The Sneaky Way Austerity Got Sold to the Public Like Snake Oil

Originally published at the Institute for New Economic Thinking website

Orsola Costantini, Senior Economist at the Institute for New Economic Thinking, is the author of a new paper, “The Cyclically Adjusted Budget: History and Exegesis of a Fateful Estimate,” which exposes the fascinating — and disturbing — history of how a budget approach cloaked in a scientific and technical aura became a tool to manipulate public opinion and serve the interests of the powerful. In the following conversation, she reveals how austerity has been sold to the public through a process that damages the lives of ordinary people, consolidates knowledge and power at the top, and compromises democracy. As economic inequality reaches new heights and austerity programs are debated around the world (most recently, in Spain and Portugal), understanding how a lie becomes political and economic “truth” has never been more critical.

Lynn Parramore: Your recent work deals with something called the “cyclically adjusted budget.” What is it and what does it mean in the lives of ordinary people?

Orsola Costantini: The Cyclically Adjusted Budget (CAB) is a statistical estimate that aids government officials when they decide what to spend money on and how much they’re going to tax you. It is mostly federal governments that use it, but also international institutions like the International Monetary Fund (IMF).

Economists will tell you this tool is imprecise. Yet national and international institutions still rely on it to justify important decisions about government spending and taxation.

But there’s something the experts aren’t telling you: the cyclically adjusted budget can be easily maneuvered depending on which way the political winds are blowing. And it appears technical and obscure enough so that regular people tend to look at it as objective and undisputable. That’s where the trouble comes in.

Politicians and government officials using the CAB can limit the range of political choices that appear viable to a community. Policymakers can avoid the hassle of taking political responsibility for these choices, too. We had to do it! The budget says so!

Look at what happened all over Europe in 2008: It’s one thing to say to students in the streets that their education and economic wellbeing are not a priority for the government while saving banks is. It’s quite another to say that politics has nothing to do with it and the economy requires taking certain actions, sometimes painful.

LP: You indicate that this approach to budgeting was invented as a way of making the New Deal acceptable to the business community. How did that work? Over time, who has benefitted from it? Who has lost?

OC: Back in the 1940s, workers were fighting for their rights, class struggle was heating up, and soldiers would soon be returning from the fronts. At that point, a new business organization, the Committee for Economic Development (CED), came together. Led by Beardsley Ruml and other influential business figures, the CED played a crucial role in developing a conservative approach to Keynesian economics that helped make policies that would help put all Americans to work acceptable to the business community.
The idea was that more consumers would translate into more profits — which is good for business. After all, the economic experts and budget technicians said so, not just the politicians. And the business leaders were told that economic growth and price stability would go along with this, which they liked.

But things changed progressively over the 1970s and early 1980s. Firms went global. They became financialized. The balance of power between workers and owners started to shift more towards the owners, the capitalists. People were told they needed to sacrifice, to accept cuts to social spending and fewer rights and benefits on the job — all in the name of economic science and capitalism. The CAB was turned into a tool for preventing excessive spending — or justifying selected cuts.

Middle class folks were afraid that inflation would erode their savings, so they were more keen to approve draconian measures to cut wages and reduce public budgets. People on the lower rungs of the economic ladder felt the pain first. But eventually the middle class fell on the wrong side of the fence, too. Most of them became relatively poorer.

I suppose this shows the limits of democracy when information, knowledge, and ultimately power are unequally distributed.

LP: You’re really talking about birth of austerity and the way lies about public spending and budgets have been sold to the public. Why is austerity such a powerful idea and why do politicians still win elections promoting it?

OC: Austerity is so powerful today because it feeds off of itself. It makes people uncertain about their lives, their debts, and their jobs. They become afraid. It’s a strong disciplinary mechanism. People stop joining forces and the political status quo gets locked down.

Even the
name of this tool, the “cyclically adjusted budget,” carries an aura of respect. It diverts our attention. We don’t question it. It creates a barrier between the individual and the political realm: it undermines democratic participation itself. This obscure theory validates, with its authority, a big economic mistake that sounds like common sense but is actually snake oil — the notion that the federal government budget is like a household budget. Actually, it isn’t. Your household doesn’t collect taxes. It doesn’t print money. It works very differently, yet the nonsense that it should behave exactly like a household budget gets repeated by politicians and policymakers who really just want to squeeze ordinary people.

LP: How does all this play out in the U.S. and in Europe?

OC: The European Union requires its members to comply with something called a cyclically adjusted budget constraint. Each country has to review its economic and fiscal plans with the European Commission and prove that those are compatible with the Pact. It’s a ceiling on a country’s deficit, but it’s also much more than that.

Thanks to the estimate, the governments of Italy or Spain, for example, are supposed to force the economy toward some ideal economic condition, the definition of which is obviously quite controversial and has so far rewarded those countries that have implemented labor market deregulation, cut pensions, and even changed the way elections happen. Again, it’s a control mechanism.

