1
0

How austerity has failed Europe


 invite response                
2013 May 22, 9:56am   5,309 views  29 comments

by tovarichpeter   ➕follow (6)   💰tip   ignore  

http://www.newyorker.com/online/blogs/johncassidy/2013/05/austerity-an-irreverent-and-timely-history.html?mbid=gnep&google_editors_picks=true

The big news of the past week had nothing to do with the I.R.S. or Benghazi. It was the confirmation that, while the American economy continues to recover from the disastrous financial bust of 2008 and 2009, Europe remains mired in a seemingly endless slump.

Comments 1 - 29 of 29        Search these comments

1   Heraclitusstudent   2013 May 22, 10:17am  

http://www.bloomberg.com/news/2013-03-21/spanish-exports-increased-in-january-as-euro-economy-stabilizes.html
Exports increased to 17.9 billion euros ($23.1 billion) from 17.8 billion euros in December, the Economy Ministry said in an e-mailed statement. Exports rose 7.9 percent from a year earlier.

Business confidence in Spain increased for a sixth month in February, even as the economy remains mired in recession
-----------------------------
Austerity is the only way to force an economy to change itself.
Provided austerity continues for a few years without popular revolt, Europe will emerge far more competitive than it has ever been.

This contrasts with the US/England who are hiding their problems by printing money. It feels good while it is going on, but nothing is resolved, and it can't last forever. The country's economy is still consuming more than it produces, and it's not changing. Inequalities are increasing. Assets get inflated. Young people are made to pay through the nose to buy a house... Until the next crisis inevitably bring these assets down again. Debts continue to accumulate.

Japan, which is way ahead of the US, will prove that a country that can prints its currency can in fact go bankrupt.

2   mell   2013 May 22, 1:18pm  

I largely agree with this. Austerity works if applied on all levels and supported (not revolted against) by the public. It's basic math and basic math always works. Money printing goes against basic math and doesn't work but what's worse, usually crony capitalists are the first in line to receive the freshly printed dough.

3   tatupu70   2013 May 22, 9:38pm  

mell says

Austerity works if applied on all levels and supported (not revolted against) by
the public.

I agree. Let them eat cake.

4   MisdemeanorRebel   2013 May 23, 1:12am  

Austerity is not only pain today, but pain for next 10-15 years, so bankers can make themselves good on bad loans they made by cutting everything for everyone, except interest payments for themselves. Austerity eliminates the prosperity of at least one and often two generations, making it difficult for them to match, much less better, their parents, and often subsisting at a much lower level.

I'd like an example of austerity succeeding. Spain is a bad case because they basically loot Catalonia to pay for the Castillian parts of the country.

I'm glad FDR didn't choose Austerity in the 1930s.

The EU is not recovering quickly because the Germans and the English won't let the EU print money.

5   mell   2013 May 23, 1:32am  

thunderlips11 says

so bankers can make themselves good on bad loans they made by cutting everything for everyone, except interest payments for themselves.

The decision whether a country defaults on their debt is completely independent and can be part of the plan and in fact has been for some countries, going hand in hand with austerity. It's much easier to get repaid for the bankers with printed money than through austerity and the wealthy have the ability to guard themselves against inflation. I'd like some more bankstas in Europe given the finger, but going by salaries and crimes they totally pale compared to the US bankstas who actually completely own their government. Hey, we even saw some handcuffs and jail time in Europe whereas in the US we hear crickets from Obummer. A guy like Corzine would have been booked for a long time in Germany, you can "bank" on that.

6   Heraclitusstudent   2013 May 23, 5:53am  

mell says

It's much easier to get repaid for the bankers with printed money than through austerity

That's exactly true. The idea that austerity is good for banksters is the opposite of reality. Bonds were defaulted on or lost value. Banksters lost. The rich saw their assets lose value.

Printing money preserves the possibility of the rich to extract money from the population through rents, dividends, and interests, and also inflates assets prices for those who have them. This is why the self-indulgent ways of the US where 100+% of new revenues since 2009 went to the top 1%.

7   Heraclitusstudent   2013 May 23, 6:08am  

thunderlips11 says

I'd like an example of austerity succeeding.

I'd take Germany through the 2000's as an example of that, arguably against a more benign background.

thunderlips11 says

I'm glad FDR didn't choose Austerity in the 1930s.

