Austerity. This should end well

[chunksmediocrites]

I'm starting an Austerity Thrad. I know I've ranted about it before, but it is the New Coke all over again, and all the rage in Europe, so let's take a look at the saga as it is today:

WSWS: Economic Downturn Intensifies Global Currency Conflict

The world economy grew at its slowest pace in two years, according to the JPMorgan Global Manufacturing & Services Purchasing Managers’ Index figures released Tuesday morning. The index fell from 52.5 in July to 51.5 in August, only marginally points above the figure of 50 taken to divide growth from contraction. These figures have fallen drastically since the start of the year.

Output hit a two-year low in the eurozone and a 27-month low for India. “Although manufacturing was the main drag, the service sector fared only moderately better,” said David Hensley, Director of Global Economics Coordination at JPMorgan.

The Markit combined Purchasing Mangers’ Index reading for the eurozone, meanwhile, fell from 51.1 in July to 50.7 in August, the lowest level since 2009. Even more disastrously, the manufacturing figure for the eurozone fell to 49.0 in August, the first contraction in two years.

The government debt crisis, meanwhile, has called into question the solvency of several European banks. “It is obvious, not to say a truism that many European banks would not cope with writing down government bonds held in the banking book to market value,” Josef Ackermann, chief executive of Deutsche Bank, noted on Monday.

The continuing economic slowdown has deepened divisions within Europe, while redoubling the dedication of the dominant sections of the European ruling class, particularly in Germany, for austerity.

Wolfgang Schäuble, the German Finance Minster, reaffirmed his support for even further austerity measures in Greece, Portugal, Spain a and Italy, amid renewed evidence of the disastrous impact of the present round of austerity measures on the world economy. In a column published in the Financial Times Tuesday, “Why austerity is only cure for the eurozone,” Schäuble argued against any let-up in the program of austerity. He rejected out of hand any increase in spending in the stronger eurozone economies to compensate for spending cuts to the weaker ones.

So far so good with that suck-it-up thing, eh Europe? Hey Britain, how's that going for you?

George Osborne has signalled that the government would stick to its hardline deficit reduction strategy despite being forced to revise down his growth forecasts for the economy following the slowdown of recent months.

Swimmingly, I see. Well, at least we know who is at fault here.

Bloomberg: Let's blame the voters for top-down policies no one asked for. Your Galtian overlords are displeased:

The world economy is paying a price for democracy.

As recoveries from the U.S. to Europe lose momentum, policy makers are running into gridlock formed by the politicking and ideological preferences of governments that voters have chosen. Republicans and Democrats in the U.S. squabble about how to restrain the budget deficit and spur job growth, while officials throughout the euro zone differ over how best to safeguard the future of the single currency.

The result is what JPMorgan Chase & Co. economist Bruce Kasman brands a “crisis of competency” as investors question the ability of authorities to act fast enough to avoid repeat recessions. JPMorgan, UBS AG and Societe Generale SA all recently cited policy paralysis in downgrading estimates for global recovery. World Bank President Robert Zoellick today said Europe’s outlook is dependent on political decisions, as he warned the world economy is entering a "dangerous period."

“There is a gap between market horizons and political horizons, and the markets don’t like that,” said Michala Marcussen, London-based head of economics at Societe Generale, who last month cut her forecast for growth worldwide in 2012 to 3.9 percent from 4.6 percent. “Political uncertainty is at one of its highest points in 20 years.”

Dear Bloomberg: Go fuck yourself. I mean, that's what the investor class is telling every member of the underclass, and their kids. So right back at ya, and thanks for blaming the people at the bottom for top-down fuck-ups. maybe they will be hiring hagiographers in their gated communities after everything goes to shit, and you can wave your article about how it is the voter's fault, and hopefully their security detail won't kill you for protein.

Andrew Sorkin at DealBook/ NYT notes that business in the US has a plan to "help" the economy: Give Corporations More Money and We'll Pretend That it is for Jobs.

As President Obama confronts the nation’s dismal unemployment problem — stubbornly stuck at 9.1 percent with, shockingly, zero net jobs created in August — Wall Street and corporate America are working behind the scenes in Washington to push for a series of temporary tax breaks, which they insist will help create jobs.

