Austerity

Is Austerity to Blame for Europe's Economic Woes?

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Greece's international creditors will descend on Athens this week to negotiate with the new coalition government over softening austerity plans. But before the bargaining begins, here's hoping the Europeans take a few minutes to watch ReasonTV's recent interview with Mercatus Center economist Veronique de Rugy.

Here is the original write up from the release:

From Nobel laureate Paul Krugman to the free-market-friendly Economist magazine to former Treasury Secretary Lawrence Summers, all sorts of experts are charging that financial austerity measures are killing the great economies of Europe. "Austerity Is So Wrong!" reads the headline of a Krugman piece at The Daily Beast that argues against cutting government spending during weak economic times.

But the critics of austerity have got it all wrong, says Mercatus Center economist and Reason columnist Veronique de Rugy. For starters, many European countries haven't cut spending at all and, among the ones that have, most have made relatively minor trims while also hiking taxes. That's known as "the balanced approach," notes de Rugy, and it almost never works to reduce debt-to-GDP ratios or get economies moving again. Yet critics of cutting government spending in a weak economy ignore academic research showing that significant spending cuts, structural reforms to entitlements, and loosening labor regulations are proven ways to reduce debt loads and get countries moving again.

De Rugy talked with Reason's Nick Gillespie about austerity and its discontents—and what the United States could learn from Germany's economic reforms made earlier this century.

About 7 minutes long. Produced by Jim Epstein; camera by Epstein and Meredith Bragg.

Go to http://Reason.tv for downloadable versions and subscribe to Reason's YouTube channel to receive automatic notification when new material goes live.

NEXT: Sheldon Richman on Government

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  1. The term “austerity” really bothers me in this context. There is nothing “austere” about spending within one’s means.

    1. If only that was what austerity meant nowadays, to a the average left winger that sees Krugman as the worlds greatest economist, austerity is everything thats less than a gargantuan Keynesian stimulus. So despite that fact governments are spending more than the year before, the reason for their problems is there supposed austerity.

    2. Every time a word is “adapted” beyond its dictionary definition in politics, it ends up as Orwellian doublespeak.

  2. In the case of Greece, even if they had their own currency and “spent” to their hearts content, the country still would require the bailouts to survive, austerity is not there by choice but by the simple fact that other countries cannot indefinitely throw money down that bottomless pit.

    1. Problem is that other countries BANKS were throwing money into that bottomless pit. Greece took the loans that should not have been made to them.

      Look at the market values of Europe’s largest banks compared to the US. Ours got the message from the government in 2009 to shore up their balance sheets or go the way of Wachovia.

      1. The problem is that Greece is just the first pit, Spain and Italy are not far behind and France not much after that. The whole thing is going to fall in.

        1. Right, so who will take the losses?

          The EFSF has been set up to manage this chaos.

          http://en.wikipedia.org/wiki/EFSF

          This is why banks need more regulation. The idiots have no business investing in sovereign debt.

          1. I am thinking the banks may not have had a choice but invest in the sovereign debt. Had investors refused to buy Greek debt say five years ago, Greece would have collapsed then. A lot of powerful people had good reasons for that not to happen.

          2. Maybe the foreign debt is the problem and not the banks?

            ——————————
            You should change your name back; being obsessed with Palin is sooo 2008.

            1. It can’t. The reason the sockpuppet changed its name is that it got banned.

              HAHAHAHAHAHAHAHAHAHAHA

              1. I would think that the banning would be of a particular, or set, of ip addresses associated with a poster. Or do you think that they made the name “shrike” un-registerable?

                1. “shrike” got banned. We know the griefer troll figured out how to change their IP address (or they would have been banned long before registration was necessary), and it’s sort of…coincidental…that shriek can get name banned but not IP banned, isn’t it?

