Why austerity now?
Michael Hudson at New Economic Perspectives points us to the difference between the overall economy and the financial sector:
When politicians let the financial sector run the show, their natural preference is to turn the economy into a grab bag. And they usually come out ahead. That’s what the words “foreclosure,” “forfeiture” and “liquidate” mean – along with “sound money,” “business confidence” and the usual consequences, “debt deflation” and “debt peonage.”
Somebody must take a loss on the economy’s bad loans – and bankers want the economy to take the loss, to “save the financial system.” From the financial sector’s vantage point, the economy is to be managed to preserve bank liquidity, rather than the financial system run to serve the economy. Government social spending (on everything apart from bank bailouts and financial subsidies) and disposable personal income are to be cut back to keep the debt overhead from being written down. Corporate cash flow is to be used to pay creditors, not employ more labor and make long-term capital investment.
The economy is to be sacrificed to subsidize the fantasy that debts can be paid, if only banks can be “made whole” to begin lending again – that is, to resume loading the economy down with even more debt, causing yet more intrusive debt deflation.
This is not the familiar old 19th-century class war of industrial employers against labor, although that is part of what is happening. It is above all a war of the financial sector against the “real” economy: industry as well as labor.
http://www.angrybearblog.com/2010/06/ruthless-bankruptcies.html A reminder of this post as well.
What’s this supposed to mean? “Somebody must take a loss on the economy’s bad loans – and bankers want the economy to take the loss, to “save the financial system.”” The economy took put loans, not individuals and organizations? The economy made those loans not banks and other investment houses? Moreover, bankers want the”economy” to take the loss? That’s You and I.
What a muddled message.
http://www.confederateyankee.mu.nu/ Ah yes…hmmm.
Hey, welcome to the dark side, Dan. Don’t let any of it stick now. 🙂
Well yes, and its very unfortunate that Bush/Obama’s view of the economy is that of the financial industry. In contemporary discussions of economic growth this “financial”/supply side view dominates any discussion of the goal of the government in dealing with the economy. Its the same thing as the 1980’s reaganite trickle down theory. If we just give all the money to the rich/financial industry they are the best distributors of capital in the economy and their lending/capital expenditure will fuel broad based economic growth that will lift all boats. This theory only has any validity if your in an undeveloped economy where any investment in infrastructure or productive capability will have an appreciable effect o gdp growth. USA has more productive capacity then it needs and this theory does not prove truythful in such an advanced stage of ecnomic growth. In our modern, developed economy this supply side economics is just the masked way in which the wealthy foment an ideological culture which ensures that wealth is always redistributed in their direction. any actual inquiry into the drivers of economic growth will or what drives growth has discrdited this BS theory.
sgetz99, care to expand on this: “any actual inquiry into the drivers of economic growth will or what drives growth has discrdited this BS theory. ” I’m especially interested in the “study” aspect.
I suspect you would not change anything that has been inplemented in the current stimulus.
CoRev
there I think you are reading sgetz backwards. the current stimulus has been banker friendly.
only trouble is that “banker” these days does not mean the prudent manager of savings and investments it might have meant long ago. today it means high stakes gambler, preferably one who trusts a “risk management strategy” that he does not understand.
and the thing about gamblers is they like to gamble. and they keep on gambling win or lose. especially since the psychology of the gambler is that when he is winning it proves he is smart, and when he loses it only shows he had bad luck, which will change, especially if the government pays for his losses. there is your “socialism.” its socialism for rich gamblers.
Corev,
Just anecdotal study for last 18 years, the supply side economic theory has discredited itself, I don’t need to marshal charts, graphs and growth numbers, just pick up a newspaper or talk to people.
Coberly understands what I was communicating. Problem I have is that the way you build an economy thats already developed is from the bottom or middle and out and then up. You have to spur demand for goods and services. So the stimulus could have been much more effective if we used it to train people to build high speed train cars, or windmill power drive trains or to modernize the electrical grid. Establish these industries and develop them and then sell them off to private industry or not.
This would help create sustainable new industries that employ people in ddecent paying jobs and make this a better country and economy.
Rather than bailout speculative finance, which simply reinforces a a casino based financial industry. Further weakens the dollar and creates unsustainable debt for no real growth. Its just a wealth transfer from mid class to speculative finance community. Poorly constructed Derivative instruments and counter parties must suffer losses for capitalism to work and fo the true costs of ponzi scheme to be felt, cause pain and therefore be discouraged in the future. The supply side/ give the money to the banks school of thought, just give the banks all the money and everyone will be ok idea as well as the tax cut to growth morons have no real basis for their ideology. It doesn’t spur growth, job creation or new industries it just reinforces modes of financial development that contribute nothing to the real economy and due to their leveraged profligacy place the entire system at risk.
i have no idea what it means either, but there are keywords in it that will drive some people batty.
i don’t understand what you are saying. it seems like you’re saying that the government should undertake huge, speculative new projects (and encourage people to invest their life’s human capital in them) because private investors won’t do it? maybe private investors won’t do it because there is no return on these investments.
sgetz99, sorry I asked. It’s just more of the Dem/left talking points that have been out there on how to stimulate the economy at least since the Bush stimulus. Well your guy has been trying that. “Shovel Ready” means infrastructure. Just because it’s not the infrastructure you would choose makes little difference. It’s working too slowly to lessen the pain and suffering.