Of course, businesses want an overhaul of the corporate tax code that would reduce rates for the long term. But for now they are seeking a series of tax holidays, including a payroll tax break for employers, not just employees, and a tax break to let companies repatriate about $1 trillion that is sitting overseas. In turn, they say, they will spend it on new recruits, perhaps as many as 2.9 million of them, according to a letter the United States Chamber of Commerce sent to the president on Monday.

Consider it a form of horse trading — tax cuts for jobs. There is only one small problem with this strategy: temporary tax cuts rarely result in new jobs and always result in less tax revenue.
...>snip<...

Let’s be honest, even if it is an uncomfortable truth: The jobs crisis is not really a function of tax policy; it is a function of economics. Right now, there is too little demand for products.
...>snip<...

John T. Chambers, chief executive of Cisco Systems, has been a longtime proponent of such a tax holiday. “We believe that at least temporarily reducing the incremental tax rate on foreign-earned profits would encourage companies to invest in the U.S.,” he wrote on his blog last year. The company does not seem so interested in investing here at the moment; it is in the process of eliminating some 10,000 workers in the United States.

“They already have a lot of money now — they’re not going to start spending it because of a tax holiday,” Reuven S. Avi-Yonah, an international tax lawyer who teaches at the University of Michigan and has regularly testified in front of Congress, said of American companies pushing for the tax break.

You almost made it, Leaders of the weak tea capitulation-look-I'm-a-centrist-now Dems, Teahadists, and Anything-to-sink-this-economy-because-then-we-will-win-we-think Republicans! You too, short-sighted business leaders! The US economy is almost dead. Just a little more and you can pretty much guarantee that it won't come back in this decade, or longer. Just a little more. Remember to blame fags and liberals and taxes and the government and Social Security and immigrants and not loving Jesus or being patriotic enough, while you're killing the US economy. And much of the rest of the world economy with it. Hey Eurozone! Race ya!

Just make sure there are no jobs. Easy-peasey. Austerity and high unemployment and currency devaluation races. In the US, cut more government revenue, pretend to cut the military, cut social services, further burden the states.

2012 should be fun.

[Vivisectus]

You can get a pretty good example of the kind of nonsense that is going on in the name of "saving the economy" here in Ireland, where we are trying to tax our way out of a recession with one hand, and handing out public funds to private banking institutions with the other.

[Deadlokd]

This makes me so depressed. We have a way out but the powers that be seem determined to drag the world down. What the fuck do they see happening in ten years? Do they look that far ahead?

[Deadlokd]

Originally Posted by Vivisectus

You can get a pretty good example of the kind of nonsense that is going on in the name of "saving the economy" here in Ireland, where we are trying to tax our way out of a recession with one hand, and handing out public funds to private banking institutions with the other.

My Mum still lives there and she was telling me that she and a friend went through the paper one day looking for one happy news story. Eventually she found it...the cost of divorce has dropped. That's it.

[ceptimus]

There's talk of cutting taxes now in the UK, to stimulate the economy. But the ruling conservative party is not thinking of cutting VAT (sales tax) which they recently raised to 20%, nor do they consider allowing the normal tax payer to pay less tax on their income.

No! What they think is needed is to lower the highest income tax rate. Only those who earn more than £150,000 p.a. (about a quarter of a million dollars per year) pay this tax. The government consider that these taxes on high earners are 'stifling the economy', and that reducing these taxes will, by the magic of trickle-down, benefit everyone!

[Vivisectus]

Originally Posted by Deadlokd

My Mum still lives there and she was telling me that she and a friend went through the paper one day looking for one happy news story. Eventually she found it...the cost of divorce has dropped. That's it.

It's pretty grim alright. The sad part is that the one measure they put in place to actually stimulate some buying and selling (a car scrappage scheme they copied, tellingly, from the UK) really worked for the car industry.

Apart from it, they have not come up with any convincing stimulation measures, and a new round of cuts and tax hikes is expected this December, further reducing consumer confidence.

And while the Joe and Mary Bloggses worry about their mortgages, we are still forking out money to cover the losses of private investors who invested in the banks.

