NYT Krugman - Does Austerity Work

Discussion in 'Politics, Religion, Social Issues' started by mcrain, May 2, 2012.

  1. mcrain macrumors 68000

    mcrain

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    #1
    I am tired of having to live through history proving bad economic theory wrong. The experts warned that supply side economics was a bad idea, and they warned against austerity measures, but for some reason, there are people who steadfastly ignore the experts.
     
  2. kavika411 macrumors 6502a

    kavika411

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    #2
    Assuming he is correct - that austerity is not the way to go - a question I have is whether a country like Greece has potential creditors lined up to loan them more money for Greece to continue its prior spending levels. I ask because I don't know, and it appears to be a blanket assumption Krugman is making. Perhaps a country like Greece can continue to find lenders. I don't know.
     
  3. mcrain thread starter macrumors 68000

    mcrain

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    #3
    I'm not sure about Greece, as it was forced into all sorts of things it could not sustain in order to join the EU. Japan has the ability to borrow money at incredibly low rates, as does the US. The amount of debt is high, but sustainable if we can grow our economy. That can't happen when all the wealth is consolidated.

    If every company and wealthy person was given a big IOU and 80-90% of stored wealth were redistributed or better yet, used in our country for needed stuff, we would have a boom the likes of which we have never seen. The amount of the IOUs would pale in comparison to the amount those same people would make in such a boom.

    In other words, a reset might not be such a bad idea. A less damaging (in the short term), but slower means to the same end is through higher taxes.
     
  4. kavika411 macrumors 6502a

    kavika411

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    #4
    If distribution of 80-90% of stored wealth is the solution, why not pass a law requiring the individuals and companies with stored wealth to spend 80-90% of that stored wealth domestically? Or is the idea that the government would do a better job spending it, on wars perhaps, after it is taxed in a "reset?"
     
  5. mcrain thread starter macrumors 68000

    mcrain

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    Aside from the fact that a law like that would be illegal, it would be terrible policy. I don't advocate government spending over private spending. I don't think higher taxes are always a good thing. But, we are in a time where private economic activity is lower than it should be, and instead of increasing public spending, we are cutting it. The only logical consequence is a further contraction of the economy.

    Right now, the poor and middle classes don't have money sitting in the bank ready to be spent on goods and services. On the other hand, there are banks, corporations, entities, and individuals who have massive amounts of money held here and elsewhere that isn't being used. We can cut taxes and do every single thing the Republicans ask for, and if there is no one to buy the goods and services, the economy won't grow because those banks, corporations, entities, and individuals won't spend unless it makes them more money.

    Our economy has historically been at its most robust when income inequality is low, taxes are high, and there are opportunities for people to become wealthy. (You sprint at the starting line and finish line, not the middle of the race.)

    I'm just throwing out my opinion. I could be wrong, but I can't imagine how more of the same policies that led to the current economic downturn will help. I mean, the tax rates we have now are the tax rates AFTER the bush tax cuts. The capital gains rate, corporate rate, etc. haven't gone up!

    I honestly don't know what Romney would do that might boost the economy if he were elected. Lower taxes more? Cut programs for the people who need them the most? Probably, but the amount of economic loss probably offsets any savings.
     
  6. leekohler macrumors G5

    leekohler

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    #6
    It's been proven over and over that trickle down does not work. I'm not sure what it's going to take to get people to wake up to that fact.
     
  7. dukebound85 macrumors P6

    dukebound85

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    #7
    I don't put much credence into Krugman's arguments.

    He is also one that wants to see inflation near 4% with the argument that having more money in the country will stimulate job growth yet never quite backs up exactly how this is the case. I mean QE 1 and 2 haven't yielded the expected results. This type of strategy also lends to the robbing of responsible Americans who save.

    http://www.firstpost.com/economy/bernanke-vs-krugman-does-inflation-create-more-jobs-291138.html
     
  8. leekohler macrumors G5

    leekohler

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    #8
    OK then, show what's wrong with argument discussed in the OP. Explain how our current policies are working.
     