Your comment about stimulating the banks/investment houses was not the stimulus but the TARP.
What does this mean?
“The economy took put loans, not individuals and organizations? The economy made those loans not banks and other investment houses? Moreover, bankers want the”economy” to take the loss? That’s You and I.”
If you’re going to accuse Hudson of confusing commentary don’t do it with ambiguous description.
gromit
private investors don’t invest in things that don’e have a short term cash payoff. lots of things need to be done that don’t fit that description. private investors were not about to finance the moon program, but a lot of stuff came out of that program that private investore were able to make money on.
your “life’s human capital” gives you away as someone who takes Ayn Rand seriously.
Jack, I had a typo in the first sentence. Put was supposed to be out. Like this: “The economy took out loans, not individuals and organizations?” Or you can read it this way: So who took out those loans? The economy? Not individuals and organizations?
Alleviating pain and suffering is the the goal of the R party? Seems convoluted, just like saying dems/liberals equals heterodox economic thinking.
Do you mean traders?
Dan said: “Seems convoluted, just like saying dems/liberals equals heterodox economic thinking.” Being outside the norm does not make it the best, better economic thinking. Especially for today’s economy. many mainstream ideas are wrong and abandoned over time. Dem/Liberal economic orthodaxy if it contines down the path of the 30s may finally have its effectiveness be disproven. Only time will tell.
The economy’s bad loans were made by a variety of actors. But traditionally, when loans go bad, the creditors lose. That is one reason they charge interest. Now the creditors want to socialize their losses.
Es claro?
The long-term budget projections presented in this letter under both the alternative
fiscal scenario and your proposal do not include any macroeconomic effects of projected
budget deficits. Rather, macroeconomic conditions under both alternatives
are assumed to be broadly similar to those observed on average in recent decades. In
reality, the two scenarios would have quite different macroeconomic consequences,
as described later in this letter. Another limitation of this analysis is that it does not
include a number of potential interactions among various provisions of the Roadmap.
More broadly, all of the analysis in this letter is subject to a great deal of uncertainty.
Estimating the impact of comprehensive changes in the structure of the Social Security
program and the financing of health care is extremely challenging over any time
period but especially so over a 75-year horizon. From CBO analysis.
Also Social Security seems to be a major part of the map.
Dan, boy! doesn’t that make my point re: CBO projections? throwaways!
BTW, here is the link to the Ryan road map: http://www.roadmap.republicans.budget.house.gov/Plan/#Appendix1
“…may finally have its effectiveness be disproven. Only time will tell.”
Or may not have its effectiveness disproven. Funny thing about letting one’s bias be one’s guide. It leads one into writing funny, biased things. May cuts both ways, till the evidence is in. Odd, too, that an “orthodoxy” that has not been debunked for however long it has been orthodox would be disproven by a single instance in which it might seem not to apply.
Oh, and CoRev, to foster credibility outside a narrow circle of ideological friends, you might want to stop equating Democrats with liberals. Democrats and liberals both know they aren’t the same people. Honest people who take even a passing interests in US politics know it, too.
Seriously, you should try to thnk seriously.
They aren’t huge or speculative but federally sponsored seed industry for new industries that contribute sustainably to the economy, industry and society. Most venture capital will not invest in new industries that must oprate in the red for 2-5 yrs. Unfortunately, these industries won’t get off the ground without heavy gov subsidy, think Nasa and projects finded at MIT and DARPA. and I prefer they not be sold to private investors but run as federal utilities with incentive pay structure of course, not looking to recreate state capitalist soviet model but using fed funds to intelligently create sustauniable industry that has growth prospects too far out to attract private money. To m y mind, the best way to use stimulus funds
Corev,
your just trying to fit what I’m saying into some predigested criticism of democrat side from where ever you heard it. I’m not refering to shovel ready but new industries. I;m criticizing the entire political economic paradigm, not bush, try to read first before you reply .
The stimulus was too small and relied too heavily on tax cuts and shod have had emergency provision, medium and long term goals and aspects. What was passed was useful only in My comments about the wrongheadedness of reliquifying wallstreet, relying on tax cuts, and any term auction facility used by the US treasury or fed reserve are all meant to criticize the misguided supply side ideology which informs the mainstream accepted notions of the gov;s role in stimulating economic growth. It is simply not helpful right now and has been wrong headed and too broadly applied. Sometimes it makes sense to reliquify money markets for a short trm period but supply side tenets are not suitable for all economic situations of every variety irrespective of the predicate for the problem.
Austerity measures are now a hot topic globally. Although it does cause large unrest in every country that it affects, can we argue against it? Aren’t the measures aiming to improve the economy in the long run?