                  1. I have no idea if this is stoopid or not but: Could they ban a MAC address?

                    I don’t know if a website could even see it, but it’s probably beyond the ken of our trolls to change the MAC address. (Unless there is some website that’ll mask it for you)

                    1. MAC addresses are only available (or bannable) on wireless access points. Your MAC address isn’t transmitted to a web server because it has nothing to do with it. MAC addresses are for physical networks, not the internet.

                      So, long story short, that’s stupid.

          3. This is why banks need more regulation. The idiots have no business investing in sovereign debt.

            RETARD ALERT. Bank regulations FORCE banks to invest in sovereign debt. And the Euro is what made Greek debt artificially attractive.

          4. This is why banks need more regulation. The idiots have no business investing in sovereign debt.

            They invest in sovereign debt because of regulation, you moron.

      2. So I assume you don’t support all of Obama’s mortgage relief plans.

      3. No moron, its a not banking problem. Greece is a serial defaulter, Greece has culture of businessmen bribing politicians for favours, politicians getting votes by handing out free goodies and making it a national sport to avoid work. In other words the place is overrun by people like you and the ones you fawn over.

        1. Maybe you should have been a risk officer at one of the Euro-banks who made the shitty loans to the PIIGS?

          No one “forced” them to (like wingnuts falsely claim US banks were).

          Banks chase high yield even today on Spanish and Italian debt. Why?

          1. Ever heard of the EU and the euro ? Now I know that for someone like you the banking regulations that the eurocrats put out are laissez faire.

            1. Barry Goldwater spins in his grave when shrike opens his yap.

          2. I’ll take the word of John Allison over a loser like you any second of any day. Funny, how you continue to defend Bush’s Treasury Secretary from well known market destroying malfeasance on his part when it doesn’t benefit your ignorant arguments while simultaneously blaming Bush for market destroying actions when it does. Kind of idiotic on your part, no?

          3. You don’t think U.S. banks were forced to make loans that they knew could not be repaid? You need to talk to some of the bank officials who were told by regulators that their continued regulatory approval depended on them making enough of these bad loans.

          4. Maybe you should have been a risk officer at one of the Euro-banks who made the shitty loans to the PIIGS?

            No one “forced” them to (like wingnuts falsely claim US banks were).

            Banks chase high yield even today on Spanish and Italian debt. Why?

            The banks didn’t “make shitty loans to the PIIGS” They bought bonds issued by the PIIGS because Eurozone banking regulations weight all sovereign debt as risk free. That weighting, plus an implicit governmental guarantee of the banks solvency creates artificial demand for the PIIGS sovereign debt. It is also the underlying reason that the Euroweenies are so insistent on “bailing out” Greece. If (actually when) Greece defaults, the fiction that all sovereign debt is risk free will become untenable and that will lead to de leveraging of European banks and the collapse of the Euro system.

  3. http://www.talkleft.com/story/2012/6/22/143156/459

    Lefty Jeralyn Merritt gives a very good breakdown of the Zimmerman case and why he is not guilty of anything.

  4. The Koch bros. house economist touting “academic research.” Does de Rugy count as an academic, and does her endless parade of dishonest graphs and charts count as research?

    1. Maths is such an unrelenting mistress.

      1. I’d trust the Kochs over Soros, any day of the week.

        1. $ = shut the fuck up tony

          1. It’s stupid.

            And Mr. FIFY doesn’t know how to respond to the right post, so he always posts at the bottom of the latest thread.

    2. She quoted Harvard economists who had done a 30 year study of 107 instances of a variety of attempts to lower debt:GDP ratio. I prefer that over your off the cuff rationalizations.

    3. count as research?

      We examine the evidence on episodes of large stances in fiscal policy, both in cases of fiscal stimuli and in that of fiscal adjustments in OECD countries from 1970 to 2007. Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments, those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions. We confirm these results with simple regression analysis.

      http://www.nber.org/papers/w15438

    4. T o n y|6.24.12 @ 11:33AM|#
      “The Koch bros. house economist touting “academic research.””

      Shithead is incapable of engaging in honest discussion.

