Why Austerity Works and Stimulus Doesn’t

[merjet]

LINK

[Mikee]

Excellent.

This certainly looks familiar:

"During the purported austerity, Socialist Prime Minister George Papandreou increased the number of civil servants by 5,000 from 2010 to 2011, because they were his power base."

[syrakusos]

Myself, I look to first principles. Government spending of any kind is power overruling market, and therefore, is a misallocation of resources. We might make that choice. Perhaps killing Osama bin Laden was not cost effective. It was still the right thing to do -- at any monetary cost. Still, austerity works because it is stopping the misallocation of resources.

That said...

The U.S. situation is quite different. As the world’s biggest economy issuing the dominant reserve currency, it doesn’t feel the pressures from the international credit market that a small economy does if it has a public debt exceeding GDP, as the U.S. now has. With Treasury yields at record lows and a required fiscal adjustment of only 3 percent to 4 percent of GDP, the U.S. fiscal problem might be perceived as too small to solve. That is the great danger for the country. From the article cited.

[BaalChatzaf]

Top Positing: (sorry about that) What is the effect of austerity on capital investment and the creation of new technologies?

Ba'al Chatzaf

Myself, I look to first principles. Government spending of any kind is power overruling market, and therefore, is a misallocation of resources. We might make that choice. Perhaps killing Osama bin Laden was not cost effective. It was still the right thing to do -- at any monetary cost. Still, austerity works because it is stopping the misallocation of resources.

[dennislmay]

Top Positing: (sorry about that) What is the effect of austerity on capital investment and the creation of new technologies?

Ba'al Chatzaf

Myself, I look to first principles. Government spending of any kind is power overruling market, and therefore, is a misallocation of resources. We might make that choice. Perhaps killing Osama bin Laden was not cost effective. It was still the right thing to do -- at any monetary cost. Still, austerity works because it is stopping the misallocation of resources.

Government creation of new technologies is a case of gross misallocation of resources. Corruption in the solar and windpower technologies is rampant.

Not to mention that neither has any hope in hell of keeping up with growth much less replacing main power grids. Both are expensive and labor

intensive. There are not enough maintenence people to keep either going - not even close by a magnitude or more.

When occasional success ocurrs in governmnent technology it means vast resources have stolen to create a "seen" but reduced set of possible outcomes.

Capital investment means private capital - auterity measures can only help.

Dennis

[Frediano]

This experiment has been run several times in recent history, all with similar results.

In 1992, Clinton ran on the premise that he absolutely needed his Stimilus Plan, BTU Tax, and Nationalized Health Care. None of them passed. (He did get passed a symbolic 3.6% surcharge on earnings over six times AWI, and Dr. Laura D'Andrea Tyson, doing the math for us all in her talk in Nov 1997 at UCAL/Berkley, admitted "Nothing we did.")

Instead, what he did do was level off Reagan's defense spending buildup -- he spent less federal dollars than planned. The actual result of his 92-93 over-reach was the 94 spanking, the Era of Big Government is Over, and six years of do nothing gridlock tied up over Monica Lewinsky's stained blue dress. The resultig relief in the US economies at this 'austerity' was growing economies.

Bush/Obama have done the exact opposite of that 'austerity' -- with the exact opposite results.

JFK's America, at 180 million people, and with inflation accounting for only a factor of 7.5 since then, spent 1/38th as much as the current federal government in current dollars in a nation of 320 million -- not even twice as large. . JFK's 100B --over half of which was for defense at the peak of the COld War -- adjusts to maybe $1500B today, not $3800B/yr. By any measure, JFK's AMerica was laboring under 'Austerity' -- and JFK's economies roared.

See Germany, Agenda 2010, which Merkel doubles down on.

It's not even close.

[syrakusos]

Old joke from Russia of the Soviet Union.

"Grandma, which came first, the chicken or the egg?"

"Ah, child, in my day, we had them both..."

[BaalChatzaf]

Myself, I look to first principles. Government spending of any kind is power overruling market, and therefore, is a misallocation of resources. We might make that choice. Perhaps killing Osama bin Laden was not cost effective. It was still the right thing to do -- at any monetary cost. Still, austerity works because it is stopping the misallocation of resources.

I

Do you think the U.S. has benefitted from the interstate highway system? If so, how were the resources used to build it misallocated.

Similar questions: How about the Hoover Dam? Your local water supply and drainage system?

Ba'al Chatzaf

[Frediano]

Myself, I look to first principles. Government spending of any kind is power overruling market, and therefore, is a misallocation of resources. We might make that choice. Perhaps killing Osama bin Laden was not cost effective. It was still the right thing to do -- at any monetary cost. Still, austerity works because it is stopping the misallocation of resources.

I

Do you think the U.S. has benefitted from the interstate highway system? If so, how were the resources used to build it misallocated.

Similar questions: How about the Hoover Dam? Your local water supply and drainage system?

Ba'al Chatzaf

Isn't there at least some small irony in choosing projects from periods in time when the relative size of the federal government was miniscule relative to todays life sucking behemoth--and its dearth of similar projects that any of us could actually point to? Hoover Dam? Ike's Interstate? What was the total size of the federal goivernment then, when government actually uised to do such things? WHen JFK's AMerica was building those Interstates, his budget ws $100B in a nation of 180 million, and over haf of that was for defense.

$3800B/yr vs what those eras spent on federal government. Hoover dams, Interstates, Apollo Moon programs. Flash ahead to 2013. We're spending $3800B/yr.

What great national works is this nation doing with that $3800B/yr in spending? What has all of our youth inspired these days, with what their government is doing?

I mean, other than, driving the nation to its knees.

Solyndra? SUrely there is something the graduating class of 2013 can point to, to justify that $3800B/yr and their bleak futures?

Perhaps its GM, and the Chevy Volt? IBM's tax treatment for its overseas operations? Something GE is doing? Raytheon? Harris Corp?

FACEBOOK??? After all, FB employs maybe 3400 people. SUrely, the class of 2013 is proudly pointing at FaceBook and the dancing bitmaps down at FarmVille as the very pinnacle of accomplishment, boriught about as it must be by the careful husbandry of something newly called "The" Economy by our frantic The Economy runners.

THere's a solution; let's just go back to JFK's entire budget and form of federal giovernment, rebuild Ike's Interstates, and spend $100B on the federal pig, like that America once did, back when it did.

Before it spent $3800B/yr on that pig and fell flat on its back.