is that Ireland didn't save in the good times, did they? Why blame austerity when it isn't the fundamental problem.
No, see, put a dollar sign in front of it to make it an absolute range, just leave it alone if its supposed to be relative. You didn't email this to the president already did you?
You want to keep providing substance-free responses I can keep bouncing them back.
Are you actually trying to argue that debt is good like the chain smoker above?
Gwan, we're all waiting.
Fool.
Debt for ongoing regular expenditure is always bad (maybe excepting developing countries in times of crisis). Debt for things like infrastructure projects, research, etc. can be good if the expected payoff is greater than the cost. I think most people would agree that ideally we should not be where we are now. However, whether fixing the problem in the time of recession with unemployment, lower tax incomes, etc is good is another matter. The study was used to justify a reasonably fast pay-back with austerity during recession because it seemed to show that large deficits equal low growth.
The opposing view is that trying to reduce spending too much during recession will itself slow growth more than the deficit. A rather over-the-top analogy is of someone who is short on money deciding to save on the travel money by not going into work every day. This argument says that the defect will be easier to pay off when the recession ends, there will be lower unemployment, and higher tax revenue. Personally I think that there is a balance, the government should aim to make some savings but not hurry to pay too much off in recession.
The thing is, if the report is used to justify the severe austerity approach, and the report is wrong, then the approach may be doing more harm that good. The reduced expenditure could mean less growth, postponing the time there will be greater revenue - and the paying off debt by itself may do little or nothing to promote growth.
That assumes there is a lunatic willing to lend you money at such a low rate.
The problem is that governments never, ever engage in the "saving" part.
The idea that government should BORROW and spend in bad times is idiotic. There is nothing special about government when it comes to borrowing and spending except the interest rate. If their "capital project" doesn't produce positive ROI, it hurts the economy in the long run. Assuming a tax rate of 20%, a "capital project" would need to generate 5X what it cost in NEW economic activity. Those investments are few and far between, and there is NO WAY that the $5T that the government has borrowed and spent in the last 5 years will produce $25T in GDP growth.
"So far, "austerity" isn't working..."
GDP = C + I + G + (x-i)
Cutting 'G' reduces GDP in the short term. It definitely hurts, but more borrowing is not the answer. Give them 6 years of balanced budgets and we'll see what "works".
The USA government has been borrowing and spending like mad for the last 4 years, accumulating over $5T in new debt. The deficit is around 7-8% of GDP and the USA is seeing less than 3% GDP growth? See the above equation. Obviously massive deficits are not "working".
Government debt addiction is like a personal heroin addiction. Another shot right now wards off the pain of withdrawal symptoms in the immediate term but eventually kills the subject. Austerity is "getting clean". Miserable, but essential for long term health.
There are 3 rules of finance:
1. Debt is good
2. Don't pay taxes if you don't have to
3. Get paid now and pay your bills later
Bill Clinton: Pimp we can believe in. - The Shirt!!!
Aside from your arguments amounting to nothing more than ad hom, straw men, and picking at my spelling error, the key thing to take from my post was unsurprisingly lost on you.
No smart person anywhere will ever argue that you should use borrowed money on what basically amount to luxuries.
Careful with names containing L slashdot.org/~AiphaWolf_HK slashdot.org/~AlphaWoif_HK slashdot.org/~AiphaWoif_HK
Did you forget Portugal, which is now trying the severe brand of austerity that you seem to favor
Except it isn't.
"Portugal recorded a Government Budget deficit equal to 6.40 percent of the country's Gross Domestic Product in 2012.
Which part of "Real austerity is cutting spending until outlays match receipts" was unclear?
Lawrence Person (lawrencepersonh@gmailh.com (remove all "h"s to mail)
http://www.lawrenceperson.com/
I will answer your rhetorical question.
The government wasn't trying to "increase access to healthcare". Their goal is universal access to healthcare. The difference is that they aren't trying to "increase access" for people who already have and can afford it. They are trying to increase access for people who don't have/can't afford healthcare. Now, these people tend to be people with lower incomes. Maybe you don't follow politics, but this past year Republicans talked a lot about the "49% who don't pay federal income taxes" who tend to be lower income families. I would posit that most of the people who don't have health insurance are also probably in the group that don't pay federal income taxes. So, your solution would do almost nothing to solve the problem that they were trying to solve. All it would do would be to put the government further in debt, mostly to the advantage of people who already have health insurance.
Another problem that they were trying to solve is the rising cost of healthcare which is putting our healthcare system on an unsustainable path. They focused on trying to incentivize results instead of actions (spending). Your proposed solution would incentivize healthcare spending, so would be doing the opposite (encouraging healthcare providers to provide more care i.e. spending instead of focusing on making that care unnecessary).
In conclusion, the answer to your (rhetorical) question as to why Obamacare did not "simply and immediately cease collecting income taxes on that portion of income spent on healthcare related expenses" is thus. Because it is a fucking stupid idea. I see why you said it was rhetorical. Because the answer makes you look like an idiot.
At some point the country with more debt has had more money than the other one. What matters is what the country is doing with that extra-resource. As a example, in June 1999, Google was 25 millions in debt, a considerably worst shape than my local kebab place.
Debt is just an indicator. That's what's wrong with the current austerity measure in Europe. It does not matter what a Country is doing with its money, Europe only cares about the yearly balance sheet and does not give a damn about the future of the country.
I don't know your political persuasion, but something tells me you are quite generous.... ...with other people's money, and never your own.
Anyways, some of the most well known (in terms of media spotlight) libertarians are very charitable, like Penn Jillette. I call him out in particular because he has some words of wisdom that somebody such as yourself probably will never understand:
It's amazing to me how many people think that voting to have the government give poor people money is compassion. Helping poor and suffering people is compassion. Voting for our government to use guns to give money to help poor and suffering people is immoral self-righteous bullying laziness.
People need to be fed, medicated, educated, clothed, and sheltered, and if we're compassionate we'll help them, but you get no moral credit for forcing other people to do what you think is right. There is great joy in helping people, but no joy in doing it at gunpoint.
People try to argue that government isn't really force. You believe that? Try not paying your taxes. (This is only a thought experiment -- suggesting on CNN.com that someone not pay his or her taxes is probably a federal offense, and I'm a nut, but I'm not crazy.). When they come to get you for not paying your taxes, try not going to court. Guns will be drawn. Government is force -- literally, not figuratively.
I don't believe the majority always knows what's best for everyone. The fact that the majority thinks they have a way to get something good does not give them the right to use force on the minority that don't want to pay for it. If you have to use a gun, I don't believe you really know jack. Democracy without respect for individual rights sucks. It's just ganging up against the weird kid, and I'm always the weird kid.
http://www.cnn.com/2011/OPINION/08/16/jillette.atheist.libertarian/index.html
Careful with names containing L slashdot.org/~AiphaWolf_HK slashdot.org/~AlphaWoif_HK slashdot.org/~AiphaWoif_HK
But "Is It Good For The COMPANY?"
So a user makes a mistake in using a piece of software, so the /. headline makes the impression that the problem is with the software and not the user. How typical
From Time Magazine:
Yes, they were harsh, no, they didn't impede growth,
If you are a conservative and not a "so-called Conservative" he didn't put words in your mouth. Though if you are dumb enough to think he did, you might be better off letting others speak for you instead of proudly declaring your idiocy.
The "so-called" conservatives would be:
* The Republican party in the USA.
* The Coalition in Australia.
* The Tories in the UK.
* I expect a bunch of others I don't know details about.
I shouldn't need to say this, but you've shown you aren't the sharpest knife so, those labels mean the actual outcomes of those politicians running the show not the views of all of their voters or even all of the individual representatives.