      1. Of course Shriek is right because Shriek feels right and feelings are always valid and count just as much as facts. Oh, your feelings don’t count though, because you’re mean to Shriek.

    5. The Koch bros. house economist touting “academic research.” Does de Rugy count as an academic, and does her endless parade of dishonest graphs and charts count as research?

      And what exactly is “dishonest” about her data?

      ….

      Thought so.

  5. Hey, guyz, what’s up? Everybody being all selfish and rational self-interest-y today?

    1. Stupid troll is stupid.

      1. At least I’m not named after a toilet. Come to think of it, libertarianism is pretty shitty.

        1. We asked balloon juice to send over a smarter troll because Shreek is so demonic. Apparently the message got mistranslated to “send us to most retarded one you have”.

          1. So is all libertarian humor a variation on “No, U”? I mean, I know you guys are permanently stuck at an 8-year-old maturity level, but read a joke book or something. Reader’s Digest always has some side-splitters.

              1. Libertarianism, in a nutshell.

                1. You are so smart. Go fuck yourself troll. You are not interested in thinking or discussing anything. You just a fascist little bastard sent on an errand to try and keep anyone else from having a forum. We know who you are and have dealt with worse.

                  When you were a kid did you dream you would grow up to be a brownshirt?

                  1. That’s another thing conservatives and libertarians share: a compulsion to invent imaginary enemies. “Brownshirts,” really? Browncoat, maybe.

        2. John is a conservative and in no way a libertarian.

          The libertarian purity test excludes most posters here from the annual Murray Rothbard Purity Award – which is dormant now from lack of suitable candidates.

          1. Yeah, libertarians are actually much worse. Thanks for making the distinction.

            1. No, you’re wrong. Libertarians are pretty harmless. Their nuttiest ideas will never come to pass (Ending the Fed, eliminating pollution regulations, etc).

              They cannot even influence the GOP despite a tacit alliance with them since Saint Ayn Rand died.

              Personally, I like Ayn Rand but doubt there will ever be an Objectivist Party either.

              1. Looks like shrike found a fellow traveler.

                1. Or Mary is talking to herself, which she is wont to do.

                  1. Could be Jason Godesky on medication, Epi.

                    1. There was never a Godesky, just Mary. She stole his shit and cut and pasted it.

                    2. You guys are pretty sad. You’ve created an insular little club here and you insist that any diverging opinion must be a alt account whose identity must be identified and purged. I’m not any of those people, so suck it.

                    3. HAHAHAHAHAHAHAHAHAHAHAHAHAHHA

                      Fucking gold.

                    4. We don’t purge. DU and FreeRepublic – THEY do. You can get kicked off their echo-chambers for not being “pure” enough.

                      We do, however, find your kind disgusting vermin, and remind you that no one forced you to create an account here – and that you are free to leave, as well.

                      Hint.

                    5. Not LITERALLY purge; I’m just saying you’re all just insisting I’m some person who’s been here before, and I’m not. It’s your general paranoia about the world (and evil libruls) represented in a comments section. Kinda poetic.

                    6. You offer nothing of value, and are only here to insult our philosophy.

                      Why should we have any respect for you?

                    7. HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA

                      Oh, your obsession and inability to not troll here is amazing. I love it. You’re so. Fucking. Obsessed. It’s pathetic and sad, and I love that even more. You have nothing…but trolling us.

                      HAHAHAHAHAHAHAHAHAHAHAHAHAHAHA

                    8. Pro tip: posting “HAHAHAHAHAHA” in a comment thread makes you look like a douchebag. The fact that you did it three times makes you a douchebag thrice. Don’t a douchebag thrice.

                    9. You’ve posted here more than “thrice”, ‘tard.

                      Heed your own advice.

                    10. Don’t a douchebag thrice.

                      HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA

                      (takes breath)

                      HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA

                      You are so fucking stupid, it’s amazing. I LOVE IT.

                    11. Pot, kettle, black, etc.

                      Yikes.

