Economics

Two Cheers For Austerity!

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Writing in The New York Times, Reason columnist and Mercatus Center economist Veronique de Rugy gives two reasons to cheer the wave of austerity measures sweeping various broke-down-and-busted countries (though not alas our own sweet land of liberty).

First, writes de Rugy, austerity measures signal to foreign investors that the country they're putting their money in is serious about, well, continuing to be a country. Second, and arguably more interesting, austerity measures are stimulative in a way that stimulus spending doesn't seem to be:

Austerity measures are beneficial beyond the signal to investors. Based on a sample of 44 large fiscal adjustments since 1975, the Goldman Sachs economists Ben Broadbent and Kevin Daly have shown that cutting annual spending by 1 percent triggers a net 0.6 percent in economic growth. Lower spending reduces the fear of higher taxes, which in turn, leads to an increase in consumer and business demand and economic growth.

Whole thing, including pieces by other analysts, here.

Hey, was we stimulated anyway?

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  1. But austerity is mean! It may mean some families can afford only two cell phones, and they may even have to keep their old-fashioned 36-inch TV instead of getting the 54-inch flatscreen…and what if they have to go down to basic cable?!

    1. I have no idea what I am talking about, and I’m only commenting on because i have anger issues and wish to take it out on someone who is defenseless. What a great libertarian thug i am.

      1. To confirm, you’v gone out of your way to defend a made up person?

      2. Obviously, this was an imposter writing the second NAL comment.
        I admit my original comment was sarcastic, but only slightly.

  2. That may well be true, but every dollar of stimulus money spent by the government creates $1 $5 $10 $15 $20 in economic growth!

  3. Well, coming from GS dudes, it has gotta be true, huh? What a maroon. The entire website, that is.

    1. What a maroon.

      I was thinking more of a burgandy actually.

  4. Of course de Rugy loves austerity. She’s a fucking anorexic. When it comes to economics, I think I’ll take Paul Krugman over some anorexic frog cunt any day.

    1. If this was Fark, that would get a 0/10. Really. You need to take some trolling lessons from Tony and Chad. At least they’re believable.

      1. Go suck Ron Paul’s cock, asshole.

        1. Elohssa, kcoc s’luap nor kcus og.

    2. Ah, so you’re into “bears,” I see.

      1. One of the few things I don’t miss about West Hollywood.

    3. The best part about Edward is that he’s misogynistic and Francophobic besides being an impotently raging moron. Oh, and he said he’d take Krugman, which means he’s delusional too.

      Don’t ever change, Edward.

      1. I was always Team Edward over Team Jacob. Speaking of which, can we start referring to TEAM BLUE! as Team Edward (bloodsucking) and TEAM RED! as team Jacob (bellicose)…. or am I officially ostrasized for making the aforementioned reference? I’m sorry, I blame Burger King (paging a lawyer interested in suing BK for something other than fatty foods).

      2. I’m just not seeing laying down a few more trillion in debt as a solution to our debt problem, drinking ourselves sober as it were.

      3. Also, he reminds me that Julian Sanchez was good for something.

  5. Is Veronique, with her tenure both at NRO and Reason and now the NYT, officially the new “acceptable” libertarian for NY elite consumption? (Slot formerly occupied by: Virginia Postrel.)

    If so (and I suspect so), then congratulations! It could have been *so* much worse for us. It could’ve been Weigel.

  6. Except all that growth goes to the rich, and the rest of the economy is left behind and expendable. Look at China and Latin AMerica, investors also love slave labor, populations that fear their government, and people to scared to speak out.

    1. So… we need to be more like China and Latin America, then?

  7. Well, looking at things charitably, perhaps if these other countries tighten their belts that will allow more investment in the US?

    Lots of investment capital, non-US nations are contracting their capital spending (at least public sector) which means the US might be a more attractive place to invest?

    Reaching for something here….

    1. Perhaps, but the heavy US Govt borrowing makes the US look like a much less attractive capital market because the large deficits create a concern over future tax increases and crowd out private-sector borrowing (which would in turn be utilized as investment and have a much higher multiplier than govt spending for purposes of GDP calculations).

  8. O…M….G….Austerity posts, who would have guess it, well i knew these were coming, surprise, surprise. How many deaths will satisfy you?

    1. Yes, as the budget deficit rises to 10% of GDP, the national debt rises to over 100% of GDP (since I include both publicly and privately held debt), and the demographics of SS and Medicare begin a steep flip that will enslave an entire generation to their ruinous baby boomer parents…

      So pardon me if talk of austerity is en vogue here. As far as the number of deaths that will satisfy me, none really… but as long as people have made provisions for their own care and acted like responsible human beings throughout their lives, that shouldnt be an issue.

      1. Obviously cutting the most necessary benefits isn’t the first place to look. However, I’d argue that a large portion of welfare benefits are going to people who don’t really need them. I’ve always heard the argument that the poor are the ones who need government, but everywhere that I look, I see people who are middle class and upper middle class receiving some sort of benefit. People who make 100 grand a year get to send their children to public school. People line up for government work in order to make over 50,000 dollars a year in make work jobs. Subsidies poor into private companies. The federal, state, and local government spend about 20,000 dollars a year per human being in this country, including everyone from babies to the elderly, and we still have problems. I’ve made less than 20,000 dollars a year for a significant portion of my life, and it was actually pretty easy going. The fact of the matter is that there is little connection between government spending and quality of life for the poor. Arguing that government can’t cut back, because of the poor, is exactly what got us to a point where the government spends enough to feed, clothe, and house every human being in their own apartment and people still struggle. The government is simply trying to make fools out of us.