In the U.S. this scenario plays out, too, although less strictly. Talk about the budget often relies on the same shifty and politically-shaded statistical tools to support one argument or the other. Usually we hear arguments that suggest we have to cut social programs and workers’ rights and benefits or face economic doom. Tune in to the presidential debates and you’ll hear this played out — and it isn’t strictly limited to one party.

LP: How do we stop powerful players from co-opting economics and budgets for their own purposes?

OC: Our education system is increasingly unequal and deprived of public resources. This is true in the U.S. but also in Europe, where the crisis accelerated a process that was already underway. When children don’t get good educations, the production of knowledge falls into private control. Power gets consolidated. The official theoretical frameworks that benefit the most powerful get locked in.

In the economic field, we need to engage different points of view and keep challenging dominant narratives and frameworks. One day, human curiosity will save us from intellectual prostitution.

Print Friendly, PDF & Email


  1. WC Varones

    I’m going to go out on a limb here and say running deficits of 3% of GDP, seven years into a recovery, and with the huge budget assist of Fed-suppressed interest rates and Fed-refunded interest on Treasury holdings, is not “austerity.”

    1. Yves Smith Post author

      We are well below full employment. Higher deficits are warranted. You deficit spend until you are at risk of inflation. The US is at risk of DEFLATION.

      Dean Baker has pointed out (with the math) that deficits at this level are sustainable.

      1. ambrit

        A quibble if I may.
        Simply running a deficit, and assuming that the gross expenditures will encourage social benefits is too narrow a view. The uses to which the deficit are put has a great guiding influence. Todays deficits are heavily weighted towards a ‘lost capital’ use; military adventurism. The returns to the society that supplies the funds of military adventurism are small compared to the returns domestic development would engender.
        As for Deflation, deflation for whom? We have encountered noticeable price inflation in basic foodstuffs. The value of our house is moribund, with price reductions showing up regularly in all the older housing stock on the market in our region. New home construction is stagnant here. As mentioned above, the focus of the deflation is as important as the aggregate effect.
        Merry Christmas to one and all!

        1. craazyboy

          Most people don’t eat, go to college, use healthcare, rent or buy housing on the east or west coast, or purchase military equipment (except perhaps small time stuff like assault rifles), so the BLS greatly underweights(or hedonics prices, or just pulls rent data outta their butts) these things in the inflation data they create. The Fed then goes into a tizzy if the data comes in a few tenths of a percent below 2%, even if the data spent years above 2%, and floods the country in liquidity so our job creators – banks and large corporations – will hire us and give us raises, and once they finish doing that, the BLS will signal that inflation is 2% and the Fed will then know all our problems are solved. It just takes time.

          See the book “Treasure Island” for how things are going on the revenue side. But more tax breaks for large corporations and the wealthy are needed so we don’t force them to do any illegal tax avoidance stuff and they will then happily pay whatever they think their fair should be. Might be zero. They will then have money to buy stuff too, which is a big plus as well, when you think about it.

          So clearly, you can see why deficit spending almost seems inevitable.

          Then the next problem is we still have unemployment, and something needs to be done about that. For instance, lots of room for more government contracts for social purposes. Take Obamacare. Place a single source contract, now estimated between $1 and $2 billion, with a Canadian systems company that employs independent contractor Indian programmers. Eventually, we have Obamacare!

          We can do this if we just get serious about this and say “No More Austerity In America!”

          1. likbez

            Emperor Severus is famously said to have given the advice to his sons: “Be harmonious, enrich the soldiers, and scorn all other men”

      2. Tinky

        Do you mean when Baker uses arguments such as this?

        “One of my favorite quirks in the Washington debate is a fear that if we allow our public debt to exceed 90% of GDP, then terrible things will happen to the economy. Remarkably, this sort of Twilight Zone fear – don’t cross the 90% line – is taken very seriously in Washington.

        The silliness of the figure was made clear in a blogpost by the Institute for Energy Research last week, which claims the government owns more than $120tn in energy resources. There are plenty of reasons to question the numbers from this industry-funded outfit, but let’s assume that they are off by a factor of ten. This means that the government owns $12tn in energy resources.

        Suppose we sell off half of these assets, netting the government $6tn. This would immediately lower our debt-to-GDP ratio by almost 40%. That would put us way below the 90% twilight zone threshold, and without any cuts to social security, Medicare, or other programs that low- and middle-class people depend upon. We wouldn’t even have to raise taxes on “job creators”. (The Guardian 01/28/13)

        Huge deficits are not a problem because the U.S. could sell off “energy assets”?

        Do you consider that to be a serious, let alone compelling argument?

        1. Tinky

          To flesh out the absurdity of his proposed solution, consider that when he made it, oil was trading at $101/barrel, and natural gas at $3.33/mBTU.