It was also an explicit Republican policy under Reagan: "John Anderson tells us that first we've got to reduce spending before we can reduce taxes. Well, if you've got a kid that's extravagant, you can lecture him all you want to about his extravagance. Or you can cut his allowance and achieve the same end much quicker" - so cut taxes but keep spending where it is for now (and as 30 years of history has shown never actually cut spending to match, just borrow the difference and keep increasing spending).
"Ahhh, yes, Libertards, the people who believe there is no such thing as an externality, and no such thing as collective preference."
Really? Who said that?
"Who claim markets are magic -- indeed bargaining, rigidities and information asymmetries are irrelevant -- and always get to optimal pricing instantly."
What are you reading that claims that?
"Apparently, they also live in an alternative universe where "Keynesian" US is currently undergoing a triple-dip depression, whereas "austere" Europe is adding jobs and growth month-on-month."
Any quotes, citations, anything to expand on that?
"Presumably, it is also a magical universe where gold supplies automatically match the production of goods and services."
Why would it need to?
"You are entitled opinions, but not facts."
Thanks. I'm finding neither thoughtful opinions or hard facts in your screed though. Just an angry little man.
It's not possible to talk about "interest" without talking about the currency that is being transacted. If you charge a rate of interest equal to the inflation rate of the currency, that is basically asking to be repaid what you loaned. This has reasonably been interpreted as "not usury".
There is no precedent to support an interpretation (usury=any interest) that basically means "if you loan money out, you must agree not to be paid back in full". That would basically be a ban on loaning money, making it equivalent to charity. Nobody is going to loan out $X in face value today and get paid back $X face value 10 years from now, in a currency that is inflating 10% per year.
In an economy that uses a precious-metal currency with no significant inflation (mining), it may be feasible to loan someone a sum of money without interest, knowing that when you get that money paid back in full, it's going to be worth the same or possibly more than when you loaned it out. In other words, loaning the money out did not hurt you any more than leaving it in your vault. Charging interest on top of a deflating currency would be "usury" and would result in money being increasingly concentrated in the hands of the money-lenders, which is why it was proscribed.
Not that Rome et. al. didn't attempt to debase their currency, but it doesn't compare to say, inflation of the USD (2 orders of magnitude inflation in ~100 years).
"All" is a big claim? I'm pretty sure there are a bunch of people claiming deflation is a concern who would likely think that locking in 3.87% might very well end up being higher than inflation. At least one person from whomever loaned you the money seems to think that, for example.
What Greek, Cyprus and others teach us is that once you've surrendered your own money you lose control of your destiny. The practical result of Euro is that countries that are struggling can't let their currency devalue and result in natural rebalancing of imports and exports. It forces all the economies in Europe (well, those who joined it, anyway) to march in lockstep, but they're too different so it's going badly.
This attempt to build an unified Europe is coming to the same end all the previous ones have. The only question is: how chaotic will the collapse be?
Forget magic. Any technology distinguishable from divine power is insufficiently advanced.
Germany has undergone many years of internal devaluation, partly because of the costs induced by the integration of East Germany, partly because of pure masochism.
And partly because it's better economically. I do find the subsequent rationalization interesting. Ever wonder why Germany has a "core" that could support a "periphery" and Greece did not?
Make it simple, do you agree with the chain smoker who is happy to spend more than he has with the plan to die before the bill is due? You cannot justify that.
Though dishonest, if you have no descendants or dependents I can see this argument has some logic. You would have to be very sure that you will die before the bill is due though! In the case of governments there certainly are future generations who will have to pay, so this does not apply. I suspect that some leaders do see their time in office like the chain smoker though!
Fifteen years ago one of my bosses laughed at me for paying down our mortgage as fast as we could. He thought we were fools since we could take that extra principle and invest it in the big Wall Street casino. He was paying about the same for his rent as our minimum mortgage payment, and figured that he should be able to pay cash for a house long before we payed off our mortgage.
He still lives in an apartment, we own our house outright. Our house is now worth 2-3 times what we bought it for.
"Think about how stupid the average person is. Now, realise that half of them are dumber than that." - George Carlin
More than that: according to his logic, an "investment" should only count as such it is is successful. I'll leave it as an exercise to the reader to determine how you can possibly decide that, and when.
In a business,
How: Profit/loss
When: Quarterly/Financial year
In Soviet Russia,
How: Regime collapse
When: 1991
Set your phasers on "funky"!
Not exactly. You are comparing buying a thing with entering into an agreement in which someone else buys a thing and you pay them to be able to use it for whatever (legal) purposes you like. They are not the same even though a mortgage is called 'buying', it isn't.
I don't know about America but in the UK this isn't the case. When you buy a house with a mortgage you own the house, not the mortgage company.
The mortgage company holds a charge over the property such that should you default they have first dibs on the asset but that is not the same as saying they own the property. Should you default and the property be insufficient to pay off the mortgage then you'll still be liable for any remaining debt.
It's not that unusual in the UK for the mortgage to be secured on a different property to the one being bought with the loan. In the past it also wasn't that unusual for mortgages to be used to buy things other than property
We have hire-purchase which is closer to what you describe (although I've never heard of it being used for house purchases) where the ownership stays with the lender and (subject to a pre-agreed charge) the buyer can walk away from the deal at any time.
Tim.
God said, "div D = rho, div B = 0, curl E = -@B/@t, curl H = J + @D/@t," and there was light.
This is beyond the scope of the state
Why? Just because you say so? I personally think that helping to ensure the continued existence of life in the universe should be part of the state's scope, so support spending on space exploration. Does that make it so? Of course not. Governments have to do what the people who they purport to rule desire in the aggregate, if not they are replaced. Even kings lost their heads to commoners. Just because your personal religion proclaims that anything beyond ensuring that you get to satisfy your greed at the expense of the rest of society is "beyond the scope of the state" in no way makes your desire into reality.
"Think about how stupid the average person is. Now, realise that half of them are dumber than that." - George Carlin
"Rich economies are rich. One of the side effect of being rich is that you can pile on proportionately more debt. Which is completely fine"
There's the fatal flaw in your reasoning "more debt" is NOT "completely fine". More debt == more risk that you won't pay back your creditors, which means they demand higher interest rates on any new credit. More interest expense means LESS revenue being spent on government services. It's a destructive cycle and the longer you continue, the worse the inevitable pain will be. The European countries hit their credit limits and had to stop the deficit spending game..
In places like the USA, the exact same dynamic is in effect, but the government can keep the game going by expanding the money supply. Have you heard of "Quantitative Easing"? Basically, the Federal Reserve is artificially expanding the money supply (by $TRILLIONS) to finance the government deficits. That artificial demand is the ONLY thing keeping yields on U.S. debt at such ridiculously low levels. This monetary game can keep the deficit party going, but the outcome is certain. It ends with government balancing budgets(austerity), defaulting on debt or a catastrophic currency collapse. With these cowards controlling the USA government, option #3 is likely.
...then why not reduce all taxes to 0%, and fund government exclusively through deficit spending?
It seems the spin is "there was an error, therefore there is never a problem with debt" - this really seems to be missing the original point.
In the end, I suppose the fact of the matter is that eventually, as a debtor, governments using fiat currency will ameliorate their problem by devaluing the currency, and punishing savers while rewarding other borrowers like themselves. The economic harm that this does will be great, perhaps even devastating, but life will go on, just a little bit harder.
This is beyond the scope of the state Why? Just because you say so? I personally think that helping to ensure the continued existence of life in the universe should be part of the state's scope, so support spending on space exploration. Does that make it so? Of course not. Governments have to do what the people who they purport to rule desire in the aggregate, if not they are replaced. Even kings lost their heads to commoners. Just because your personal religion proclaims that anything beyond ensuring that you get to satisfy your greed at the expense of the rest of society is "beyond the scope of the state" in no way makes your desire into reality.