                    12. You’re so fucking stupid, you keep going. I can’t believe how amusing this is. Please, give me more, you fucking cretin. GIVE ME MORE.

                    13. You’ve posted more than three times, ‘tard.

                      By your own brand of logic, above, you must include yourself as a “douchebag thrice”.

              2. Libertarians have got social issues right; that they’re to the right of the GOP on economics is what bothers me. Libertarian think tanks (Cato, etc.) most definitely have an influence on GOP politics: you can thank them for the massive deregulation (and toothless regulation) of the banking sector, for instance.

                1. That was almost a thoughtful analysis, and almost devoid of insult.

                  Who wrote it for you?

                  1. I love that you can’t see the irony of that statement.

                    1. Laughing at your own jokes is “irony”?

                2. So we can thank Cato for nothing?

                3. Actually Jimmy Carter and Bill Clinton put through some of the most successful deregulation we have had. Sadly Carter also created several brand new Departments which have now grown and produced many, many more regulations.

                  As far as economic issues, why is it you are so sure you ae correct? All of the policies you favor have been tried over and over for the last 150 years. If I think that the growing gap between rich and poor is due to too much crony capitalism, am I evil for wanting to prevent crony capitalism?

                4. Libertarian think tanks (Cato, etc.) most definitely have an influence on GOP politics: you can thank them for the massive deregulation (and toothless regulation) of the banking sector, for instance.

                  Really?

                  Which regulatory agencies were eliminated in the twenty years before the credit bubble popped?

                  Which political group overwhelmingly supported bailing out the banksters?

                  What party did corruptocrats like Barney Frank, Harold Raines, Chris Dodd, Chris Dodd belong to?

              3. Shrike you are the paragon of sanity, oh by the way, you still got the Christian Taliban after you ? No doubt your new friend Libertardian will concur with you, you can even trade tips how to survive their nefarious plots.

                1. Yep, shrike is just as hunted as Salman Rushdie.

                  1. Also, how many “libertarians” vote straight-ticket Democrat?

                    1. I never vote straight ticket and Obama is easily better than any GOP alternative.

                      http://money.cnn.com/galleries…..my/13.html

                      I have also admitted to failing the LP purity test.

                      The F. Murray Rothbard Award will never be mine.

                    2. Not buying it, shrike.

                    3. How exactly is that graph supposed to support you point ??? I know basic numeracy is not your strong point, but if you want to compare A to B, you have to at very least show something from both A and B.

                    4. I don’t really get why people vote for individuals instead of party. Do you chuck your principles because the guy in the other party has a nicer smile or something? No one really knows these people as individuals, so why put faith in them instead of their party’s principles? Just strikes me as weird.

                    5. Why claim to be a fan of Barry Goldwater, but support Obama?

                    6. Two sadly representative examples of shrike’s (a.k.a. “Banned from Kos”) Goldwater-esque “small government” advocacy, over at the DU:

                      “I am FOR higher taxes […] A 50% tax on all income gets us to break even.”

                      “If you are NOT pro-Obama you are my enemy.”

                      Not only a lying troll… but a bumbling and inept one, at all.

                      Pity it.

                    7. Where did I bring up Barry Goldwater? Are the two of you huffing glue and seeing things?

                    8. Where did I bring up Barry Goldwater?

                      Why are you responding to a comment specifically referencing “Banned from Kos”/”shrike”…?

                      Self-pwning sock puppet is self-pwned.

                    9. So… he’s not *really* a fan of Barry Goldwater?

                      I am disappoint.

                    10. We’re talking about Hillary’s Strap-On, aka Palin’s Butt-Plug, alias shrike.

                      Do try to pay attention.

                    11. Oh, sorry – I should’ve known the history of your paranoid petty squabbles. My bad.

                    12. Nothing paranoid about it.

                    13. As demonstrated above, sock “Libertardian” responds to comments addressed to sock “Palin’s Buttplug.”

                      That’s the disadvantage to habitual lying: eventually, you will lose track of things.