    2. How many deaths will satisfy you?

      Massive inflation, high interest rates, scarce credit, stagnant growth….which groups will suffer the worst under those conditions?

      The wealthy?

      Or people on fixed incomes? Low wage earners? Elderly? Poor job skills?

      How many ruined lives will you be happy with?

      1. If we return to 2004 spending levels, the living will envy the dead!

  9. We stimulated the growth of government.

  10. trols becomes more incoherant by day evermore

  11. Austerity will kill people because
    everyone lives off the dole.

  12. “cutting spending by 1% results in a .6% economic growth. ”

    Is anyone, who isn’t a moron, surprised by this?

    1. I find the .6% surprising. You must mean minus .6%.

      1. When are you telling the boss he is completely full of shit? You know your reputation is on the line no matter how sweet the current gig happens to be, right?

    2. I remember being “taught” in macroeconomics about the magic Keynesian “multiplier effect”, where just a small amount of government spending would create huge gains in the economy, literally without limit. The amazing thing is that a lot of people still believe this, and you’ll still find it in textbooks.

  13. cutting annual spending by 1 percent triggers a net 0.6 percent in economic growth.

    Shit, all we’ve got to do is cut spending by 99% each year and we’re guaranteed 59.4% annual economic growth – we can’t lose!

  14. my nuts hurt so good ooooooyeah

  15. i meant to say republicans make my nuts hurt so gooooooood so damn good thank you

    1. Hurt so good…
      C’mon baby, make it hurt so good!
      Sometimes love don’t feel like it should!
      You make it hurt so good!

  16. First, writes de Rugy, austerity measures signal to foreign investors that the country they’re putting their money in is serious about, well, continuing to be a country.

    Yeah, another way to put it is that these countries are putting social benefits under the axe while making their interest-sucking bondholders (mostly banks) whole.

    Austerity without bondholder haircuts is a massive ripoff of the middle class.

    1. Graphite,

      Do you have other investment tips you’d like to share?

    2. It’s a massive rip-off of anyone who pays taxes. Don’t forget the reason sovereigns are making bank-bondholders whole: sovereigns need to borrow A LOT and and need to keep these (often state supported) banks in the game so someone can buy sovereign bonds. Look at the % of domestic banks ‘supporting’ state bond issues in the last year.

  17. Heresy! It is written in the sacred texts of the Apostle John Maynard, that Thou Shalt Spend and Tax! I’ve based my entire papacy campaign on His teachings!

    1. The author’s of the report explicitly state their findings are not anti-Keynesian.

  18. There’s a simple way to test this. We wait 18 months and see whether european economies take off relative to our own.

  19. While the United States and Europe fret over huge deficits and threats to a fragile recovery, this region has a surprise in store. Latin America, beset in the past by debt defaults, currency devaluations and the need for bailouts from rich countries, is experiencing robust economic growth that is the envy of its northern counterparts.

    Strong demand in Asia for commodities like iron ore, tin and gold, combined with policies in several Latin American economies that help control deficits and keep inflation low, are encouraging investment and fueling much of the growth. The World Bank forecasts that the region’s economy will grow 4.5 percent this year. [italics added]

    Whole NYT article here.

  20. Can someone explain how the whole world going into austerity mode is supposed to help the American economy?

    Austerity: making the poor pay for the sins of the rich. We’ve been here before. How’s it working out for Greece?

    1. Can someone explain how the whole world going into austerity mode is supposed to help the American economy?

      It works by throwing assholes like you out into the streets to starve. Assholes out starving in the streets are no longer in any position to oppress us with their political and regulatory bullshit, and thus business owners are in a better position to make money and grow and start hiring people. As long as assholes like you are in charge, none of this can happen. That’s why the jobs aren’t coming back: there are still too many of you assholes meddling with our economy.

      Speaking of making the poor pay for the sins of the rich, I wonder what you would call slapping another tax on gasoline to pay for the as-yet-unplugged BP rig oil leak? How about bailing out the union fat cats at GM with our tax dollars? Then, of course, there’s nationalizing health insurance so that insurance company executives can cash out with huge piles of government dollars while the rest of us have to deal with having the same shitheads who run the DMV being in charge of our hospitals.

      You lefturd parasites are the ones robbing the poor to pay the rich, and our economy can’t possibly recover until we very finally rid ourselves of you. Drop dead, Tony; seriously, we can’t recover until you and a whole lot of others like you do.

      1. You guys have made revising history into a rapid-response operation.

        Do you not recall we were all headed for depression? The only thing that turned a potential depression into a stagnant recovery was stimulus spending. There are plenty of times in history where the response was austerity–and all it did was prolong the pain and make everything worse, and it’s not hard to see why.

        But throwing the victims of the rich on the street to die in order to deny them political power certainly is in line with your plutocratic outlook.

        1. I make $12 an hour and was recently “upgraded” to 50-hour weeks due to recent developments at my work place that we were far understaffed to handle.

          But even at this low pay, even while residing in California where living is expensive even when I eat 50-cent spaghetti four times a week, I turned around after just a few weeks and said that the company should look into hiring another person and cut my hours down to eliminate overtime.

          Why? Because having more money doesn’t feel as good as watching a train wreck of built-in inefficiency by design feels awful. I despise wastes of company resources that affect every worker there, and if the same amount of money can generate ten hours of productivity or fifteen hours of productivity, it should always be used for fifteen, which will benefit everyone in the long run.

          I don’t know if I would qualify as being poor in your eyes. Either way, I would support austerity for similar reasons. Even if it “negatively” affected me in the short term, which I doubt, so be it if that’s the price needed for long-term sustainability and growth.

  21. Did this airhead professor actually cite two clowns from Goldman Sachs to buttress her argument? What, no one from Enron was available?

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