  9. Zombie Acorn macrumors 65816

    Zombie Acorn

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    #9
    European nations can't control their monetary policies independently so they can't pull the shams that the US can. In order for Greece to avoid bankruptcy they need other countries to lend to them. Austerity or bankruptcy are really their only two options. Either that or you have a few productive countries supporting ******** pensions and over flooded public offices.

    Countries have leaned towards overspending during good and bad times, that's not the way its supposed to work.
     
  10. CalBoy macrumors 604

    CalBoy

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    #10
    Since the government can't force you to spend a percentage of your money in a particular manner, raising taxes and spending the proceeds legislatively is the only workable solution.

    What disturbs me is that we needed such a plan in 2008-09. If every income tax had been raised, from corporate to capital gains, we would have been able to make productive use of the capital that was sitting around earning <1%. Our infrastructure is in dire need of retrofitting and upgrading. We could have kept unemployment lower, improved the quality of life for people who need infrastructure, and made our income distribution slightly more egalitarian.

    This is what we did during the first New Deal. Bridges, libraries, dams, power plants, etc, were built using the excess capital that was available once tax rates were raised. WWII was essentially the New Deal on steroids, but we don't have to go to war to gain productive use out of the capital. There are plenty of domestic projects working on long term scientific discovery that can use the money. Those are also the things that pay dividends for generations.
     
  11. mcrain thread starter macrumors 68000

    mcrain

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    #11
    Ok. Why do you not put much credence in his arguments? It certainly isn't because he is highly educated on the subject. In fact, he's an expert. So please, do tell. Why don't you put credence in an expert's arguments? Who do you think has a better take on the subject?
    Ha! So, QE1 and QE2 both work, but they don't work as well as people hoped? Could it be that the economy was actually worse than people thought at the time the predictions were made? ??

    The fact of the matter is that the economy was far, far worse than people knew at the time, and QE1 and QE2 both worked, far better than would have been predicted had people known, but not as well as the predictions (based on a better economy) had suggested.

    Do you have any reason to suspect that inflation doesn't create jobs? No?

    That's not true. The pensions should have been fine had the governments done what they were supposed to do. Instead, special interests encourage the government to reneg on their contributions, borrow money while they can, and then turn to the pensions to pay for their other shortfalls. Workers don't cause shortfalls. The pension is a trust fund, not a piggy bank. Regardless, Greece could easily just decide to separate from the EU, forgive the debt of its citizens, and start over. What's Germany going to do when they don't get paid? Invade? Again?

    I wonder where they got that idea from... *cough Reagan cough*
     
  12. Ugg macrumors 68000

    Ugg

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    #12
    Why do you believe that Greece is continuing to spend at its prior levels?

    You can't view Greece as a truly sovereign entity. The fact that they or Spain or Portugal or Ireland or even Iceland is solvent today is due mostly to the fact that Germany is backing them. All five would have gone bankrupt if it hadn't been for the fiscal sanity of their northern European neighbors. The IMF and China also play a big role in the game.

    I think it's becoming clearer, and I think Romney's extreme wealth, his etch a sketch approach to his past and the fact that he was a net destroyer of American jobs while at Bain Capital is a start. The elites of this country are done.
     
  13. mcrain thread starter macrumors 68000

    mcrain

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    #13
    Not yet. I sure as spitfire do not want to be associated with the "elites" when the 2nd Amendment gun nuts living in squalor finally realize who the bad guys screwing them over really are.
     
  14. HarryPot macrumors 6502a

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    #14
    I admit not knowing a lot about Romney's work at Bain Capital, but there's something I don't understand.

    He do seems a good director in making a company nearing bankruptcy into a profitable one. There's much said about the layoffs, but nothing said about the jobs created in other businesses.

    And besides, companies which suffered layoffs were companies that were already in trouble. And that if nothing was done they would eventually got to the same layoffs.
     