He didn't... but he also came after the violent reset had already occurred.
After that phase it was a good idea to help the recovery.
But trying to prevent the reset from occurring by spending $trillions would have been stupid. And that's exactly what the Bernank is trying now. All the political will to reform Wall Street is drying up as people feel better about the current situation. Until the next crisis. You see people starting to speculate on housing again - instead of doing the hard, productive work.

8   tatupu70   2013 May 23, 6:11am  

Heraclitusstudent says

instead of doing the hard, productive work.

What's the "hard, productive work"?

9   Heraclitusstudent   2013 May 23, 7:02am  

tatupu70 says

What's the "hard, productive work"?

Picking up strawberries? Manufacturing?

10   tatupu70   2013 May 23, 8:09am  

Heraclitusstudent says

Picking up strawberries? Manufacturing?

I see. Could you explain why you think money printing prevents people from picking strawberries?

Because IMO, devaluing the currency will actually bring manufacturing jobs back to the US.

Regardless, the problem that has to be solved is redistribution of wealth--until the US figures a way to get money back into the hands of people that create demand, nothing will get fixed.

11   Rin   2013 May 23, 8:36am  

tatupu70 says

Heraclitusstudent says

Picking up strawberries? Manufacturing?

I see. Could you explain why you think money printing prevents people from picking strawberries?

Because IMO, devaluing the currency will actually bring manufacturing jobs back to the US.

(Eyes roll), much of the berry picking & manufacturing will be done by robots, no sooner than a dozen years from now.

http://patrick.net/?p=1224659

The economy will become bifurcated between now and then; those who work for finance, govt, & protected fields (like MDs) vs those who don't.

There will no middle class, starting from the 2020s.

12   Heraclitusstudent   2013 May 23, 11:10am  

Heraclitusstudent says

Could you explain why you think money printing prevents people from picking strawberries?

It's easier to be a RE agent or RE investor, when the government poor trillions into maintaining artificially high housing prices.

All the incentives are to speculators, not to people who actually produce something of value. The US has become a country of speculators, trying to front run the Feds through the cycle. Nevermind the fact that speculation is a zero sum game.

13   Heraclitusstudent   2013 May 23, 11:14am  

Rin says

manufacturing will be done by robots, no sooner than a dozen years from now.

That's a separate line of thought, orthogonal with mine.

It may well be that eventually there will be only one big self maintaining machine building everything on demand. (owned by one person, with everyone else unemployed). But I think it will take a long time to get there.

14   Rin   2013 May 23, 12:40pm  

Heraclitusstudent says

That's a separate line of thought, orthogonal with mine.

It may well be that eventually there will be only one big self maintaining machine building everything on demand. (owned by one person, with everyone else unemployed). But I think it will take a long time to get there.

That's a part of the point, the ownership class (& along with the DoD) are heavily vested in expert systems development. With the current fiscal system, fully solvent and able to stick around, for let's say another decade, what will eventually happen is that when it's time to 'pay the piper', expert systems/robots will be doing a vast percentage of the work out there, with the slippery slope starting 2020. Thus, we can see entire decades of a jobless recovery in the generations ahead, something unseen in history before this epoch of AI/robots.

15   tatupu70   2013 May 23, 9:15pm  

Heraclitusstudent says

It's easier to be a RE agent or RE investor, when the government poor
trillions into maintaining artificially high housing prices.

So you're theory is that people who could be picking strawberries are, instead, flipping houses? Or working at Century 21?

Come on--let's get back to reality.

Heraclitusstudent says

All the incentives are to speculators, not to people who actually produce
something of value.

That's BS. Like you said--it's a zero sum game so the risk/reward is no better now than it was 10 or 20 years ago.

16   Rin   2013 May 24, 2:15am  

tatupu70 says

Heraclitusstudent says

All the incentives are to speculators, not to people who actually produce

something of value.

That's BS. Like you said--it's a zero sum game so the risk/reward is no better now than it was 10 or 20 years ago.

Here's the thing... the speculators, at some point, move their earnings into buying businesses down the road. Not all of the money earned in trading commodities and currencies, stays in the market. And then, as automation moves in, ppl get fired and then, these businesses churn a profit w/o increasing headcount. Thus, the investor class here, calls the shots for mainstream worker bees.

The fact that some of the worker bees have become flippers (read RE agents or day traders), is that gasp of air of the middle class, attempting to join the rentier group. In reality, however, as markets crash and so forth, the investor class will pour back into the RE market and buy up rental properties. For the time being, these are the east Asian investors from China Inc (see Vancouver or Toronto as visible examples), however, when this cycle is over, it'll be the rich over here who'll buy up properties to diversify their portfolios.

