Cameron's economic policies will kill, not cure - look what's happened to Ireland

[ymu]

Good article by Johann Hari. He's been on fine form recently.

So let’s return to the truth buried in that little story on the financial pages [Moody's downgrading Ireland's debt - ymu]. Ireland has been doing exactly what Cameron and Osborne urge, with a two year headstart. What are the results? Last week, a study by the International Monetary Fund – nobody’s idea of a left-wing pressure group – found that country’s economic collapse now “exceeds that being faced by any other advanced economy, and matches episodes of the most severe economic distress [anywhere] in post-World War Two history.”

Why? During a recession, ordinary consumers quite sensibly cut back and spend less. But if the government does the same, it means nobody is spending. This is bad enough for all the people who suffer immediately: the swelling army of the unemployed, the repossessed, the abandoned. But it turns out it makes its original goal – paying off the debt – impossible too. As the Nobel Prize-winning economist Joseph Stiglitz explains: “If you introduce austerity measures, the amount you can raise in tax falls, and welfare payments go up – so you don’t have enough money to pay your debts anyway.”

That’s why the bond markets have turned on Ireland. The country introduced austerity to pay off their debts – and the austerity killed their economy, making it impossible to pay off their debts in any case. It was self-defeating. So introducing all these cuts doesn’t only inflict misery: it doesn’t even achieve its professed goal.

Why choose this as a model to copy? Another Nobel Prize-winning economist, Paul Krugman, writes this deficit hawkery “isn’t based on either evidence or careful analysis… What sounds like hard-headed realism actually rests on a foundation of fantasy.” Krugman points out that they incessantly warn us “invisible bond vigilantes” will beat us up if we don’t cut, cut, cut – when the real bond market is beating up the people who have cut and left their economies to bleed out.

In 2010, to preach austerity as the solution to depression is the equivalent of drilling holes in your head to cure your migraine, while dismissing aspirin as for wusses. It’s a dogma, chosen because it fits with the slash-the-state instincts they learned as privileged young men in their 1980s champagne-dream.

http://johannhari.com/2010/07/30/camerons-economic-policies-will-kill-not-cure

Nothing to add, really. Nail, head. Good straightforward resource for explaining the anti-cuts agenda.

 

[yield]

Completely agree with Johann Hari.

Also an interesting piece by Ambrose Pritchard-Evans on his blog in the Telegraph. August 25th, 2010

It pays to riot in Europe.

Yet as of today it is paying 5.48pc to borrow for ten years, or near 8pc in real terms once deflation is factored in. This is crippling and puts the country on an unsustainable debt trajectory if it lasts for long.

Yet Greece is able to borrow from the EU at 5pc and from the IMF at a staggered rate far below that (still too high for the policy to work, but that is another matter). These were the terms of the €110bn joint bail-out.

To add insult to injury Ireland is having SUBSIDIZE Greece to meet its share of the rescue fund.

 

[ymu]

I am sure you can all see the absurdity of this. It has moral hazard written all over it, and shows what happens once a dysfunctional system twists itself into ever greater knots rather confronting the core issue.

Moral hazard? That seems to equate following absurd economic advice in the interests of the rich is somehow the right thing to do, whilst standing up to it is wrong. Still, he does write for the Torygraph.

 

[Belushi]

It annoys me that Hari keeps writing things I'm forced to completely agree with.

 

[ymu]

 

[bi0boy]

It annoys me that Hari keeps writing things I'm forced to completely agree with.

Innit. He did an ace drugs piece yesterday.

 

[ymu]

I don't think I've seen a bad article from him since he apologised for being utterly wrong about Iraq. Not that I read him a lot, but he's come out with some very decent articles - with more evidence than drum-banging, which always helps.

 

[DotCommunist]

Thatcher-on-mephedrone crusade

I'm no economist but that piece was pretty scary. when its the IMF telling you are fucked, start to worry.

 

[ymu]

The IMF told us we would be fucked by Tory plans long before the election. Not enough people listened.

 

[SpookyFrank]

Let me get this straight, as I see it there are broadly speaking two approaches to dealing with a crippled economy and a bankrupt government:

1) Cut government spending to the bone in the vague hope we can at least keep hospitals open and enough coppers on the streets to make sure the rich get to keep all their stuff. Meanwhile the economy whimpers in a corner somewhere and national debt doesn't get paid off and global finance takes its business elsewhere to the ruin of all.

2) Keep spending money which isn't there in order to trick the economy into ticking over for another six months or so until nobody is stupid enough to lend the goverment money any more and global finance takes its business elsewhere to the ruin of all. But maybe we'll get to keep our indispensable and beloved police community support officers for a while longer.

So it's limited increase in debt coupled with no hope of paying anything back or vast increase in debt to finance a possible small increase in ability to make repayments. I'm happy to be corrected but aren't both of those slightly sit options?

 

[ymu]

Keynes.

 

[Jeff Robinson]

Cameron's economic policies are designed to protect the rich from the poor. Sometimes things really are that simple.