Even if you exclude the pure research there is a lot of R&D that most people would expect a state to do. Things like epidemiology (tracking diseases etc), defense research, surveying, demographic studies, evaluating allocation of resources - from radio bands to water extraction, pedagogy and other educational studies, traffc flow analysis.
The vicious bite of a 2% interest rate strikes again.
. . . "In a nutshell, everything we got from America in World War II was free," says economic historian Professor Mark Harrison, of Warwick University.
"The loan was really to help Britain through the consequences of post-war adjustment, rather than the war itself. This position was different from World War I, where money was lent for the war effort itself." . . .
. . . the US had effectively donated equipment for the war effort, but anything left over in Britain at the end of hostilities and still needed would have to be paid for.
But the price would please a bargain hunter - the US only wanted one-tenth of the production cost of the equipment and would lend the money to pay for it. . . .
But the terms of the loan were extremely generous, with a fixed interest rate of 2% making it considerably less terrifying than a typical mortgage. . . . -- What's a little debt between friends?
much of left-wing thought is a kind of playing with fire by people who don't even know that fire is hot - George Orwell
It's more than that. Taxation is theft. Theft is taking of property against the will of the owner of that property. If it is your will to give this property to the state you may volunteer it; if it is not your will they *will* take it and if you refuse you will go to prison or face violence. This is clearly theft, at the point of a gun.
Uh, you forget that you actually do get something in return for that "theft", namely civilization. Ever heard Holmes' quote "I like paying taxes. With them I buy civilization"? Without civilization you wouldn't have any property to begin with. You would only have what belongings you are able to keep by force yourself and in that situation when something if taken from you by force it is indeed theft since you get nothing in return.
The creation of the USA also had it's problems, because the states were so different. e.g. A civil war due to differences in economies in the south and the north, one symptom of which was the positive and negative views of slavery.
But would you be better off now if you'd remained independent states?
And what of the people who thought the collapse of the US was inevitable?
As Paul Krugman points out..
"We need more stimulus!"
"Somebody has to do something. It's just incredibly pathetic it has to be us."
--- Jerry Garcia
"in a semi-depressed economy, any kind of spending by the government, even on inane things, will turn out to help recovery,"
NO! That's absolute nonsense! Government borrowing to make "investments" isn't magic. It's EXACTLY like borrowing and investing in the private sector. Your investment either generates positive returns or it's money wasted.
Given the average tax rate of 20%, a government project must produce at least $5 of new GDP growth for every dollar spent. Do you honestly think that the $1.2T they are borrowing and spending this year is going to produce $6T in GDP growth? Is the $5T they've borrowed and spent in the last 4 years going to produce $25T in GDP growth? Obviously NOT.
You borrow money to give someone $1 in unemployment benefits. Assume they pay 20 cents back in taxes. They spend 80 cents at Wal Mart. Wal Mart or the shareholders then pay 16 cents in taxes. Then, they buy 44 cents worth of stuff Made in China and pay workers, truck drivers, etc. 20 cents. The workers then pay 4 cents in taxes.
Congrats! You've just "invested" $1 and gotten back 40 cents. Where do you get the other 60 cents to pay back the loan Mr. Keynes?
The UK has had much higher debt ratios in the past. It equalled 30 years of tax revenue after the war with France and Spain in the early 19th century. It took most of the century to pay it off
So? That was the UK's greatest period of growth and relative prosperity. It's often cited as an example of debt not impeding growth. Similarly the US had federal debt of 125%/GDP after WWII, and post-WWII was our greatest growth period. It helped that the debt was mostly internal (i.e. War Bonds were held by Americans, so paying off the debt meant paying Americans). AFAIK the same was true of the UK after the Napoleonic wars.
However, I'm not saying debt isn't important, just that it's not the only or the ultimate evil. Other things can be worse, and can justify increasing the debt.
Problem with that is we generally rely on our government not dying...
The US has localised recessions and booms sure, but nobody's seriously arguing that New York City and California should have different currencies.
California is now part of the US? What idiots let that happen!?
Ok, accepting that past mistake, the difference is that NY and CA are both under the federal government. In other words there is a fiscal authority (government) at the same level as the monetary authority (central bank). The main criticism of the Euro is that that's not true. It has a monetary authority (ECB) without a corresponding fiscal authority. The EU is too weak to count as equivalent to the US federal government.
'Select the conclusion first, then choose the experiement and data". We see this a lot on both sides of the global warming debate.
This attempt to build an unified Europe is coming to the same end all the previous ones have. The only question is: how chaotic will the collapse be?
It won't be a collapse, it will be a war, actually a civil war similar to the mid-19th century civil war in the United States. The United States of Europe will go through the same thing. The wealthy productive states will impose more and more requirements on the indebted states, the indebted states rebel, the wealthy states resentful that their money would be used to bail out the states that spent more than they had, and it will come to a head.
So which are the wealthy states? Well, at the top is Germany. And many in Europe see Germany as attempting to implement the "Fourth Reich" to take over Europe through financial means. That may be a little over-the-top, but the political climate there is growing heated. Germany and the EU will use this crisis to press for greater central control, and in fact are already doing so. Countries that don't like giving up more sovereignty balk, and more financial pressure is applied. We can only hope it doesn't turn into a shooting war. Already a lot of street-level violence going on.
"Somebody has to do something. It's just incredibly pathetic it has to be us."
--- Jerry Garcia
As much as I like to point out silly religious laws, I think this is actually more a factor of their time and level of societal progress. With progress and stability the system changes and certain things make sense. I mean, imagine anarchy. The concept of a loan is laughable as they can simply walk away with your money. Now take a small step of progress and you have some jackboot thugs that hunt down deadbeats. Loans are now a good thing... for the bank. But there's nothing there stopping predatory practices and even kings can be laid low by owing a buck. This is where the stigma against loans and interest comes from. And rightly so. But take another step of progress, and have a society that understand bankruptcy, predatory loans, and we have jackboot thugs that hunt down loan-sharks. Now loans are a financial tool that (mostly) do good. There are still people that skip town and there are still loan-sharks, but we fight against them. Yay progress.
Islamic finance is indeed a backwards way of doing things, but it makes sense for a less established society. It's important to understand why these silly laws get written down in the first place, it tells you something about society.
If it's not working, change the medicine, don't give them more of the same.
You're obviously not an economist, and will never get a job with the IMF or World Bank. So far as I can tell, in the last 30+ years of austerity being forced on debtor countries I have yet to see it work, even once. And yet that is always the solution because the Divine Wisdom of the Holy Sage Milton Friedman says it must be so.
Calling Economics a 'science' in most cases is not much different than calling Scientology 'scientific. There are a few schools of economists now that are attempting to model on the real world, but they're still vastly outnumbered by the Chicago School quacks.
"Think about how stupid the average person is. Now, realise that half of them are dumber than that." - George Carlin
It ends with government balancing budgets(austerity),
This is your mistake, conflating balancing the budget with austerity. The budget has been balanced before, and it was not due to austerity. What actually balances budgets is a booming economy, which is exactly what austerity will prevent.
Give me Classic Slashdot or give me death!
Germany is strong economically, but not militarily.
And I really can't see the US stepping in on Germany's side against the UK et al.
To have a right to do a thing is not at all the same as to be right in doing it
There are two differences between the US and Europe with regards to suitability for a common currency: 1) fiscal policy cross-subsidizations, and 2) labor mobility
1) Automatic stabilizers such as unemployment insurance provide short term assistance to areas that have localized recessions, with money from areas that have localized booms. The US has many of these fiscal transfers, both automatic and ad hoc, while Europe has almost none.
2) Over the long run, if you have labor mobility, places that are depressed for a long period of time (e.g., rust belt) become depopulated as people seek better opportunities elsewhere (e.g. sun belt). When Silicon Valley took off, people from around the country relocated to share in the boom. As much as Americans joke about the different cultures within the US, it is much easier for someone from Chicago to relocate to Los Angeles than someone from Athens to permanently reside in Frankfurt.
