The Austerity Disaster

ILW

pqrdef wrote: »

So you want European workers working like Indians.

.

The odd thing is that European workers feel they have some sort of god given right to not have to. Where does that sense of entitlement come from, and is it valid?

Mr_Mumble

Sorry, extremely long.

FTAlphaville linked to a recent study of the 1930s today, it again debunks Krugman's thinking that the "Great Depression" was a time of economic hardship in the UK, despite fiscal austerity, the executive summary:

In the Great Depression of the 1930s Britain grew strongly
despite significant cuts in the government’s deficit, short-
term interest rates which were already as low as possible,
and the international economy being in disarray. That is
exactly what policymakers need to achieve today. This paper
sets out what happened in the 1930s and what we can learn
from that experience.

Over fiscal years 1932/33 and 1933/34 the structural budget
deficit was reduced by a total of nearly 2 per cent of GDP as
public expenditure was cut and taxes increased, the public
debt to GDP ratio stopped going up while short term interest
rates stabilized at about 0.6 per cent. Yet, from 1933 to 1937
there was strong growth such that real GDP increased by
nearly 20 per cent over that period.

Note the FTAlphaville article also links to the Sumner piece that I pointed out yesterday and Hamish dismissed as being from some Moneyweek journalist, in case Hamish worried about my latest link:

Professor Nicholas Crafts is Director of the University of
Warwick’s ESRC-funded Competitive Advantage in the
World Economy Research Centre and Professor of Economic
History at the University of Warwick. He has previously held
academic positions at London School of Economics and the
University of Oxford. He is a Fellow of the British Academy
and a past President of the Economic History Society. He has
advised HM Treasury, the IMF, and the World Bank.

To make clear: I'm not saying economist a is better than economist b here but Krugman - who has a brilliant mind - writes an article almost every day about an awful lot of topics, some of them he doesn't know much about.

tomterm8 wrote: »

Yes, it is quite right that in 1920 and 1921, government spending contacted in nominal terms. Also, in 1920 in the UK, there was deflation of in excess of 10%, and the largest contraction in the economy recorded in a single year in modern british history happened in 1921.

As you say sharp deflation - which wouldn't happen now because modern monetary thinking wouldn't allow it. The Bank of England would just print, print, print. There is still an argument to be had - posited by the Austrian school of economics - that a sharp bout of deflation followed by healthy growth is better than decades of malaise, there's a reason it was called the roaring twenties (admittedly a lot of US cultural bias there). Anyhow, this is all a monetary policy issue not a fiscal one.

Most people agree that the result of this recession was that the British naval fleet was gutted to such an extent that when Hitler rose to power, we almost lost the subsequent world war.

Yet government spending on defence pre and post WWI didn't change much as a % of GDP while total spending as a percentage of GDP doubled post WWI compared to pre-WWI. Government spending was ratcheted up from roughly 15% through the 1900s to 30% during the latter half of the 1920s - largely on the back of debt repayment from WWI but that is no argument for how Germany could outstrip British industry or government spending going into the the 1930s, the Germans lost!

For a bonus point, do you think their policy was a good idea?

I'm a little lost, do you mean the Liberal parties policy on fiscal policies such as defense spending or overall government spending? The monetary policies followed at the time?

Conrad wrote: »

What do you think of my thought that Europe must slash spending as the world has entered a new era where it no longer tolerates the current incarnation of the European social contract?

I think European governments need to make deep cuts in future entitlements and mild cuts in current spending for them to be sustainable in for the next 15-20 years. Its not so much absolute remuneration for workers that worries me but the burden on businesses imposed by European governments will be higher than most other parts of the world. The social security burden is ludicrous, 56% of the world's social protection is spent by Europe. The WSJ had an article about the World Bank study that made this observation yesterday.

In effect an Indian has no desire whatsoever to pay the cost of featherbedding greedy westerners and as such wont buy thier products, afterall our Indian doesn't enjoy the paternity pay 'demanded' by a British or Portugese worker.

Quite right too - no different for Chinese, Indonesian, Romanian or Brazilian worker. The countries caught up in the 1998 Asian crisis are already far from happy about the French run IMF being too lackadaisical over Greece.