 

[_angel_]

Cameron's economic policies are designed to protect the rich from the poor. Sometimes things really are that simple.

They're designed to take from the poor to the rich, I don't quite see how the rich are going to be protected from the poor at this stage.

 

[Jeff Robinson]

They're designed to take from the poor to the rich, I don't quite see how the rich are going to be protected from the poor at this stage.

Via the coercive and hegemonic apparatuses of the state and ruling classes (a la the miners strike or any other protracted class struggle). By protect, I mean through the strategy of protecting the profits of the finance capitalists whilst socialising the losses and also through the extension of citidels of private power and market rationality into every sphere of social life. Admittedly, all such projects existed under new labour albeit with kid gloves. Well, now the gloves are off and the tory vermin are knuckling down for a big bullingdon frat boy gang bang of the working class.

 

[ymu]

Good article about the idiocy on the other side of the pond, with some relevance to this thread, so I'm posting it here.

The Fed was apparently unable to recognise a massive and unexplained departure from a 100-year long trend in the largest market in the world as a bubble. Even after it had just seen the stock bubble grow and implode it still could not conceive of a bubble in the housing market. Ben Bernanke, chairman of the Fed, and other spokespeople for the body have also claimed there was nothing they could have done even if they did recognise the bubble.

Call this colossal error No 1. This is drunkenly driving the school bus into the lane of oncoming traffic, killing all aboard. In most lines of work, you would be fired immediately and barred from ever working again. For the Fed chairman this is just a bad break.

Having missed the largest financial bubble in the history of the world, Bernanke quickly moved to colossal error No 2, failing to take adequate steps to counteract the downturn. While Bernanke deserves credit for being more aggressive than some of the quacks who would have just let the financial system melt down completely, his response to mass unemployment has been woefully inadequate.

The Fed should be targeting a higher rate of inflation, in the 3-4% range. This would reduce real interest rates and debt burdens. What is the downside in this picture; inflation accelerates too much and hits 5-6%? How does that compare with years of excessive unemployment, with millions of people unemployed or underemployed needlessly? No reasonable calculation of costs and risks would justify Bernanke's timidity in the current circumstances.

Bernanke's third colossal error is playing along with the deficit fervour being promoted by those seeking to gut social security, Medicare and other areas of social spending. The downturn has predictably led to an explosion of the deficit, as public spending had to fill the gap created by the collapse of private spending.

However there is no reason whatsoever why this deficit should place any burden on the long-term federal budget. A responsible Fed chairman would announce his intention to simply buy and hold the government debt used to finance the deficit. This would prevent the debt from placing any future burden on the public budget since the interest payments on the debt would go to the Fed. The Fed would in turn refund the interest to the Treasury each year, leaving no net interest burden on the government.

Japan's central bank currently holds an amount of public debt that is almost equal to its GDP ($14.5 trillion in the case of the United States). As a result, Japan's interest burden is less than that of the US even though its ratio of debt to GDP is 220%, almost four times the ratio in the US.

If Bernanke was honestly doing his job he would be educating the public about why debt run up to counteract a downturn need not impose a burden on the budget. Instead, he is running around telling Congress to cut social security because "that's where the money is".

http://www.guardian.co.uk/commentisfree/cifamerica/2010/sep/08/ben-bernanke-federal-reserve

 

[moon23]

It depends what other countries are doing, if France, Ireland, Portugual and Spain are all making efforts to reduce their deficit then it wouldn't do the UK very well on the international bond markets to carry on adding to our debt. If you kept spending you would also be risking much higher interest rates, people having problems with their mortgages and borrowing. Deficit reduction could have the hidden benifet of keeping interest rates low, and a bit of a rise with inflation could pay off a bit more of the deficit.

It's a very complex situation, I don't think you can just take a simplistic Keynesian account without looking at what the bond market is like. Greece may have scrapped through with lower borrowing rates by being in so much total shit that it needs bailing, but every country can't pull that same shit! It's not an argument for allowing your debt to end up like the Greek situation.

 

[Spanky Longhorn]

It depends what other countries are doing, if France, Ireland, Portugual and Spain are all making efforts to reduce their deficit then it wouldn't do the UK very well on the international bond markets to carry on adding to our debt. If you kept spending you would also be risking much higher interest rates, people having problems with their mortgages and borrowing. Deficit reduction could have the hidden benifet of keeping interest rates low, and a bit of a rise with inflation could pay off a bit more of the deficit.

It's a very complex situation, I don't think you can just take a simplistic Keynesian account without looking at what the bond market is like. Greece may have scrapped through with lower borrowing rates by being in so much total shit that it needs bailing, but every country can't pull that same shit! It's not an argument for allowing your debt to end up like the Greek situation.

fuck off you weasel cunt.

 

[moon23]

fuck off you weasel cunt.

Well done you've learnt to retort to childish abuse at the first sign of deviance from what you dogmatically hold to be the truth.