"There are lies, damn lies, and Belgium." -Mark Twain
my, your, his/her/its, our, your, their
I'm, you're, he's/she's/it's, we're, you're, they're
Notice below how you see the dow begin to recover up until Smoot-Hawly
Post hoc ergo propter hoc. Even Milton Friedman said that, while a bad idea, the effect of Smoot-Hawley was miniscule, because trade was only a small part of the US economy.
And if you think tariffs are always bad, burn Alexander Hamilton in effigy. Under those idiotic protectionist policies he instigated (and which were maintained for well over a century) we became the .... Oops, ok, we became the greatest industrial power in history. But that's not the point you're interested in, is it?
Keynesian theory was shattered when it proposed that stagflation can't possibly happen
That would be damning, if in fact Keynesian theory predicted such a thing. It doesn't, but it's a nice urban legend for people to reiterate until they think it's true.
Turn off Fox News, please. Austerity has nothing to do with Socialism, nor what he was talking about. There is nothing Socialist that exists in the EU, it is all Capitalist.
High public debt drains away valuable resources faster than low public debt
How does it do that? Where do the resources go? Yes, in some cases countries (eg, Greece, Italy or Portugal) are losing huge proportions of their most qualified workers, but that's because of the recession rather than the debt itself. There's an argument that high debt causes high taxes which causes economic distortions which reduces activity, but the reduced activity isn't caused by resources being 'drained away', it's caused by those resources sitting there and not being used.
Given the same amount of initial resource, a country with high public debt will have smaller chances for recovery
That's an assertion. Do you have reasons? And why specifically public debt, and not total debt?
It may be better to distinguish between foreign debt (public and private) and domestic debt. Greece had a lot of public debt borrowed from foreigners. Spain had little public debt, but lots of private debt borrowed from foreigners. When that debt was building up there was more being consumed in those countries than was produced.....the borrowing of money from abroad allowed this to happen, because without it there'd have been no euros left in those countries, they'd have all been used to pay for imports. Now they have to pay back their debts, and to do that they need to reverse those flows: make more than they consume, receive an inflow of euros in exchange for them, and send them back out again to pay the debts. This isn't happening, but not because of a lack of resources, or because of any sort of draining away. They have lots of unused resources. It's working because the control system of their economy - markets, prices, contracts, banks, laws and so on - can't do the right thing to organize those resources in to productive use. And, of course, one reason for that is because there's no exchange rate there to create across-the-board price reductions for their domestic inputs and outputs.....
The problem is that governments never, ever engage in the "saving" part.
We have the opposite problem in Sweden, we're saving and the debt is going down, the problem is that the right-wing government doesn't want to spend in bad times, it wants to save in both good and bad times and essentially hoard the money, meaning no major infrastructure investments which could be very useful right now with an unemployment rate of some 8% and a welfare system in shambles...
I don't know about not reading TFA, you can't even understand TFS.
To have a right to do a thing is not at all the same as to be right in doing it
A government cannot keep borrowing and accumulating debt forever. At some point, it is a mathematical certainty that the interest burden on that debt will exceed 100% of government revenue and eventually 100% of GDP.
Absolutely true, if you simplemindedly assume that GDP is constant. Help ma, more than one variable, I'm confused!
Before all the bailouts and ECB interventions, the PIIGS were looking at rapidly rising interest rates.
Although before the Great Recession, some of the PIIGS, Ireland and Spain, were considered models of fiscal rectitude by people like yourself. What a shame more countries didn't follow their example.
You can't use more debt to cure a debt problem.
Of course that's always true. No reason for complexity in your thinking. If I'm in debt due to unemployment, get a job, but need money to buy a car to get to work, that would be a terrible idea to try to cure debt with debt.
in XLS format
You want to repeat the mistake?
The interesting thing(in the context of the transformation of christian thinking on Usury) is the difference that developed between the catholics and the protestants:
Because so much of catholic religious and philosophical thought owed a debt to Aristotelian natural law theory that verged on being a second mortgage, they spent much more time grappling with(and tended to structure their solutions to dodge around) the notion that it was 'contrary to nature for money to fructify', with assorted other arguments(duty to charity, god's postlapsarian condemnation to live 'by the sweat of your brows' seen as a condemnation of unearned income, and others) playing a secondary role.
Partially because their strong 'sola scriptura' bent kept them off the Aristotle a bit(protestant moralists generally didn't mind approvingly quoting catholic condemnations of usury; but the role of christianized Aristotelianism was overall much, much smaller), and partly because they developed later, and much more in the context of an urbanized or semi-urbanized population with mercantile activity, protestant thinking on the subject frequently went directly for the 'duty of charity' angle, and voceferiously attacked 'consumption credit', extended to the poor; as a violation of that duty; but was largely untroubled by capital markets and instruments that dealt in business investment.
The social, pragmatic, reasoning and effect were actually quite similar in both cases(as you note). Even to this day, payday loans, check-cashing joints, and the like are considered pretty sleazy by all but the most doctrinare free-marketeers, and neither the catholic nor protestant positions endorsed the extension of consumption credit.
The difference is that, betweent their natural law enthusiasm and their long history of arguments against usury, the catholic position had to be much more creative about logic-chopping their way to the conclusion, while the reformation allowed the protestant position to mostly ignore the accumulated precedent, rather than having to produce a body of circumvention and subtle amendment.
NO! That's absolute nonsense! Government borrowing to make "investments" isn't magic. It's EXACTLY like borrowing and investing in the private sector. Your investment either generates positive returns or it's money wasted. ...
Congrats! You've just "invested" $1 and gotten back 40 cents. Where do you get the other 60 cents to pay back the loan Mr. Keynes?
There's one thing that's different between private and government debt. A government controls their currency and can inflate away that remaining 60 cents. Although I'm not necessarily suggesting that's a good move since it may have a negative impact on growth.
Knowledge Brings Fear
No, I'm pretty sure capital is included in valuation. Actually, I'm 100% sure.
Gamingmuseum.com: Give your 3D accelerator a rest.
The resources go to debt servicing. If you don't make payments on your debt, you go into default.
Gamingmuseum.com: Give your 3D accelerator a rest.
Money != resources. People's time, land, oil, capital (roads, factories), etc are resources. Money is not (and it doesn't get used up). Resources will, of course, be used to produce output which is sent abroad to bring in money which can be sent back out again to pay foreign creditors. But when people say 'recovery' they're not talking about domestic consumption. They're talking about domestic production - ie, GDP, jobs and growth.
The authors of the study have posted a response that refutes these criticisms.
http://www.huffingtonpost.com/mark-gongloff/reinhart-rogoff-research-response_b_3099185.html?utm_hp_ref=tw
The real issue here is not the data which seems to be holding up, but the deeper question as to whether correlation implies causation. It clearly does not - that is low economic growth could be causing high deficits just as likely as the reverse.
HOWEVER it does seem pretty unlikely that one can claim that high deficits cause higher economic growth. That is the real take away here.
If you are paying interests below inflation, you should pile up debt, if possible long term, as much as you can.
It's true that sub-inflation interest rates means the lender is paying you to take the loan. But exploiting that without screwing yourself means more than just taking the loan.
Most importantly you need to find someplace to save or invest the received loan money so that it doesn't disappear before you need to pay the loan back. Ideally something that gives you a positive return. Yes, you can roll over the debts to new lenders as the bonds mature, for quite a long time. Perhaps even indefinitely if you have a stable level of debt to income.
The problem of course is that many Western countries do not have stable debt levels, they keep taking on more. That works until your ability to repay gets called into question. At some point lenders see the risk as too high, and won't lend except at high interest rates. Then your repayments or new interest burdens give you a nasty shock to your standard of living, which could have been avoided by either investing the loan prudently (human capital or infrastructure gaps, for example) or by avoiding the loan altogether. Sadly politicians do not seem particularly adept at this task.