[AynMisesLibertarian]

The PIIGS(Portugal,Italy,Ireland,Greece and Spain) are failing because their Big Government is outside control and their debt/PIL is gozillion %
and you want what??? increase the role of government?

[Vivisectus]

please back up your claim that it is big government failing that is causing that, and not the lack of regulation for the banks and their selling on of the risk on below-par loans, thanks.

[Adam]

Originally Posted by AynMisesLibertarian

The PIIGS(Portugal,Italy,Ireland,Greece and Spain) are failing because their Big Government is outside control...

That's actually sort of true, although not the way you mean it. A significant part of the problem for those five countries is that part of the essential function of government is literally out of their control, thanks to their membership in the Eurozone. A normal government controls both fiscal and monetary policy. A Eurozone member controls its own fiscal policy, but is bound by zonewide monetary policy, which is generally set by following the rule of thumb "will this be good for Germany and France?"

[Demimonde]

[Clutch Munny]

Originally Posted by ceptimus

There's talk of cutting taxes now in the UK, to stimulate the economy. But the ruling conservative party is not thinking of cutting VAT (sales tax) which they recently raised to 20%, nor do they consider allowing the normal tax payer to pay less tax on their income.

No! What they think is needed is to lower the highest income tax rate. Only those who earn more than £150,000 p.a. (about a quarter of a million dollars per year) pay this tax. The government consider that these taxes on high earners are 'stifling the economy', and that reducing these taxes will, by the magic of trickle-down, benefit everyone!

In their defense, the view is bolstered by the empirical evidence from the many times it's been tried and never, ever worked due to insufficiently large tax cuts and excess government interference.

[ChuckF]

Originally Posted by AynMisesLibertarian

gozillion %

Gozillion the Traveler. He will come in one of the pre-chosen forms.

[ZEZOZE]

Originally Posted by chunksmediocrites

2012 should be fun.

oh just you wait.

[JoeP]

In the spirit of austerity I will avoid posting in this thread.

[JoeP]

I mean I will keep my posts short.

[JoeP]

Unless there are exceptional circumstances.

[Deadlokd]

It's okay JoeP, you can post as much as you like. We're cutting taxes on the top posters and increasing the taxes on the bottom posters like Aynmiserablelolbertarian.

[chunksmediocrites]

CBO director Elmendorf was in front of the Super-committee today, and had a few things to say:

“Credible policy changes that would substantially reduce deficits late in the coming decade and over the long term, without immediate cuts in spending or increases in taxes, would support the economic expansion in the next few years and strengthen the economy over the longer term,” Elmendorf said at the hearing. “There is no inherent contradiction between using fiscal policy to support the economy today, while the unemployment rate is high ... and imposing fiscal restraint several years from now, when output and employment will probably be close to their potential.”

But the Republicans may have been too busy pandering to a base that cheers when they think about someone dying when they didn't decide to purchase health care, or huzzahing when they hear the death row body count a Texan governor has. And everybody knows deficits are the scariest thing in the whole world, while cutting Social Security and Medicare, and raising unemployment is just being responsible.

TPM:

There's no reason to make the leap to austerity, even if it's politically expedient. In fact, we have the luxury of being able to pair a credible medium-term deficit reduction plan with immediate anti-austerity policies.

It's not just [CBO head] Elmendorf. According to IMF economists, the GOP approach of slashing spending by even just 1 percent of GDP would under current conditions lead to a big spike in unemployment and a sizable drop in incomes, all while doing almost nothing to actually reduce deficits. The effects, according to the IMF are exacerbated when central banks can't reduce interest rates anymore -- a situation the Fed finds itself in right now.

Note that the more people not earning an income, the less revenue going to the government, the less ability to pay off debt. I know that's all complicated and shit, but there you go. Speaking of revenue streams, remember the "middle class"?
Guardian:

Take a story that appeared in the Wall Street Journal Monday. The tale is nominally one about marketing strategy and it looks at how giant firm Procter & Gamble sells its household goods to its customers. But the picture that emerges is terrifying. P&G, it transpires, is cutting back on marketing to the disappearing middle classes, instead selling more and more to either high-income or low-income customers and abandoning the middle. Other big firms, like Heinz, are following suit. The piece reveals there is even a word for this strategy, helpfully coined by Citibank: the Consumer Hourglass Theory – because it denotes a society that bulges at the top and bottom and is squeezed in the middle.