17   tatupu70   2013 May 24, 2:26am  

Rin says

Here's the thing... the speculators, at some point, move their earnings into
buying businesses down the road. Not all of the money earned in trading
commodities and currencies, stays in the market. And then, as automation moves
in, ppl get fired and then, these businesses churn a profit w/o increasing
headcount. Thus, the investor class here, calls the shots for mainstream worker
bees.

The continuing trend towards automation has nothing to do with speculation. It will happen regardless of whether speculators buy the business.

It's another reason why we as a country have to figure out how to redistribute the wealth, else it all travels upwards to the owners of the capital.

18   Rin   2013 May 24, 2:44am  

tatupu70 says

It will happen regardless of whether speculators buy the business.

It's another reason why we as a country have to figure out how to redistribute the wealth, else it all travels upwards to the owners of the capital.

It's highly inter-related. It's the whole idea of growth w/ minimum headcount, which then relates the whole overseas tax savings of offshoring, followed by on-shore automation. I have clients and when they think of buying companies, the first thought is always the 15% write off, which means layoffs upon purchase. Then, if those tasks are either offshored/automated, even better. The purchased company is then either broken up or merged with another company and then sold off or taken public, which ever works out better. This is the business of private equity dealers and investment bankers. They don't care about employees and the middle class.

Sorry, but I'm just the messenger. I don't run a PE firm. I'd learned all this stuff from our corp-to-corp shindigs. When I was an engineer, I had no idea that there was a culture of individuals, who thought nothing of growing an organization and ppl's contributions. Ppl, esp engineers, are seen as *tools*. And the idea of investing in automation *tools*, is a big priority for some of these persons.

19   tatupu70   2013 May 24, 2:48am  

Rin says

Sorry, but I'm just the messenger

Yes, but the messenger for what message? That corporations want to maximize profits? And will automate whenever possible to grow the bottom line? I think that message is pretty well known by everyone.

20   Rin   2013 May 24, 3:11am  

tatupu70 says

That corporations want to maximize profits? And will automate whenever possible to grow the bottom line?

You're thinking in terms of individuated companies, like General Mills, wanting to trim headcount while maintaining quality operations and such. That part everyone knows.

What everyone doesn't know is that there's an entire industry of organizations, who're constantly looking at ways to break up and sell off companies and who look specifically, for where automation plus offshoring can eliminate jobs in whole vertical sectors. This is where the world of management consulting and private equity overlap.

And since expert systems and robotics are receiving of lot of seed investment, there's already an industry who's going to push out these technologies a lot faster down the road.

21   tatupu70   2013 May 24, 3:18am  

Rin says

What everyone doesn't know is that there's an entire industry of
organizations, who're constantly looking at ways to break up and sell off
companies and who look specifically, for where automation plus offshoring can
eliminate jobs in whole vertical sectors. This is where the world of management
consulting and private equity overlap.

Private equity has been around for a long time. KKR was breaking off and selling companies decades ago. I just don't see the connection between speculators and automation. Companies maximize profits regardless of the owner.

22   Rin   2013 May 24, 3:43am  

tatupu70 says

Private equity has been around for a long time. KKR was breaking off and selling companies decades ago.

They have grown and expanded, since the 90s, many folds and now, have a footprint in nearly everyone's line of work. Easy access to credit, etc, has allowed this to burgeon beyond what a KKR has done in the past.

Starting in ten years, robotics and expert systems will start to eliminate many jobs out there. These clients of ours are already gearing up for those times ahead. When this occurs, there simply won't be work left for a majority of people to do anymore.

23   turtledove   2013 May 24, 4:16am  

Austerity might seem like a good idea on paper, but it is not without its issues, particularly as the "austerity" isn't balanced between the public and private sectors.

I lived in Ireland from 2008-2011. I suffered with the rest of the masses as frequent levies substantially eroded our net income. Unlike here, decisions about instituting income levies (taxes) can be made virtually overnight. You learn about it one day only to find that it has taken effect with the very next paycheck. The first income levy resulting in a decrease of 10% to our net pay.

So, like us, people cut back on their spending habits. The next thing you see is that a store, a restaurant, or a movie theater is closing its doors, leaving all those workers unemployed. So now the government has reduced its tax base while increasing the number of people receiving unemployment benefits. So, we institute another levy to try to make up the difference.