Also, in a semi-depressed economy, any kind of spending by the government, even on inane things, will turn out to help recovery, provided enough people get to dip in. Of course if you spend on unemployment benefits and on re-training of workers, you get much more immediate returns.
The first sentence is the subject of considerable debate by professional economists. There are lots of studies in both directions ("multipliers" less than, or greater than, 1).
I think your second sentence is getting at the right idea - the effect you get is a function of the quality of the spending. Stimulus that gives a well-connected person the ability to buy a house on a tropical island somewhere is unlikely to help your local economy, and indeed will hurt because the tax money to fund it came at the expense of some other (probably more useful) function. On the other hand, stimulus that helped displaced workers retrain in more in-demand fields would likely help.
Is it the phrase "so-called" you are having trouble with? Just in case you are that stupid it means "not actually".
I would call this error a "Rogoff & Reinhart", as they were the ones that fat-fingered in the first place.
This is not the way governments work. They can of course print the extra money: after all the money spent does correspond to goods consumed in the economy, thus it may even be that there will be no inflationary consequences. But the more reasonable answer is simply that governments are forever. They have forever to pay back. They have an infinite amount of time to wait for the economy to get better, and in fact, by spending, they can even make that happen sooner :)
But in general, they just roll over debt. Forever. And because in the long run the economy always grows, they will always make it.
No, amusingly enough, QE does keep yields low, but not because the Fed buys the bonds, but rather because as the Fed demonstrates its willingness to buy any amount of bonds, these are deemed safe stores of value and thus people invest in them.
Also, you will note that after a trebling of the money supply, there has been no significant change in inflation. So much for catastrophic currency collapse. How's your gold doing these days?
There is one argument about stimulus and the surprisingly small importance of your choice of investments -- as opposed to the speed at which money gets spent -- which I find convincing. It goes like this: if I were to find gold, or oil, I could immediately start digging, found a mining company and generate profits. Now oil is useful, but gold, not so much, people like to think it is worth something.
But in the mine example, it doesn't matter. You get something of value out of the ground, and that's the point of it. Now is someone was to bury gold -- useless activity if there ever was one -- and another group was to dig it up, we all agree as per the first part of the argument that the diggers are creating value. And the burriers are not actually destroying value: the gold does not serve any purpose except that people like to pile it up.
Now if they were otherwise gainfully employed, you could make the argument that this is a horrible mis-allocation of resources. But this is a depressed economy: they were unemployed!
Thus stimulus needs to be abysmally bad to produce negative effects in depressed economies.
I am in fact rather smart. An I will make the argument that is is not possible in general to delineate what is a luxury and what is not.
No, I'll just let you come up with an example, any example, of something which is purely a waste of money. Which can never, in any way be construed as an investment.
Well.. The US was like that once...
Ireland which went through some severe austerity
Except it didn't. "Ireland recorded a Government Budget deficit equal to 7.70 percent of the country's Gross Domestic Product in 2012." And it was as high as 30.9% in 2010. Now, if you want to argue it was foolish to bail out Anglo-Irish Bank, that's a different argument.
Which part of "Real austerity is cutting spending until outlays match receipts" was unclear?
Lawrence Person (lawrencepersonh@gmailh.com (remove all "h"s to mail)
http://www.lawrenceperson.com/
Maybe under the Articles of Confederation, but not under the Constitution. That's exactly why the US was failing under the Articles of Confederation.
Rogoff has long been a member of that lobbyist group for the international ultra-rich, the Bretton Woods Committee (brettonwoods.org). In fact, here he is on their membership page:
http://www.brettonwoods.org/page/committee_members
I didn't realize people were still using the Pentium 60/66 to calculate their spreadsheets.
So the solution to my personal economic problem is to spend money I don't have in the hopes of becoming prosperous?
You presumably are a person. The United States is a country. Has it occurred to you that there might be a difference, or are you susceptible to the fallacy of composition.
"austerity" is just another name for greedy politicians digging further into your pocket...
It seems to me that if mining gold is worth something (for whatever reasons people value that particular commodity - electronics, jewelry, or just as a collector's item), then by burying it that value is destroyed. Mining and burying are opposites, if one has positive value the other must have negative value.
Also, paying people to do useless things means they have less time (and perhaps incentive) to look for real work, and less time to retrain for the jobs that are available. By prolonging the mismatch between the skills workers have with the skills jobs require, we could prolong the recession.
Now did that happen in this case? I don't know. But I do think quality is a relevant and neglected consideration in stimulus discussion, mostly because nobody bothers to plan for it until we're in a crisis.
a civil war similar to the mid-19th century civil war in the United States. The United States of Europe will go through the same thing.
What the fuck are you talking about? How on earth are a bunch of cowboys with muskets (or slave owners with revolvers, whatever, fuck you) in a sticks and stones society on a recently sortof-civilized continent similar to millions of 9 to 5 schmucks in highly advanced societies where smartphones, computers and TVs pretty much rule life?
--
I am a crackpot
Never mind.
Figures don't lie, but liars and idiots with Excel figure.
Go figure.
I stopped paying for television service about 10 years ago.
The OP is claiming that government deficit spending is necessary to fund research, make investments and create opportunities. THAT is the "socialist nonsense" to which I was referring.
Austerity means cutting government spending so that expenditures are = tax revenues. Something that should be a total no-brainer. Only fools think that deficit spending is a solution to a debt problem.
Because it already applies. Medical expenses are tax-deductible once they exceed a percentage of your income. And have been for a long, long time.
Health-care premiums don't apply, and that's the biggest health related expense for most people. Since the employer portion of insurance premiums is deductible, it makes it that much harder to get your own insurance.
Laugh, it's funny:
http://crookedtimber.org/2013/04/17/new-tools-for-reproducible-research/
CT is an academic site--you should see what the researchers over there are saying. Phrases like "doesn’t rise to the level of astrology" are seen.
The number of starving North Koreans is not static, it's dynamic and growing rapidly. Here's a great summary by Carlos Montaner:
In 1953, by the end of the Korean War, provoked by Kim Il Sung’s expansionist madness with the complicity of Mao’s China and Stalin’s Soviet Union, the two Koreas were destroyed. At that time, both countries had a per capita income lower than that of Honduras, then the poorest country in Latin America.
Today, 60 years later, South Korea’s per-capita income is $32,400 (twice that of Chile, Latin America’s richest country), while North Korea’s barely rises to $1,800 (half of Nicaragua’s, the poorest country in Latin America.)
Every year, South Korea produces 18 times the goods and services, per capita, that its neighbor to the north produces, although they both share the same ethnicity and culture and have similar levels of education. They are twin brothers made different by two antagonistic systems of organizing society.
With an economy based on the market, competition, private property, multiparty politics, democracy, commercial openness and respect for individual rights, South Korea has integrated into the First World, eradicated poverty and is one of the engines of the planet, with more patents and scientific articles published annually in specialized magazines than any Latin American country.
North Korea, which does the opposite, is the world’s worst and poorest tyranny. (It would be useful if the cheerleaders of 21st-Century Socialism made note of those differences.)
That that is is that that that that is not is not.
It's bad for the future. You're spending a bunch of stuff and then dying, which means at worst your kids will get nothing when you die. That kind of sucks for them, but you are entitled to spend your own money as you see fit.
Government debt doesn't die just because the people who benefit from it die. Unlike your debts which evaporate, government debt is borne by the next generation.
Surely you can see how applying your same philosophy to a country is horribly immoral?
"They can of course print the extra money"
If you dilute the money supply by printing, you simply de-value every existing unit of currency. This is inflation by the most basic definition. More money chasing a fixed supply of goods.
"governments are forever ... They have forever to pay back."