                    14. Dude, you’re a libertarian. You see soshulist commy brownshirrts everywhere.

                    15. Why do you respond to comments specifically referencing “Banned from Kos”/”shrike”…?

                      Self-pwning sock puppet is self-pwned.

                    16. Imagine being so desperately lonely — so socially retarded; so staggeringly spastic, insofar as establishing even the simplest human relationship is concerned — that you’d not only enthusiastically take on the lowly, bucktoothed role of Internet Troll, but actually create a second, sock puppet account solely in order to bolster and agree with yourself, in the comments section.

                      Just. Fucking. Imagine.

                    17. That is pretty pathetic.

                    18. No, we see those AND so-cons, both of which are poisonous, liberty-killing ideologies.

                    19. Heh. Scuttled back underneath the sink, once the kitchen light snapped on.

                      They always do revert back to type, don’t they…?

                    20. It sure did, Ben.

                    21. Libertardian|6.24.12 @ 1:37PM|#
                      “Dude, you’re a libertarian. You see soshulist commy brownshirrts everywhere.”

                      Do you have a degree in sophistry, or are you simply an ignoramus?
                      Which is it?

                    22. Parties do not have principles. Parties have interests. They are institutions that, whatever their origin, have degenerated into serving themselves only.

                      The individuals who carry the parties’ banners serve the parties’ interests only. So I don’t vote for any of them.

    2. Hey, guyz, what’s up? Everybody being all selfish and rational self-interest-y today?

      Always. And you? How is life in the power-worshipping, statist, echo chamber?

  6. The only dishonest thing here is you, all the countries that are undergoing “savage austerity” have yet to decrease spending levels to be lower than the years before. Enlighten us, show us the graphs that show countries such as France and Britain doing these amazing spending cuts.

    1. Apparently not radically increasing spending when you already have debt equal to 100% of GNP and are spending upwards of 50% of your wealth on government counts as “austerity” these days.

      1. The same mentality behind the use of a phrase like “savage austerity” also believes a cut in FUTURE spending is “slashing the budget”.

    2. Estonia?

      They have their debt down to about 5% of GDP and are running a surplus. They did raise their VAT, IIRC, but Im pretty sure they also cut spending.

      1. Actually, all 3 of the Baltics have cut actual spending over the last few years.

      2. Estonia has been a recent Krugman target being mocked for its supposed austerity success. The fact remains the country was a Soviet state 20 years ago, from where it got to now is pretty remarkable, most tellingly, I don’t see its politicians walking around with a begging bowl, when by all rights it should doing that, not Spain or Greece.

        1. They were the first of the european nations to institute a flat tax too.

        2. The Baltic states all went full-capitalist ASAP upon leaving the USSR. They are by far the best ex-USSR performers and their existence puts lie to the notion that a middle-way is the path forward.

  7. Your daily dose o’ HuffPo stoopid:

    http://www.huffingtonpost.com/…..f=politics

    Focus on retarded HuffPo poster:

    http://www.huffingtonpost.com/…..41268.html

    *puke*

    1. retarded HuffPo poster

      One of nature’s redundancies.

      1. Oddly enough, one can read sensible postings on HuffPo… it’s hard, but they can be found.

    1. Toomas FTW.

    2. Old news is old.

      1. Still worth reminding, robc.

        1. Sure, but I figured everyone knew already.

      2. Like the old news you posted above?

        1. That wasnt news.

          You linked to a June 6 article, I just stated shit off the top of my head.

          I was hoping for a fresh Estonian smackdown when I clicked thru.

          1. Not just a June 6 article but a June 6 article that we discussed here on or about June 6.

            1. Well, Ilves is being interviewed on CNN right now.

              1. Unfortunately, he made the point that they were forced to cut back by economic circumstances rather than saying it’s just a better plan. He did talk about freeing up European labor markets, though.

                1. they were forced to cut back by economic circumstances rather than saying it’s just a better plan.

