AUSTERITY

Jasmina Tacheva
MGT 430

 End of reflationary policy - fiscal or monetary policy

aimed at boosting the level of economic activity, usually
through inflationary means such as public spending or
reduction in the taxation level.
Move towards growth friendly fiscal consolidation
the policy of cutting the states budget to promote
growth.
____________________
Cut the budget, reduce the debt, and growth will reappear
as confidence returns.

Austerity Reborn

 Grounded in liberal economics view of government debt

as problematic, and the state as always and everywhere
bad.
Lockes theory of private property dont trust the state,
but you need it to create and regulate the markets you
want.
Humes concept of government debt securities as
preferable to taxes the state is useful after all.
Smiths discussion of taxation the more you own, the
more you should pay.

The Concept of Austerity

 Particularly, our story provides a presumption against

remedial measures which work through money and credit. For
the trouble is fundamentally not with money and credit, and
policies of this class are particularly apt to keep up, and add to,
maladjustment, and to produce additional trouble in the
future. Joseph Schumpeter
The state should not intervene.
Austerity purges the system and allows markets to adjust.
______________________
The suffering during a depression is good and natural, and we
shouldnt do anything to alleviate it.

Austerity and Neoliberalism Liquidationism

 A combination of liberalism and neoliberalism that emphasizes

the need for the state to ensure that the free market produces
results close to its theoretical potential. Budget cuts are the
way forward, we should balance the budget.
Strongest hold in Germany where the economy is based on big
corporations, exports, and high-quality, diversified production.
Strong monetary authority, strong competition, and strict rules.
The EU as Generalized Ordoliberalism German architecture.
New austerity success stories Ireland, Sweden, Canada,
Denmark, Australia, Bulgaria. But in all these cases the
economy started growing after it stopped cutting austerity
proponents got it all backwards.

Ordoliberalism

 Blaming it all on the state

Not really a sovereign debt crisis, but rather a transmuted
banking bust most of what has ended up on the balance
sheets of governments is a direct result of bank bailouts.
Government debt = effect, not cause
America and Europe - too big to fail vs. too big to
bail
____________________
Austerity is not just the price of saving the banks. Its the
price banks want someone else to pay.

Why the Mantra Doesnt Work

 During Gordon Browns fiscal stimulus GDP was growing at

an annual rate of about 2.5%.
Once austerity was implemented in 2010, growth turned
negative for 2 years.
The debt-to-GDP ratio has now hit 75% and is expected to rise
further.
Having adopted the policies of Keynes in response to the
recession, the United States has grown more than twice as fast
during the past three years as Britain, which adopted austerity
measures. Meanwhile, the hole in the two countries budgets
has declined at roughly the same rate, and next year the U.S.
will be in better fiscal shape than Britain.

Britain vs. the U.S. Austerity

vs. Keynesianism

 Austerity is unfair and disproportionate - those at the bottom of

income distribution lose more than those at the top, because they
rely far more on government-produced services and have much less
wealth. May lead to violations of human rights.
The poor paying for the mistakes of the rich.
Socioeconomic aftermath: lower growth, higher unemployment,
withered infrastructure, a polarized society, low social mobility,
and an even more skewed distribution of resources.
the paradox of thrift: if we all save at once, there is no
consumption to stimulate investment.
Morality play between good austerity and bad spending.
Debt follows the business cycle its cyclical, not linear.
___________________
The fallacy of composition: We cannot all be austere at once,
because the economy will shrink for everyone.

The Dangers of Austerity

 Few were invited to the party, but we are all being asked
to pay the bill.
Austerity is not a complete, coherent and well-proven
theory, but rather a set of beliefs scattered around
classical and contemporary economic theory.
__________________
Facts never disconfirm a good ideology. The idea of
austerity is supported by economic thinkers who only ever
saw markets as good and the state as bad.

Austerity Unmasked

 Blyth, Mark. Austerity: The History of a Dangerous Idea

http://www.businessdictionary.com/definition/reflationar
y-policy.html#ixzz30898izbs
http://www.youtube.com/watch?v=2v8m-J8sgik
http://www.youtube.com/watch?v=go2bVGi0ReE
http://krugman.blogs.nytimes.com/2009/06/16/the-retur
n-of-liquidationism/?_php=true&_type=blogs&_r=0
http://www.rebelyid.com/tag/depression/

Sources