I'll accept this premise for the sake of argument. They may have "forever" to pay back, but there is a limit on the amount of debt they can carry. When interest expense overwhelms their capacity to generate revenue, they simply cannot keep borrowing more.
"in fact, by spending, they can even make [economic recovery] happen sooner :)"
Utterly naive. If it was THAT simple, why wouldn't every government in the world just keep borrowing and printing until they attained prosperity? Why wouldn't government print money and give everyone a government job which pays $100K per year? Wouldn't we all be prosperous then?
GDP = C + I + G + (x-i)
Debt can give you a short term increase in GDP, but you absolutely cannot keep borrowing to prop up GDP on an ongoing basis.
"in the long run the economy always grows..."
There has been ZERO material growth in the U.S. economy in the last 30 years. There has not been a single year in which GDP growth exceeded growth in the total amount of debt in the economy.
2008 should have clued people in to the fact that you cannot build a sustainable economy based on debt-financed consumption. No matter how much the government borrows and spends, there is no chance that this spending will re-start the 30 year borrowing binge. The consumer is tapped out. That's why $5T in deficit spending over the past 4 years has done nothing to fix the economy.
I agree with Stradivarius's point about your argument (Keynes's argument essentially) ignoring the destroyed value of burying the gold. That's a great point.
Another point I'll bring to your attention -- even if someone isn't burying the gold/oil, finding new gold/oil doesn't *just* add value, it dilutes it. Lets say you find some gold, and it turns out you found a billion tons of gold, compared to worldwide historical production of about 150k tons. What happens? Well you're richer, and the people who currently own gold are poorer. So you didn't exactly add much to society, you just reallocated some wealth to yourself through luck.
Same thing happens when the government prints money, buries it, and pays unemployed people to dig it up. You didn't actually add any value, you stole from the people who already had some money. It's like inflation. It's why the concept of "real GDP" subtracts out the effects of inflation, because that type of growth is not real.
In this case, because it is entirely due to choice (partially by the youth, partially by the larger society), the difference is instructive rather than disingenuous.
Because it already applies. Medical expenses are tax-deductible once they exceed a percentage of your income. And have been for a long, long time.
Health-care premiums don't apply, and that's the biggest health related expense for most people. Since the employer portion of insurance premiums is deductible, it makes it that much harder to get your own insurance.
The IRS (Tax Topic 502) seems to disagree:
Medical care expenses include the insurance premiums you paid for policies that cover medical care or for a qualified long-term care insurance policy covering qualified long-term care services. If you are an employee, medical expenses do not include that portion of your premiums treated as paid by your employer under its sponsored group accident or health policy or qualified long-term care insurance policy.
This would be consistent with other expenses that are often, but not always covered by employers.
Large amounts of gold sit idly in Fort Knox. Clearly, these bars are already buried :) Burying gold is a dumb activity in any case, but the point is that in the case of a depressed economy, you don't get the ill-effects you would: the depression is caused by people not having work and thus not being able to afford stuff. Until they are able to afford things, the depression goes on and they stay unemployed, because no-one wants to hire people when no-one buys stuff.
Thus the need for external intervention. And thus also the remote importance in the quality of said intervention.
This does not mean you shouldn't try to be as productive/clever/efficient as possible. It just matters less than doing something vs not doing anything.
No, this is the key point: the value of money is not some fixed amount divided by the number of dollars in existence.
It is the total number of goods and services divided by said amount of dollars. Thus you may have cases where adding dollars to the economy increases the value of the dollars, because that caused the production of more goods and services.
This is normally not the case, but can easily happen in a depression.
The current state of the world, Eurozone, vs England vs US is pretty good empirical evidence that
- tight monetary policy + austerity = disaster
- loose monetary policy + austerity = bad
- loose monetary policy + no austerity = sluggish recovery
Also, if you think that goods and services did not get produced and consumed because some number has the wrong sign is a global accounting identity (which completely ignores dynamic effects), you need to rethink what is real and what is the number in the spreadsheet.
At the end of the day we want people to produce as much as is possible, and have the largest number of people benefiting from that production. Money is just a shared illusion which helps doing that. But it is not real. If it turns out we miscounted and there is no more money, we only need to collectively agree that there is more.
Now if there is no more of some finite resource, we have a problem.
I already gave one, smart guy: The national endowment of the arts.
Careful with names containing L slashdot.org/~AiphaWolf_HK slashdot.org/~AlphaWoif_HK slashdot.org/~AiphaWoif_HK
You might want to, you know, have a brief look at the summary. It contains such interesting tidbits as
Many politicians, especially in Europe, have used the idea that economic growth is impeded by debt levels above 90% of GDP to justify austerity measures
they did not drag down the cell ranges down properly, excluding Belgium
New Zealand has one year in their sample above 90 percent debt-to-GDP with a growth rate of -7.6.
(Emphasis mine)
Where is the US even mentioned? Since when is New Zealand in Europe? Which article contains the a pilot fish / whale comparison? Also, which parallel universe are you from?
It's more than that. Taxation is theft. Theft is taking of property against the will of the owner of that property. If it is your will to give this property to the state you may volunteer it; if it is not your will they *will* take it and if you refuse you will go to prison or face violence. This is clearly theft, at the point of a gun.
It's not theft because the money they are taking is not your property. Ben Franklin explained it well in his letter to Robert Morris on Christmas, 1783:
The Remissness of our People in Paying Taxes is highly blameable; the Unwillingness to pay them is still more so. I see, in some Resolutions of Town Meetings, a Remonstrance against giving Congress a Power to take, as they call it, the People's Money out of their Pockets, tho' only to pay the Interest and Principal of Debts duly contracted. They seem to mistake the Point. Money, justly due from the People, is their Creditors' Money, and no longer the Money of the People, who, if they withold it, should be compell'd to pay by some Law.
All Property, indeed, except the Savage's temporary Cabin, his Bow, his Matchcoat, and other little Acquisitions, absolutely necessary for his Subsistence, seems to me to be the Creature of public Convention. Hence the Public has the Right of Regulating Descents, and all other Conveyances of Property, and even of limiting the Quantity and the Uses of it. All the Property that is necessary to a Man, for the Conservation of the Individual and the Propagation of the Species, is his natural Right, which none can justly deprive him of: But all Property superfluous to such purposes is the Property of the Publick, who, by their Laws, have created it, and who may therefore by other Laws dispose of it, whenever the Welfare of the Publick shall demand such Disposition. He that does not like civil Society on these Terms, let him retire and live among Savages. He can have no right to the benefits of Society, who will not pay his Club towards the Support of it.
The most disturbing thing is that government keep trying austerity when we see the results, whether it is in Europe, Latin America, Africa...
An enormous proportion of it is sucked out of the economy by the military. If you graph the Pentagon spending and the Federal deficit over the last half century the two parallel very closely most years. It's not an accident that the only period in my lifetime that the government ran a budget surplus (however artificial) was when scores of military bases were being closed and some of the more disgustingly wasteful programs were being cut back.
"Think about how stupid the average person is. Now, realise that half of them are dumber than that." - George Carlin
Yes, you might not have personally agreed to all this, but your ancestors did.
I hope you got that in writing. Because otherwise that's just unfounded speculation on your part.
It's worth remembering here that almost nothing collectively done is by full agreement (I'm reminded of the Norse tale of the death of Balder where one could find a living creature, here the long suffering wife of Loki, who disapproved of the bringing to life of the fairest of the gods) and many times things are done which a majority would disagree or disapprove of (US-based examples would be the war on drugs, Obamacare, a speed limit of 55, the current US copyright protection for Mickey Mouse).
I think we should be a lot less eager to pass highly divisive law - especially poorly thought out, highly divisive law. Especially in situations where there are substantial structural obstacles to how the will of the people is expressed (eg, first past the post voting systems which encourage the creation of two party systems at the national level in the US).