                  He is a politician. He needs the political cover of being “forced” to do something or the teachers/fireman/police/old people eating cat food crowd will take him into dark ally and beat the crap out of him.

        2. Its still awesome though.

          1. There is not enough awesome in the world; we can use a reminder of that which occurs.

    3. Must be Princeton vs Columbia thing.

      Actually Harvard does not agree with Krugman either.

      Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments, those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions.

  8. Even the Keynesians don’t believe in Keynesian economics. If the multiplier really worked as they say it does the obvious thing to do would be to print eleventy quadrillion dollars. Stimulation, baby!

    1. “A bazillion simoleons”, in Bugs Bunny-speak, would be worth just as much.

    2. Kind of like the $200 minimum wage.

      1. Only $200?

        Why do you hate poor people, BP?

      2. This is really what we need to do. The resulting stimulus from all the little people spending their $200 per hour incomes will give us like 2,000 percent economic growth rates.

        1. Give every person – EVERY person – a set wage of $250K… then tax them at fifty percent, because now everyone is in the top one percent!

          1. That certainly makes sense. Once everyone is making a quarter mil a year, then, let’s face it, they won’t really need all that money.

            1. I’m surprised Krugman hasn’t written a column espousing it. Imagine everyone, from the lowliest janitor to the president of America to the CEO of General Motors, all being evul one-percenters.

  9. If sovereign debt is too risky for banks to invest in, then there is NO category of investment safe enough for banks, and we should not have banks.

    Or maybe, just maybe, we shouldn’t try to guarantee bank solvency, or bank deposits, and should let both banks and depositors bear their own counterparty risk.

    Seriously, we have gone from “subprime mortgage bonds are too risky for banks” to “bonds issued by the government of France are too risky for banks” in the course of just a couple of years. To any sane person, this should be evidence that you can’t beat the business cycle, and sometimes banks just have to fail when they bet wrong. But that’s the one unthinkable option here, for some reason.

    What you’re saying you want is a banking system where no bank can ever fail and no borrower can ever default, and that’s not possible.

  10. I’m from the UK and I would say lack of austerity is to blame for our current economic woes, because we didn’t use the good years to pay off our debts (in all his wisdom Chancellor of the Exchequer and later Prime Minister Gordon Brown continued to borrow money while things were good economically) we are now in a situation where drastic public sector cuts are needed in order to balance the books but our Conservative led government is too cowardly to cut deep enough.

    Sadly a growing trend across Europe is that it is a choice between growth and austerity and many do not seem to understand that we cannot keep spending at levels we have been.

    Take heed America, the situation Europe is in is your future if you don’t change the path you are on. Luckily you guys can still fix the situation you are in, and I sincerely hope you do, don’t make the same mistakes Europe has done.

  11. De Rugy talked with Reason’s Nick Gillespie about austerity and its http://www.ceinturesfr.com/cei…..-c-11.html discontents – and what the United States could learn from Germany’s economic reforms made earlier this century.

  12. Yet critics of cutting government spending in a weak economy ignore academic research showing that significant spending cuts, structural reforms to entitlements, http://www.zonnebrilinnl.com/z…..c-3_4.html and loosening labor regulations are proven ways to reduce debt loads and get countries moving again.

  13. That makes a lot of sense dude.

    http://www.Dot-Anon.tk

  14. As a Canadian, I?m scared about the European bailout and its impact on our markets.

    I see the situation in EU is problem of us all. And especially when we talk about banking systems.

    Europeans are currently living in the world of two challenging paradigms. First is of course the German austerity, the other, represented by Southern states, is trying to give the current situation more federal approach and establish a true big European state in less than five or ten years. Both of those two concepts are not good. First, they will not solve the economic problems. Austerity is austerity and federalization would just move the decision making to the upper level. Southern states will still be Southern and poor. Romania and Bulgaria will be very poor.

    And this is basically the biggest difference in the crisis resolution between us and them.

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