  15. Zombie Acorn macrumors 65816

    Zombie Acorn

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    #15
    Although I think it would be best for these countries to jump out of the EU for themselves, I do not see this happening. The Portuguese here in Canada are soaking the government back in Portugal by collecting pensions they never contributed a dime to. Most people I have met that recently worked in Portugal did so under the table and it seems there's a bigger reluctance to report taxes properly in this community.

    There's no doubt that these country's politicians spent like drunken sailors, but that doesn't solve the issue. They can't print more money and their value is closing down.

    If you don't build up reserves during good times its very hard to spend your way through the bad. On principle I agree governments should spend their way through recessions, but when the tank is empty there's not much else you can do.
     
  16. leekohler macrumors G5

    leekohler

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    #16
    Here's a few articles to chew on. They're too long to post.

    http://www.washingtonpost.com/opini...t-his-bond/2012/01/12/gIQACvQxwP_story_1.html

    http://online.wsj.com/article/SB10001424052970204331304577140850713493694.html
     
  17. HarryPot macrumors 6502a

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    #17
    The first link didn't showed many, if any, statistics. The second link was much more interesting.

    By reading the numbers, it seems like if Romney did made a good job while in Bain Capital. Loosing some jobs in this kind of buyouts seems like a necessary evil, and yet, in some other cases it seems they made a great job.

    Just curious, what's you opinion in this Lee?
     
  18. rdowns macrumors Penryn

    rdowns

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    #18

    Losing some jobs to save a company is one thing. Loading up a company with debt, cashing out and firing the employees and screwing the pensioners is pretty ****ed up.
     
  19. HarryPot macrumors 6502a

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    #19
    I agree, it is. I just haven't been able to find anything supporting that this actually happened, and that it was a common practice.
     
  20. rdowns macrumors Penryn

    rdowns

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    #20
  21. HarryPot macrumors 6502a

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    #21
    But the cases the first article talks about are almost only the point of view of the employees that lost their jobs.

    I mean, you have a company that already is loosing money. A company which is in financial problems. Someone comes and buys it, and make a plan to bring it back to profits. What most companies do in difficult times, among other things, is layoff employees to reduce costs. Those same employees would have maybe lost their jobs anyways. As you said, they were trying to save the company.

    I'm not arguing Romney is a good samaritan. But it do seems he did what any other businessman would do.
     
  22. Iscariot macrumors 68030

    Iscariot

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    #22
    Replace currency with snakes.

    PROBLEM SOLVED.
     
  23. SactoGuy18 macrumors 68020

    SactoGuy18

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    #23
    In the end, it all comes down to this: inefficient, bloated government, business-unfriendly taxation policies, and out-of-control equities market sector are killing national economies around the world.

    We need to do the following:

    1. All government agencies should be strictly audited to find bureaucratic overlap, agency bloat and obsolete/unneeded regulations and use the audit results to cut the size of government by 25 to 30 percent (or even more).

    2. Income taxation should be drastically simplified so it becomes essentially a means to generate revenue for the government, not as a means of social engineering and certainly not needing to know intimate details of taxpayer finances as a means to get revenue (a process that has serious privacy implications).

    3. Banks should not allow their assets to be invested in the stock market, commodities futures trading should be strictly regulated, and there should not be excessive regulations that hamper stock initial public offerings (IPO's).

    These three steps means we have more sane regulations on business and a stock market that won't "run away" with excessive speculation that has potentially dangerous inflationary and deflationary outcomes.
     
  24. Sedulous macrumors 68000

    Sedulous

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    #24
    Or even better: Space cobra!
    [​IMG]
     
  25. jnpy!$4g3cwk macrumors 65816

    jnpy!$4g3cwk

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    #25
    No question Krugman is correct and the austerians wrong. But, the flip side of it is so much more difficult: when the economy revs up, and employment goes up, then gradually raising interest rates and gradually cutting government infrastructure spending before inflation shoots up. What usually happens instead is that policymakers and politicians are happy with the "exuberance" and embark on a period of building new roads, schools, and libraries, which they could have done at discount prices during the recession.
     

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