It's also worth remembering that taxes can buy the destruction of civilization as well. Onerous environmental and safety regulations which encouraged the "export of pollution" are a classic example of unintended consequence and of taxes being used to pay for the destruction of civilization (but don't worry, it's being built up elsewhere in compensation).
I note that the famous quote about taxes and buying civilization comes from Wendell Holmes who uttered a version of that in 1904. I wonder how much he appreciated the civilization-building event of the First World War a decade later. That was bought with taxes, after all. And he missed out on the Second World War, another classic example funded on the public dime. The instigators of each war did so on public funds and with the purpose of extending their particular civilizations' reach and control.
I doubt libertarianism would be anything more than a curiosity, if paying taxes actually did result solely in the building of civilization. Sure, we like to pay less taxes. But we also like the benefits of modern civilization. It's when these two activities are disengaged from one another at least in perception that opposition gathers strength.
It takes a certain amount of inputs to produce outputs. One of the inputs is capital (as in capital investment). Capital used to multiply the trade value of a resource (i.e., turning lumber into a table) is considered "productive", while capital used for other purposes is "consumptive". Theoretically, the more "productive" use of capital, the more robust the economy.
Sometimes it helps to remember that "Economics" and "Ecology" derived from the same root. The "Ecological balance of Economy" means that with right balance of inputs the individual economic crops grow, as analagous to having enough rain, soil and nutrients to grow the trees, which are turned into tables.... Debt is runoff; it falls on ground where nothing has been planted, and drains to other places where it may or may not be productive. Sovereign debt (public debt) diminishes the amount of inputs that can be use for economic crops, sometimes draining away to some other farmer's land.
You can only do two things with money: You can invest it or you can spend it. If you spend it, you provide jobs for the people who produce the things that you want. If you invest it, you are providing the reources to produce jobs and products that keep the economy moving. However, some investments are better than others, and if our debt gets invested in some other country, it diminishes what we can produce here. Since paying this debt depends on our economy being productive enough to provide for us and also provide a surplus, then very high sovereign debt, with interest driving the debt higher, may mean that the debt cannot be paid. You can ask the citizens of Iceland, Ireland and Cyprus if this has an effect on your daily life. Next time you will be able to ask the citizens of Greece, Italy, Portugal, Spain and France.
Rogoff and Cameron's book may have lost some of the predictive value due to this Excel error, but the logic of the cause and effect still has some value.
Michael Lewis wrote two interesting books that clearly describe the ruinous power of high debt, whether private or public: "The Big Short" http://www.amazon.com/Big-Short-Inside-Doomsday-Machine/dp/0393338827 and, "Boomerang" http://www.amazon.com/Boomerang-Travels-New-Third-World/dp/0393343448/ref=sr_1_1?s=books&ie=UTF8&qid=1366262251&sr=1-1&keywords=Boomerang . This is storytelling in the "New Journalism" style that is entertaining and informative at the same time. In "Boomerang" Lewis describes a meeting with Rogoff where he lays out the level of sovereign debt and asks about the consequences, and Rogoff replies, "I can't believe it is really this bad." See what happens when you don't leave your ivory tower?
"The mind works quicker than you think!"
Large amounts of gold sit idly in Fort Knox. Clearly, these bars are already buried :) Burying gold is a dumb activity in any case, but the point is that in the case of a depressed economy, you don't get the ill-effects you would: the depression is caused by people not having work and thus not being able to afford stuff. Until they are able to afford things, the depression goes on and they stay unemployed, because no-one wants to hire people when no-one buys stuff.
That's why deflation works here. Prices go down. People buy stuff. Now one would not want to transition directly and immediately from a debt heavy, inflationary society to a savings heavy, occasionally deflationary society. That's like spontaneously reversing the flow of traffic on all highways.
The phobia of deflation is very irrational. And I think we see here one ideological consequence of that. Depressions don't go on forever. They stop once people start buying the now cheap stuff again.
I think it's also telling that you claim that there's little need for quality in "external intervention" spending. That's a huge sign of detachment from reality. If your spending were providing actual value, then that would be boosting the overall economy and the wealth of those involved. Why do you think it doesn't matter much whether that value is present or not?
My take is that interventions particularly the low value ones you advocate actually generate net harm. They misallocate resources and labor (the most common cause of asset bubbles, for example), they can save businesses which would be better off in bankruptcy (and allocated in turn to more productive competitors), and they're feeble attempts to preserve a poorly thought out economic ideal.
Nice things would be (and this is a classic example libertarians point out) things like national endowment of the arts. If any given artwork isn't worth anything to anybody, then why on earth are we paying somebody to make it? I really don't know if any nice things have come of it, but in the end that is all it is - just a nice thing that we don't actually need in the classical sense, and that money should be going towards paying back debts.
Yes, art should only be available to a few super-rich ubermenschen. Culture is just something that gets in the way of you making money.
Libertarian=fascist, thanks for showing why.
To have a right to do a thing is not at all the same as to be right in doing it
At some point, the majority get fed up with crumbs from the rich man's table and pull the fucking tablecloth off. Sensible rich people rreach a compromise before it gets that far.
The point about democracy isn't whether it's right or wrong. The majority simply have more power once they realise the reality of the world and aren't cramped by the mind-forged manacles of religion or "the natural order of things".
To have a right to do a thing is not at all the same as to be right in doing it
No smart person anywhere will ever argue that you should use borrowed money on what basically amount to luxuries.
Anything apart from food, water and shelter is a fucking luxury. I know libertarians love the idea of a post-apolalyptic wasteland where they and their gun-chums carve out a position of strength over the sheeple, but meanwhile in the real world, we quite enjoy having things like roads, schools and hospitals.
To have a right to do a thing is not at all the same as to be right in doing it
All the rightwing "libertarian" fuckbags here seem to think that running a country's economy or a large corporation's finances are just bigger versions of running a market stall. They're not.
To have a right to do a thing is not at all the same as to be right in doing it
Thank you for using your brain, far too many around here don't bother.
Doesn't anyone who supports big government socialism see that the people encouraging all the debt and deficit spending are *not* the same people paying the taxes, ever? Anyone? Hello?
Good grief.
In a society we are all the same people.
What rightwingers won't generally admit (although there are exceptions like The Witch Thatcher) is that they don't care about society as a whole, and in fact are repelled by the whole idea of anything that interferes with their own selfish little goals. But they will try to claim that once government has been abolished, everybody will be free to act in the selfless, charitable way that government prevents them from doing now. It's ridiculous, and also cynically false.
So they like to pretend that they can just get rid of anything that smacks of society, starting with government. Essentially, they want the world to be one big market place, with just enough law enforcement to protect their property. Concepts such as universal sufferage, universal healthcare, universal entitlement to unemployment relief, laws to prevent slavery or child abuse, and the rest are just things that get in the way of free trade.
To have a right to do a thing is not at all the same as to be right in doing it
You know that Germany has relatively low unemployment compared to the rest of Europe because many youth learn trades instead of being jobless? Same for Austria and Switzerland.
Austerity affects everyone. It kill opportunities, it stifles social mobility, it removes funds from research and long term investments. There are no good aspects to austerity, except that at the top you fall less than those at the bottom so you are comparatively better off. But to rejoice in that makes you a horrible person.
Extreme rightwingers/libertarians would prefer as unequal a society as possible, even if the average of wealth was reduced. Just as long as they can be significantly richer than the plebs, they will keep their power.
Austerity is a rightwinger's dream. It squashes the hoi polloi down and makes them grateful for any sort of crumbs the rich fuckers allow them.
To have a right to do a thing is not at all the same as to be right in doing it
Austerity means cutting government spending so that expenditures are = tax revenues. Something that should be a total no-brainer. Only fools think that deficit spending is a solution to a debt problem.
That would make sense if the economy was only ever going to stay at the same level or decline.
