'We are repeating all the mistakes of the 1930s, doing our best shot at recreating the
Great Depression'
Posted on 08/03/2011 10:11:08 PM PDT by bruinbirdman
The US, Britain, and Europe are together embarking on a sudden and severe tightening of fiscal policy, in unison, before economic recovery has reached safe take-off speed. The experiment was last tried in the 1930s.
'We are repeating all the mistakes of the 1930s, doing our best shot at recreating the
Great Depression'
The theoretical model behind the austerity push – known as an "expansionary fiscal contraction" – is based on the work of German theorists, and more recently on studies by Harvard professor Alberto Alesina and a group of brave scholars willing to defy the canonical doctrine of post-war Keynesian economics.
The Alesina view has been embraced by the European Central Bank and the budget cutters of the Eurogroup, but has enraged America's professoriat and set off a heated argument across the world.
Former US Treasury Secretary Larry Summers said there is now a one-third chance of a full-blown recession next year in the US. Nobel leaureate Paul Krugman said obscurantists had run amok. "What we're witnessing here is a catastrophe on multiple levels. We are doing a terrible thing. We are repeating all the mistakes of the 1930s, doing our best shot at recreating the Great Depression," he said.
Fear that a synchronized squeeze in half the global economy may go horribly wrong has seeped into market psychology, explaining why the $2.4 trillion (£1.5 trillion) debt deal agreed in Washington has failed to spark a relief rally. Wall Street is a step ahead, bracing for cuts in an economy that has already slipped to stall speed.
Angst over faltering recovery explains why Italian and Spanish bonds have suddenly buckled. The European Commission said the spike in Latin spreads is "clearly unwarranted" given that Rome and Madrid are sticking to their austerity plans,
(Excerpt) Read more at telegraph.co.uk ...
What planet is this yokel from?
Apparently these theorists idea of “austerity” is turning down a third helping.
Get government and the “theorists” off our backs and out of our way. Let Dr. Sowell and Dr. Williams lead us out of the wilderness!
He's talking about Europe.
He specifies the countries that are reducing government expenditures (I guess, I can’t figure out what he is claiming is being reduced).
If there are reductions of government expenditures they need to be offset by tax rate cuts in order that the fiscal policies are not deflationary. If we were in a recovery, it would take paired cuts to keep it going.
“Current fiscal policy is unsustainable”
The money quote for the western economies.
The Alesina school cites a string of cases where fiscal cuts led to robust recovery, and a few booms. Their work cannot be dismissed lightly and exposes the limits of New Keynesian models, which often clash with historical reality and human behaviour.
The textbook cases are: Italy (1970s); Ireland, Denmark and Sweden (1980s); Canada, Spain and the UK (1990s). There were some flops, too: Finland (1970s), Australia, Belgium and Greece (1980s), and Italy (1990s). Context is crucial. Dr Alesina says one clear message comes through from the stack of evidence: "Tax increases are much worse for the economy than spending cuts."
(NB: The case of Sweden was in the early 90s not the 80s!)
A theoretical reason for spending (increaseas or) cuts having less effects than tax cuts is the fact that the latter come into effect much quicker. That was the case during the Great Depression, at least in Sweden, when Sweden was well on its way to recovery well before the Kensyian policies of our Labour party got into effect. (Though, in that case it was not so much tax cuts, as depreciation of the currency due to Sweden leaving the Gold standard that helped to lift the economy).
This final sentence leaves something to be desired? Looks like a prediction of gloom/doom.
Since the end of WWII, in the West, inflation has been the answer.
The taxpayer ends up paying through the silent tax for what the government has provided yet failed to tax them for directly.
The secret, in the end, has always been to be able to stay ahead of inflation.
yitbos
“known as an “expansionary fiscal contraction”
Sounds vaguely similar to the dreaded “Cranio-Rectal Inversion” and just as fearsome.
Stop spending what you don't earn.
“Former US Treasury Secretary Larry Summers said there is now a one-third chance of a full-blown recession next year in the US. Nobel leaureate Paul Krugman said obscurantists had run amok”
OK if these two say we’re on the wrong track, we must be going in the right direction. Summers and Krugman are the worse ever economists.
Leftist pointy headed elitist psuedo intellectualism mostly.
In 1984 36 task forces and their sub groups lead by 161 of the nations best CEO’s studied the Federal Government for months and concluded that as much as one -third of the Federal Budget consisted of waste, fraud and abuse. Congress of course took no action on the Grace Commission report and its predictions of more than $13Trillion in national debt have now come true
The elimination of waste is never bad economic policy. A government that lives within its means and intrudes on private sector actions as little as possible would be nourishing to enterprise not destructive of it.
Low taxes and low regulation stimulate productive economic activity (and “jobs”) by increasing private investment. (Investment not “consumer demand” creates growth; e.g. Apple Ipad and Iphone had to be created before anyone bought one)
Government debt is nothing more than a hidden tax, another parasitic burden on the national economy.
Bleating hearts of desparate leftists are inventing focus group tested “scenarios” to try and justify their failed status quo. The nation knows they are frauds, only our failed institutions, leftist dominated government and a corrupt and ignorant media establishment continue to manuever to retain power behind stupid theories and empty rhetoric.
Can't be repeated often enough. I just heard some moron CNN economics reporter on the radio this morning demanding more demand.
“Tax increases are much worse for the economy than spending cuts.”
This instantly caused their export industries to seize up and brought about a continent-wide slowdown. A grinding deflation occurred but was hindered by the powerful unions which refused to take wage cuts. Mass layoffs followed.
Now, it was not the gold standard that caused the problems, but its ersatz implementation. Soon, Europe embarked on a massive inflation (all the while pretending to be faithful to the gold standard) and convinced the U.S. to follow suit so as not to have too much of a currency advantage.
The Fed graciously agreed and the ensuing money supply expansion eventually led to the Crash of '29 and the Great Depression. Europe dropped its phony gold standard and let its currencies sink to their market values and recovered quickly. The U.S., however, under FDR, implemented the New Deal which suppressed business recovery here until it, too, was dropped after WWII.
Pritchard is wrong. There was no austerity, just government-induced suffering.
He's talking about Europe.
"The US, Britain, and Europe are together embarking on a sudden and severe tightening of fiscal policy"
The guy is a wall to wall Keynesian. Printing money/borrowing massive amounts of money don’t work anymore than a bankrupt person getting new credit cards to jump start his economy works. There is no free lunch Ambrose. Deleverging is a painful but necessary first step to rebalancing our economy - it would be less painful if we cut regs, defunded the Dept of energy, labor, commerce, Obamacare, etc., cut corporate taxes to 10% if not zero. 2012 can not come soon enough.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.