A 'courageous' western workerker protesting for a decent pension, in the end is in effect asking the rest of the wolrd to foot the bill, no?

"Decent pension" is, of course, relative. The rest of the world will not foot the bill that's been pretty obvious given what has happened with the European periphery. There were plenty of stories about China being a white knight rescuing these economies - it was absurdist imperialist thinking - why would China be interested in losing money?

At the same time this martyr to the cause of the working man does all he can to buy products produced by slave labour in Indonesia which by definition wont afford such workers the very demands the western worker is calling for.

This is where I'm going to differ. The Indonesians can bring themselves up to the living standards of the west or Japan, Taiwan, Singapore, Hong Kong, and Taiwan. Thirty years ago Taiwan was known for shoes not semi-conductors and computers. South Korea doesn't make Britons poorer by providing us with Samsung TVs, LG washing machines or Hyundai/Kia cars. The economic pie can grow for all, it is not a fixed size.

I consider buying something from Indonesia or China doing good (assuming the workers have free will). Sure, the wages are a pittance compared to ours but the wage level in their country is determined by the demand for labour in that country. The labourers making goods for the west are getting higher wages than those who are not and wages are seeing annualised increases in the teens for all.

Oh, and I could write a lot about Bob Crow but I've bored anyone who has read this far enough methinks!

StevieJ

ILW wrote: »

The odd thing is that European workers feel they have some sort of god given right to not have to. Where does that sense of entitlement come from, and is it valid?

I assume that includes you then entitled to a higher rate on your (low risk) bank balances irrespective of any damage that this could do to the British economy.

hallmark

pqrdef wrote: »

What it's really all about is the middle classes maintaining and increasing their privileges and differentials. Austerity is so convenient, so long as the right people suffer and the right people don't.

Utter garbage. For a start there is no austerity - we're spending colossal amounts compared to almost any point in history. It's an utter joke that with as much debt as we have there is uproar over even the suggestion of reducing benefits to "only" £26k NET a year.

£26K net. Ludicrous. How about you backing up what you post with a nice list of all the other countries in the world where you can currently get way in excess of £26k net a year for doing nothing? And where even the suggestion of a cap is met with outrage?

Thrugelmir

StevieJ wrote: »

What has that got to do with it?

When the state pension was introduced average life expectancy was 68.

A totally different funding model for the NHS was well.

Thrugelmir

GDB2222 wrote: »

All this austerity is very bad for the economy - the Chinese economy, I mean. It's also bad for employment - Chinese employment. Well, you get the picture.

The Chinese have been playing a long game, over many many years. They don't think like the West, i.e. short term.

lvader

Has the government actually reduced overall spending yet? if it has it's only by a very small amount. All the talk of austerity and cutting too fast too soon is a Labour invented myth. The youth should be up in arms, but not about cuts, maybe they don't realise they are the ones that are going to have to pay for all this massive government overspending.

ILW

StevieJ wrote: »

I assume that includes you then entitled to a higher rate on your (low risk) bank balances irrespective of any damage that this could do to the British economy.

I don;t feel entitlement, but would like to have it.

As far as employment goes, I am closer to the Indian worker as being self employed I have no rights whatsoever.

michaels

Slightly OT but what a breath of fresh air, a thread discussing economics with insightful input from all posters and no one feeling the need to resort to personal attacks - thanks everyone.

Generali

tomterm8 wrote: »

You can achieve a fall in debt levels even when you are increasing government spending in real terms.

Perfectly true. It is harder to do when real GDP is growing slowly, impossible if real GDP is falling however.

You made a point also about 1920-21. During The Great War (IIRC) the UK went from being a net creditor nation to being a net debtor. There had also been a huge increase in Government spending both in real terms and vs GDP, mostly on wholly unproductive things (e.g. making projectiles to lob at various German, Turkish and other young working class men.

In the period 2000-7, there was a huge increase in both public and private debt and a massive increase in unproductive spending (e.g. making projectiles to lob at various Iraqi and Afgan young men).

I think you can see where I'm going with this.

If you run up a debt to consume you effectively move consumption from tomorrow to today. We've had the Government consumption through war and an increase in numbers of bureaucrats. We've had our SUVs and flat screen TVs on tick which means we can't have them today. Austerity is less a choice than a mathematical truth.