Unfortunately for your childish argument, there is such a thing as economic growth.
To have a right to do a thing is not at all the same as to be right in doing it
The US has had one, not counting the one where you broke away from them goddam limeys. Since then Europe's had ... how many? One Corsican midget started two on his own.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
Those were when Europe was simply a continent. There was no union whatsoever. One of the purposes of the EU is to stop future wars in Europe. And it's been pretty successful - such conflicts as there have been have intra-national, and/or outside of the EU.
That sounds like where I work.
Free Martian Whores!
Which was a few years after Smoot-Hawley, so I don't see the correlation at all. If it was six months or a year I'd probably agree with you.
Free Martian Whores!
To be more specific, the EU was designed as a kind of MAD system: if the economy of any member nation collapses, so does that of others, thus making starting a war an economic suicide. Sure, it works, but it also means that when the amount of nations in the EU grows, the probability of at least one of them running into trouble approaches 1, thus the permanent EU-wide economic crisis.
This is all made worse by blind ideological adherence to austerity, which means that those of us who pay for the bailouts of bankrupt countries aren't even helping their people or economies, but rather ensuring that their debtors get paid. Profits are private but liabilities are public (at least as long as you're rich), that's the free market way.
Forget magic. Any technology distinguishable from divine power is insufficiently advanced.
Slashdotters are educated enough to apply the mean value theorem to convert this from a quesiton of "does it ..." to a question of "at what level ...", which changes it from an existence question to an at what level question. However, the real question is whether anyone with any political audience is doing these analyses while incorporating a strong demographics and growth component (of course there is, but is anyone listening DoD Systems 2020). It is one thing for a person to owe 4x their annual salary when they are buying a house at age 25, compared with a 60 yr old buying one at 1x annual salary. The 25yo has a major factor that works in their favor, which is that their income should (in theory) increase during the payoff period, making it ever easier to pay off that debt. The political equivalent to this is the growth-based economic model, which assumes that the economy will grow every year, forever. It is when this assumption fails that we suddenly get very uneasy about debt, just as you might be very uneasy extending "125% of value" mortgages to a 70yo (fair lending and FannieMae, FreddieMac aberrations not included). The Keynesian model sort of works in the exponential part of the economic growth curve, but it fails catastrophically in the Limits to Growth part of the economic universe. The Adam Smith model of economic growth does not fair much better in this region.
"There is no god but allah" - well, they got it half right.
But keep in mind that real-estate is a safer long-term investment. While it can, of course, lose a significant part of its value, some of it will still remain, and at the end of the day, it doesn't matter that much the net worth of your house if you can live in it. If the US undergoes hyperinflation or defaults on its debt within the next 20 years or so and you were just investing all your money on stocks and bonds, you'd probably be wiped out. Of course, the real lesson is to just diversify, and internationally.
And how is it "other peoples money" when I pay for it myself too?
As to your previous comment about other peoples' money, you apparently have never heard of tragedy of the commons. For example, consider the story of two dinners. Two groups decide to eat at the same restaurant. The first group decides that everyone will pay for their own meal while the second decides that everyone will pay into a pot which is then used to pay for the meals which everyone orders. End result is that the first group spends far less than the second group does. Because in the first case, if you decide to spend $1 less, then you save $1.
But in the second case, if you decide to spend $1 less, you save $1/N where N is the number of people in the group. There's very little savings to you from deciding to eat cheaper. It's a classic prisoners' dilemma style problem where the end result is that everyone eats as much as they want to.
This is the same huge difference between public and private spending. If I choice to forgo all public services, then I lose the value of those services yet only reduce my tax burden by an immeasurable amount. If I chose to forgo a private service that I completely pay for, I gain the full cost savings of that decision.
So saying that you chip in a minute amount into a huge pot of Other Peoples' Money ignores that you as well as everyone else consuming that pot have no economic reason not to consume as much of that pot as you can. Perhaps, you should wonder if that sort of incentive is healthy for a society to have.
The Mexicans.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
Take a look at the malarkey for working around sabbath restrictions.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
No, I'm saying they COULD have opposed tyranny sufficiently vigorously, but they didn't. I'm saying, as Thomas Jefferson said: "a republic, if you can keep it".
They could have stopped it, but they didn't. Why? Occam's razor suggest to stick with a simple explanation. That is, they were "ok" with what their government was doing.
Or they couldn't have stopped it and didn't. Why? Because they weren't a majority of voters at the time. Occam's razor cuts in more ways than one.
Not sure what you don't get about this. Spending is an action, and you can either spend money, as in actual cashdollars, or you can finance your spending using debt. As in, you will pay with actual cashdollars eventually.
You can spend money, and incur a debt, without creating a deficit. This is actually very beneficial for everyone involved, as it means the government doesn't have to hold a bake sale prior to spending even a single dollar. It allows for leeway in the timing of a cash flow and reduces the chance of an accidental forfeiture of services, which means anyone who does anything for the government, in return for money, does not have to share in the burden of a rocky, uncertain budget.
In the most simplistic example, the government holds one bake-sale a year every April when it receives tax money. If this is the only money the government has, and it only receives it after tax day in April, then the government would have to raise enough money for the coming year through guesswork and hiring fortunetellers to predict the future costs of things. The way it is done now, via incurring debt, means it can promise to pay money for goods and services and then raise precisely enough money to eventually hand over the actual cash it had promised.
This is completely independent of deficit spending, as the government could raise enough funds to pay its debts every single year.
I agree with the other person who said debt can be good or bad depending what it's for. If the debt is paid by the next generation, but disproportionately benefits the current generation, then it's unethical debt. Even rolling over debt, the fact that the debt exists decreases the borrowing capacity of the next generation to cover their own needs. Not to mention while rolling over debt you are obviously still paying or accumulating interest so there's a direct cost as well.
As for countries vs small businesses or even family budgets, well, obviously they are not "bigger versions" as in "the same in every detail but bigger". Requiring that level of similarity is useless for pretty much any analogy. But there are more similarities than differences for sure. Living within your means is an obvious one that is similar. The major difference isn't whether they can print money (you can print money but not value), but their lifespan vs the things they buy.
No, this is the key point: the value of money is not some fixed amount divided by the number of dollars in existence.
At any given point in time, it is. You're right that it changes over time as new goods and services are provided, but at the instant someone says "I'm going to print off a new $100 bill" the value is diluted. It may recover in the future, or not. The value of money may have increased even more in the absence of that printing, or not. Printing the money doesn't automatically add value to the economy, case in point Zimbabwe.
Thus you may have cases where adding dollars to the economy increases the value of the dollars
Yeah, you're basically describing an investment now, and like any investor, we should look at the merits of the investment before buying into it. Your idea of the buried gold scheme is obviously a bad investment. It produces no actual value and has no hope of returning the investment so it's a welfare program or charity, not an investment. Great. I'm all for temporary assistance for the unemployed. But why on earth, if you are going to require labor in return for the welfare (which I think is a great idea), would you do something as useless as digging ditches and filling them back up? There is real work that could be done. In the Great Depression they did ditch digging and filling, and they also built dams and roads. Looking back, which should they have done more of in your opinion or would you say the ditches and the dams produced equal value?
You are wrong, for two reasons:
- You assume there is such thing as a total money amount. There isn't; rather there are measures of the amount of money flowing in the system.
- You further assume all money is available to buy all assets. This is not true. Although any dollar can be exchanged for any other dollar, it remains the case that depending on the distribution of money, not all goods and services produced can be bought. Capital reserves of banks don't count, for example.
If there is no credit and houses are worth a fixed 1000 dollars, and the median American has 900 available at any time, not all houses can be bought, and the amounts of dollars is worth all goods produced minus houses divided by the available money. Now, if you print money and give Americans each 100 dollars, suddenly, you have simultaneously increased the value of money and the number of dollars!
This is how stimulus works...