I watched this cycle repeat itself over and over again in the three years I was there. All this was going on while parliament was voting themselves pay increases. Those retiring ministers were walking away with very richly funded pensions (some in the millions of Euro). The Health Services Executive (the largest employer in Ireland) was found to have tremendous waste (duplicate jobs, people with no job descriptions, salaries that outpaced anything in the private sector, etc...) Was anything done to trim the waste? Very little.

My point is that austerity was only applied to half the equation. The only cuts made to social programs were small potatoes, made to programs that covered people with the least ability to fight back. Sure, they trimmed benefits to medical card holders, all the while the fat cats at the HSE continued to receive their salaries and fund their pensions. Some changes happened after these facts were made public, but not nearly at the level of austerity that the rank and file were expected to endure.

A one-sided austerity program is useless.

24   Heraclitusstudent   2013 May 24, 4:38am  

tatupu70 says

All the incentives are to speculators, not to people who actually produce

something of value.

That's BS. Like you said--it's a zero sum game so the risk/reward is no better now than it was 10 or 20 years ago.

It's a simple fact that the Feds actions force people with savings to buy assets at a high price, where the only hope of gain comes from more short term inflation and timing the market.

And yes, on the way up real-estate agents and investors profit from these inflated prices. Of course this all gets lost on the way down, hurting mostly naive people in the process.

In Germany, where housing prices were flat for a long time, you don't see real-estate agents taking-in huge commissions. People have to do a lot of actual work to make what some agents make on a single sale here. And consequently the German economy is focused on more productive endeavors.

25   mell   2013 May 24, 4:41am  

Heraclitusstudent says

In Germany, where housing prices were flat for a long time, you don't see real-estate agents taking-in huge commissions. People have to do a lot of actual work to make what some agents make on a single sale here. And consequently the German economy is focused on more productive endeavors.

Yep.

26   dublin hillz   2013 May 24, 4:45am  

What I find interesting is the following - a retiree "hunting for yield." Some of them do everything possible not to touch the principal and "trim the olive branch" Why? At some point and at 65 they surely have reached that point, it is time to start liquidating the principal even at at a 4%-5% year rule. What's the point of hunting for yield and leave the principal intact (well I guess they could live the principal to their kids, but what's the point of that?) Ideally if it were possible it's best to time it so that you spend your last dollar on your last day on earth just like you spend your last of foregin currency on your last vacation day. If more people though this way, the FED would not be able to implement their social engineering projects...

27   Heraclitusstudent   2013 May 24, 4:52am  

turtledove says

So, like us, people cut back on their spending habits. The next thing you see is that a store, a restaurant, or a movie theater is closing its doors, leaving all those workers unemployed.

Well these restaurant owners didn't complain on the way up. You go through this cycle where people spend a lot of money based on debt. A lot of jobs are created based on this unsustainable flow. And then the bust come... But the problem is not with the bust, it is with the flood of cheap money that created the problem before that. The same flood that is now recommended as a solution by the opponents of austerity.

What Ireland should have done is actually refuse to bailout its private banks. Let them sink. That would have been real austerity. The bust would have been even more violent. But you could start again without having a crippling load of debts still on your back to be paid.

28   tatupu70   2013 May 24, 4:58am  

Heraclitusstudent says

It's a simple fact that the Feds actions force people with savings to buy
assets at a high price, where the only hope of gain comes from more short term
inflation and timing the market.

You're saying people are choosing to take on riskier portfolios in order to obtain the return they are seeking. Maybe, maybe not.

What does that have to do with people not doing the "hard work" though? How do low interest rates or money printing keep people from wanting to work?

29   MisdemeanorRebel   2013 May 25, 5:17pm  

Heraclitusstudent says

I'd take Germany through the 2000's as an example of that, arguably against a more benign background.


The Germans substantially increased Government Spending as the Recession started. They also had a large rise in government spending during the 90s, when they continually broke EU spending limits to fund the Reunification, so the flatness of the 2000s has to be seen against that backdrop.

Also, thanks to the continuing breaking down of internal barriers, German exports rapidly increased starting in the late 90s, taking the pressure off of government to spend.

Nothing to see here but classic Keynesianism in action.

Contrast to Ireland, which has cut spending to what it was 20 years ago.

And the GDP per Capita of Ireland? Lower than it was 10 years ago, despite it now the 4th year since Austerity began in Ireland.

Asceticism can be appealing, but it's just an illusion.

Please register to comment:

api   best comments   contact   latest images   memes   one year ago   random   suggestions