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European Central Bank Economists Find That Austerity Works
A new paper published by European Central Bank economists argues that it is generally a good idea for countries that need to enact budget cuts and slash fiscal outlays to get it done quickly, as this can reduce the total fiscal pain and stabilize debt more quickly.
“Simulations using plausible assumptions suggest that frontloading consolidation reduces the total consolidation effort and stabilises the debt ratio more quickly, although it does imply larger short-term reductions in output,” write the authors.
The paper looks at the impact of fiscal consolidation on a country’s output, or what economists call the “fiscal multiplier.” The authors conclude that “even in the presence of a large fiscal multiplier, fiscal consolidation could initially lead to a higher debt ratio, but this effect will typically be reversed within a few years.”
The paper could add to an economic debate that has emerged on both sides of the Atlantic over the appropriate response to Europe’s debt crisis. While many European policy makers have advocated austerity as a way of cutting high debt levels, some economists in the United States and Europe have criticized that approach, arguing it hampers growth and leads to even higher debt ratios.
The study shows the concerns of the opposing economists to be unfounded.
But they never try austerity... they say they are but if you look at their budgets all they cut is the rate of spending increases, but not the spending itself.
What a surprise -- the European Central Bank's study says austerity works. In other news, the Supreme Soviet Economic Council says that communism works. And the New Republic says that trickle-down economics works. Leprechauns also insist that "end of the rainbow economics" works. And the Yap Islanders swear up and down that big horkin' stone coin economics works.
When austerity works on something other than a spreadsheet (like, say, Greece), I'll take notice. But in the meantime it has all the hallmarks of another Peter Pan system. Great on paper. Ruinous in practice.
When austerity works on something other than a spreadsheet (like, say, Greece), I'll take notice.
It does work, especially on a BALANCE sheet. When you've overspent for years like Greece has, the only thing that works is to increase revenue, reduce spending, and concentrate on debt reduction. It works in your checkbook, and it would work for a country like Greece if everyone involved - citizens, unions, corporations, creditors and, especially, Greek politicians - would all work together for the good of the country.
When austerity works on something other than a spreadsheet (like, say, Greece), I'll take notice. But in the meantime it has all the hallmarks of another Peter Pan system. Great on paper. Ruinous in practice.
It isn't even great on paper. The whole austerity analysis that so mesmerized EU leaders back in 2010 (Reinhart and Rogoff) has -- upon further review -- fallen apart. In part because of obvious data omissions, questionable methods of weighting, and elementary coding errors. The whole thing today is a wreck at the side of the road with EU red-facers left to explain how in the world they could so easily have fallen for all this.
It worked in Germany and the Netherlands in the early 2000's and it's working in Spain now.
I'm not sure what the opposite of austerity is. Profligacy? This isn't sustainable because it means more value is being consumed than is being created and it can only go on so long as there are savings or lenders make up the difference.
It worked in Germany and the Netherlands in the early 2000's and it's working in Spain now.
And remember the supply-side miracle of trickle-down Reaganomics! Why don't we try THAT again.
Austerity has been a huge flop. For at least one obvious reason -- it serially diminishes aggregate demand. The fact that anti-social right-leaners yearning for any old something to trumpet their heterodox views and beliefs fell so hard for the significantly flawed work of Reinhart & Rogoff only shows how desperate and uncaring those seeking to advance such nonsense positions actually are.
Iceland is the only one that truly went "austerity".
Any country that borrows from the IMF with heavy handed strings is not doing "austerity".
The IFM loans didn't really help the people.
Greece used some of their IMF money to pay off a trade deal done with Germany (military equipment purchase).
Iceland is the only one that truly went "austerity". Any country that borrows from the IMF with heavy handed strings is not doing "austerity".
Iceland borrowed heavily from the IMF, with strings attached. The country of some 300,000 people took 2.7 billion euros from the IMF in Nov 2008, along with 3.8 billion euros from Nordic central banks. Further bailout funding came later on as well. Their version of austerity by the way was built around tax increases and capital freezes for the wealthy and protection of national health and welfare programs for the regular Magnus and Maria.
Seeing as the Europe's economy is even more of a failure than the United State's... I have a hard time taking anything they say seriously.
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