Good relatively unbiased austerity pro/con synopsis?

Discussion in 'Politics, Religion, Social Issues' started by mkrishnan, Oct 28, 2011.

  1. mkrishnan, Oct 28, 2011
    Last edited: Oct 29, 2011

    mkrishnan Moderator emeritus


    Jan 9, 2004
    Grand Rapids, MI, USA
    So the NYT is clearly strongly against austerity programs in almost all cases, and has been repeatedly op-ed posting about the fallacies they perceive as surrounding austerity moves for Greece, the UK, etc (today, as it applies to Iceland), and, of course and in particular, with respect to the component austerity should play in US fiscal policy.

    The WSJ plays a bit of an inconsistent line, frequently advocating in favor of austerity (e.g. the 85/15 analysis they provided a couple years ago) but then also sympathizing with market volatility that's created by the lack of the government stimulus programs that they excoriate.

    It's an important issue to me both in that I have strong feelings about perserving my country as well as global growth, and in that I recognize my personal financial behaviors (which tend to austerity by disposition) play a role in the larger picture. For instance, personal austerity is frequently implicated as a culprit in the length of the Japanese recession, although the baseline behavior was very different (Americans saved poorly before the trouble started, and then they saved even less, whereas Japanese saved scrupulously before the trouble started, and then they saved even more).

    Is there anyone who offers a reasonably up-to-date and concise synopsis of arguments for and against austerity and their credibility, preferably that does not devolve into a 30-page long stream of consciousness like a Huffington Post blog?
  2. jsolares macrumors 6502a

    Aug 8, 2011
    Land of eternal Spring
    I would also love to read such a thing. from reading the NYT link is that he's not against austerity per se, but against bailing banks AND austerity, not only do you make your tax base pay for the bailing out but you give them less because of austerity.

    What i do think is that governments SHOULD be austere ie not having a running deficit, it's not up to the government to move the economy but up to the companies in it.

    Now with regards to personal austerity i'm not so sure.
  3. mkrishnan thread starter Moderator emeritus


    Jan 9, 2004
    Grand Rapids, MI, USA
    Yeah, part of my gut feeling is that, if the only way that our world can survive is for our government to create massive debts that we have no way of paying, and the debt service of which will basically make the problem harder and harder to fix, as more and more of our budget goes to paying interest on loans, then someone needs to pull the andon cord on this, because that doesn't make any sense.

    On the personal level, it's not that I don't think people should spend... I think what you do with your money is a very important way in which you vote for how the world should look. But, if the only way our economy can survive is for people to over-leverage into homes they can't afford, save nothing, create massive credit card debt, and then force the government to borrow money to fix their problems... that doesn't make sense either.

    On the other hand, I think not watching government spending as a fraction of GDP and viewing government services as a sort of blank check that someone else besides me is paying is also probably catastrophic.
  4. jsolares macrumors 6502a

    Aug 8, 2011
    Land of eternal Spring
    I think the notion that 10-20% year over year increase in revenue and/or profit is not that good, is part of what has us in this mess, if the market expected 1-5% instead and since the goverment wasn't run at a deficit the inflation was near 0% then we might not have to over-leverage as you say, but i fear of what'll happen as we continue onwards to failure.
  5. CalBoy macrumors 604


    May 21, 2007
    The short answer is: no. The long answer is: unfortunately not.

    Every major publication that I can think of has basically entrenched itself into one camp or the other. The Economist tries to take the most measured approach by my estimation because they actually weigh countries by relative spending and taxation rates before pronouncing judgment. Personally I think their methods could still use some refinement, but at least they try to do some kind of balancing.

    In my academic career I've spent a decent amount of time researching about the modern welfare state, and it honestly shocks me how lazy much of the current reporting is (well maybe not shock-maybe expected disappointment). For instance, we hear a lot about the various solutions for "fixing" Social Security (or even worse, that Social Security can't be saved), but there's very little reporting done on the fact that from an evidence perspective, we already know what a lot of policy changes will do to the economy because the World Bank conducted an exhaustive look at various pension reforms throughout the 80s and 90s.

    One of the most specific results were those that arose from a pure "defined contribution" plan like most 401(k)s or 403(b)s. The results were clear: if too much retirement income is placed into these types of plans or accounts, inflations hits an economy very hard.

    With that in mind, every nation that is currently experiencing a budget crisis has to look carefully at where its austerity should be most directed. Greece, for example, clearly needs to raise its retirement age and reduce the generosity of its pension.

    The United States, on the other hand, doesn't have to worry about its pension system very much because it is fairly well funded. A few minor changes to the income ceiling or distributions can maintain actuarial soundness for another generation (which is about as far out as you could project such things anyway). Our problem lies with a distortion in income generation and taxation. Whereas the curve was steadily progressive at one time, it now more closely resembles a mountain range with peaks of regressiveness and valleys of low taxation. This is caused principally by an artificially low capital gains rate which essentially guarantees that anyone who makes most of their money through the sale of investments will have a tax rate that approaches 15%.

    There's also plenty of room to trim the budget, but the biggest non-entitlement is the military budget. Our nation represents about 25% of the world's economy, but represents 40% of its military expenditures. Aligning military spending to 25% of the world's total would cut nearly $300 billion from our annual expenditures. While I'm certainly in favor of ending frivolous projects and not paying for $500 toilet seats, I think that any serious discussion about austerity has to start with the $700 billion defense budget.
  6. Ugg macrumors 68000


    Apr 7, 2003
    Paul Krugman who also writes for the NYT has a fairly sensible approach, I think, to the situation.

    1. You can't save your way out of a recession, especially when interest rates are at zero.
    2. Because of low interest rates, it's in our best interest to borrow a little right now.
    3. The deficit will kill us in the long run if nothing is done about it, but in the short term it's ok.

    The problem is not social security, rather medicare, medicaid and the explosive growth of health care costs with few, if any measures being taken to contain them. However, there are a lot of other government programs that have grown out of proportion. Homeland Security has spent billions arming local agencies with hi tech equipment they can't use. The Long Island Railroad scandal has exposed a billion dollar misuse of disability and retirement funds.

    The public double dippers and the public employees retiring with full benefits at age 55 are also things that need to be addressed.

    In regards to the perennial issue of home ownership bubbles, my preferred solution is to allow each American a one time mortgage interest deduction. I do believe that home ownership offers community stability but it also allows for mass property speculation. So, if the government only offers everyone one shot at deducting their mortgage interest, it would definitely reduce speculation while allowing young people a chance to buy a home of their own.

    This would allow all segments of society equal access to a first mortgage. One of the biggest problems I have with the current deduction is that multi million dollar mansions are being subsidized by the federal government. Surely if you can afford to spend $20 million on a home, you don't need government handouts.
  7. itcheroni macrumors 6502a

    Sep 23, 2005
    I waited for the punchline but it turned out you were serious. Still made me chuckle though.

    If the question is to be austere or not to be austere, then we haven't hit bottom yet in our economic downturn. When we do hit bottom, we won't have much of a choice.

    To the OP, I recommend Human Action by Ludwig Von Mises. It's quite a long textbook but you can just read the relevant chapters. This book, among others, caused me to go from ardent liberal and Obama supporter in 2008 to the free market loving, politically apathetic dude I am now. Just a warning. haha.

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