 

[ymu]

It depends what other countries are doing, if France, Ireland, Portugual and Spain are all making efforts to reduce their deficit then it wouldn't do the UK very well on the international bond markets to carry on adding to our debt. If you kept spending you would also be risking much higher interest rates, people having problems with their mortgages and borrowing. Deficit reduction could have the hidden benifet of keeping interest rates low, and a bit of a rise with inflation could pay off a bit more of the deficit.

It's a very complex situation, I don't think you can just take a simplistic Keynesian account without looking at what the bond market is like. Greece may have scrapped through with lower borrowing rates by being in so much total shit that it needs bailing, but every country can't pull that same shit! It's not an argument for allowing your debt to end up like the Greek situation.

Have you even read the article in the OP? Ireland started this cutting nonsense two years ago, and they're the first country to get their credit rating downgraded. They're in a worse bind than Greece.

Can we have some actual argument from you, not just parroting of the Lib Dem line?

 

[Spanky Longhorn]

Well done you've learnt to retort to childish abuse at the first sign of deviance from what you dogmatically hold to be the truth.

Nah, I just don't think scum like you are worth the effort, especially scum who just repeat what they're told by whatever political organisation they're afilliated to with out any critical thinking.

 

[kyser_soze]

Interesting article, but by failing to analyse the differences in the two ecnomies and why they fell into recession, and the differing capabilities of both economies to pull themselves out of the hole, this is no different to the r/wing 'LOOK AT GREECE!' cries from a year or so ago. Altho it's good for confirmation bias.

 

[butchersapron]

The floor is yours then.

 

[moon23]

Have you even read the article in the OP? Ireland started this cutting nonsense two years ago, and they're the first country to get their credit rating downgraded. They're in a worse bind than Greece.

Can we have some actual argument from you, not just parroting of the Lib Dem line?

My argument was that it's dependant on the bond markets and what other countries are doing. Ireland started cutting things before the pack and before the bond markets were expecting it. Since then things have shifted, lot's of the G20 are proposing austerity measures so if the UK went against the pack then it would stand out as a potential risk to the bond markets. You can't just view these things in terms of a simplistic abstract to economic theory. There is not always a right and a wrong course of action, it depends on whether your actions are interpreted as right or wrong.

I do fear that a focus on austerity alone won't solve things, and that the Coalition also needs to focus more on reducing the tax burden for those on low incomes to increase consumer spending and reduce private debt. Also you need to look at our low levels of production in the UK and think about reducing the tax burden on manufacturing to ensure we are more competitive internationally.

 

[butchersapron]

Apart from the massive problem with the assumption that society should be run for the benefit of 'the bond market', the bond market is very happy with current levels of debt. It wants more. Even the IMF can see this.

 

[ymu]

Interesting article, but by failing to analyse the differences in the two ecnomies and why they fell into recession, and the differing capabilities of both economies to pull themselves out of the hole, this is no different to the r/wing 'LOOK AT GREECE!' cries from a year or so ago. Altho it's good for confirmation bias.

Well, there's also the fact that Germany didn't cut public spending and are emerging rather strong. And Keynes, of course. But he was an idiot, obviously.

 

[moon23]

Nah, I just don't think scum like you are worth the effort, especially scum who just repeat what they're told by whatever political organisation they're afilliated to with out any critical thinking.

Why are you bothering to make the effort to insult me if i'm not worth the effort? It seems more like you have identified your bogeyman and you want to engage in a bit of bashing to demostrate what a loyal dogmatist you are to your held views.

 

[butchersapron]

Well, there's also the fact that Germany didn't cut public spending and are emerging rather strong. And Keynes, of course. But he was an idiot, obviously.

Yep, which countries are the worst shape employment wise - that's right, the ones who cleaved to to this neo-liberal bollocks.

 

[butchersapron]

Why are you bothering to make the effort to insult me if i'm not worth the effort? It seems more like you have identified your bogeyman and you want to engage in a bit of bashing to demostrate what a loyal dogmatist you are to your held views.

Bogeyman? The policies you ineptly defend are real and are doing real damage to real people. They're going to do a lot more. Maybe that's why he thinks you're a cunt. You are.

 

[littlebabyjesus]

A conundrum for you, moon23:

Governments are telling us that they cannot afford to pay us a pension out of taxes any more and that we must provide for ourselves.

In order to provide for ourselves, we need to pay into private pension funds.

Private pension funds need secure long-term places to put much of the money we pay into them so that they have minimum guaranteed returns. This means, largely, government bonds.

If you are keen on both reducing the national debt and increasing private pension provision, where would you suggest the pension funds should go?


The whole idea of 'private' pension finance is something of a chimera – we pay for a large chunk of them through interest payments on bonds. Providing the money directly from taxation would cut out the middle man (the fund managers skimming off the top), thus saving us a great deal of money.

 

[ferrelhadley]

Loss of good paying manufacturing jobs (UK US et al) and the loss of the ability to raise taxes from large corperations and wealthy individuals (as they would simply up sticks and leave) has been one of the fundamental underlying causes of this crisis.

We are left with a choice of cuts or debt, not raising wages and taxes.

The worst of this crisis is being held at bay by US deficit spending. When that goes even the Germans are going to feel the pain.