The story contains some scary figures, such as the fact that the net worth of the middle fifth of American households has plunged by 26% in the last two years. Or that the income of the median American family, adjusted for inflation, is lower now than in 1998.

Or look at a story in the New York Times Tuesday. It starkly shows how the plight of the American working person has worsened. Solid jobs that once provided a secure grasp on middle class aims (a house, college for the kids, a retirement) have changed to become low-wage ones.
...>snip<...
American society is bifurcating, squeezing the middle class out of existence. The ranks of the poor and low-income earners are growing and the rich are doing just fine – and no one is talking about it, much less doing anything about it.
...>snip<...
Indeed, this week the US Census Bureau has released a survey showing that one in six Americans now live in poverty: the highest number ever reported by the organisation. It also showed that real median household incomes dropped 2.3% in 2010 from the year before, reflecting the decline of the middle class. At the same time, the richest 20% of the US population now controls 84% of the wealth. In fact, so staggeringly unbalanced has America become that the richest 400 American families have the same net worth as the bottom 50% of the nation.

Gosh, I know what would help! Some more austerity!

[AynMisesLibertarian]

How "Under president Obama presidency real median income decreased by 2.3%
became "FREE MARKET policies decreased real median income by 2.3%"

[LadyShea]

Which of Obama's policies caused the world financial crisis that started before he was President AML?

[Watser?]

Duh, his time-travel policy!

[Deadlokd]

His being Black policy.

[chunksmediocrites]

Originally Posted by AynMisesLibertarianThiefPlagiarist

How "Under president Obama presidency real median income decreased by 2.3%
became "FREE MARKET policies decreased real median income by 2.3%"

I was discussing the shrinking of the middle-class in the US, as an issue for reduced revenue streams, that would then make it more difficult to reduce government debt. Is austerity, imposed by the government, a "free market" policy? I guess you could argue that reduction in government debt and reduced government spending then shifts the power of the economy into the hands of the private sector- which would be a nominal shift towards free markets. But I'm pointing out that in the current situation, policies of austerity and a weak stimulus have not resulted in the economy re-floating. And I don't think there's too many economists who would argue that the last round of stimulus made things worse- most can agree that the stimulus helped to a degree.

Private entities that aren't struggling at the bottom have a record amount of cash on hand. They simply aren't investing in an economy that shows no increase in demand by the consumers that drive the economy; that in part has to do with wages not increasing, outsourcing driving down wages in many fields, and high unemployment, that began before the current administration.

And it's not taxes and it is not regulations that are the problem, either.

Please return to Mises.org and see if there's something there you can steal that will explain all this.

[Sauron]

Originally Posted by Deadlokd

This makes me so depressed. We have a way out but the powers that be seem determined to drag the world down. What the fuck do they see happening in ten years? Do they look that far ahead?

No. 2012 is as far as they look.

Let's be clear: if Obama had a universal cure for cancer - and if he agreed to give it away for free - the GOP would still oppose it, because they smell blood in the water and want the White House. Nothing that makes Obama popular will ever make it out of committee. So the economy we have right now - today - is the same economy we'll have in 2012, at least from a policy perspective.

Which I wouldn't mind so bad, if Obama were a real progressive Democrat. Then we could actually look on the 2012 national election process as a referendum on progressive, Democratic ideals like health care, ending the Bush-era tax breaks for earners over $250k, etc. But we aren't going to get that chance, because Obama isn't going to actually *offer* or *support* any such ideals.

So the election for Democrats is more about keeping the White House job, and not about solutions to problems.

For the GOP, it's about unifying the branches of govt under a single busted-ass philosophy of rewarding business with the economic output from others.

[Janet]

Originally Posted by Sauron

Let's be clear: if Obama had a universal cure for cancer - and if he agreed to give it away for free - the GOP would still oppose it, because they smell blood in the water and want the White House.

Not to mention that it would rob the pharmaceutical companies of all their well-deserved massive profits from cancer drugs that just maintain it. Seriously, giving away the cure for cancer for free, how Socialist can you get?