          Using today’s figures, the U.S. would raise a hell of lot less than $6tn by selling off half of the (dubious) original $12tn figure.

          It should also be obvious that a large chunk of American yearly (deficit) expenditures is used to attempt to gain and/or secure access to other countries’ energy assets, begging the question: Is it remotely realistic to believe that the U.S. would consider selling a large portion of its own energy assets?

          Ivory Tower fantasy, more like.

          1. lordkoos

            Other countries’ assets, not limited to energy — what happened to the gold reserves of Iraq, Libya and Ukraine…?

        2. Pat

          In a world where all the ‘serious’ arguments about the methods to reform Social Security in order to deal with its supposed problems mean actually paying less in benefits to retirees then just leaving it alone… Or where the answer to the Post Office’s deficits are not to reduce or eliminate a ridiculous pre funding of their pension fund, but to cut hours and sell off historic Postal Offices so they now have to pay rent (but the properties get to enrich all the right people)…Or….Yes, I do think it is a serious argument.

          See I do not entirely disagree with you, but without knowing what those energy ‘assets’ are, we really do not know whether it is or is not a true option. But what I do know is that to continue to beggar the infrastructure of the US, the health of its citizens, and throw more and more of its elderly into poverty is NOT the answer to the deficit problem as well. Not maintaining or upgrading that infrastructure costs more in the long run, an unhealthy population does as well. There might be some economic value in the elderly dying sooner, but frankly I don’t think many want to make that argument.

          The greater argument is that we have overwhelming evidence that austerity DOES NOT WORK. That while it does seems to provide a value to a small segment of the population overall, the countries and their citizens suffer greatly with no end in sight.

          You are right that what you deficit spend on does matter and that is where America has gone wrong in the last thirty years. Our spending on more and more military toys and wars, secret interventions in foreign climes to enrich multinational corporations, and lots and lots of money to bail out rich gamblers who pretend to be banks has not served us well. Somehow there is always enough money to waste on those. I’m sure if we look most of the time we will find out that even those countries who have been forced to live within their means are still enriching the very people holding the whip on them with no return on that investment.

          1. Tinky

            I am in no way advocating for austerity, and agree that the current course is both a mistake, and unsustainable.

            I also happen to believe that hyperinflation is the only possible way that the Federal deficit might ever be paid off, and have yet to either read or hear a compelling argument to the contrary.

            1. craazyboy

              Government debt is like a snowball rolling downhill. It keeps getting bigger, but as long as it keeps rolling over, nothing to worry about. Ask an economist.

            2. legendary bigfoot

              A shorter version of your argument is that you would like to remove treasury bills from the market entirely so that other financial instruments can become the safe harbor for domestic and foreign capital. Your federal debt is my savings bonds, considered a safe if ultraconservative to losing investment.

          2. Arizona Slim

            Austerity transformed my middle-class life into one of state health insurance and not knowing where my next “gig” is going to come from.

          3. Soulipsis

            Well, the word radical means going to the root of things, so I guess that’s the nature of what I would propose, which seems obvious.

            First, isn’t it pretty easy to keep not paying down the debt? Roll over treasuries issues, claw back a couple of rounds of Bush tax cuts.

            Restore the Constitutional money creation process, i.e., money issued by the Treasury, not by parasitic private bankers masquerading as a public enterprise, the Federal Reserve. Require the TBTF banks to write down their true losses since 2007, put those who are no longer solvent into receivership, as per Bill Black.

            Social security merely has the normal problems of a large trust interacting with normal demographic flux. The income basis limit needs to be raised from $108,000 to $108,000,000, then social security will be solvent ….. forever?

            Medicare problems become solvable by removing the statutory prohibition on bulk discount drug purchasing, single payer medical insurance, reasonable limits on privatization and a federal program to make functional medicine standardized, where the emphasis is on prevention programs designed according to a genomic analysis for each person (see The Disease Delusion by Jeffrey Bland, M.D.). Oh, and while we’re at it, let’s get rid of that nasty GMO stuff that gives pretty 7″ long rats tumors the size of golf balls in a short time.

            Green the energy sector, invest in infrastructure including really cool new trains like what they have every where else, use a WPA-like program if the hyperefficient capitalist types don’t want to invest in these programs…….


        3. TedWa

          No offense Tinky, but I think you misread the statement. He prefaces this proposition with “The silliness of the figure was made clear”. Clearly sarcasm on his part.

          1. Tinky

            No, it is you who are misreading him.

            He points out the obsession with 90% debt to GDP as being silly, not his own suggestion for how to deal with it.

            Feel free to search for and read the full article.

            1. TedWa

              Hi Tinky : You are misreading it. The solution he proposes would comically have been the brainchild of the Repubs seeking to privatize our energy grids and keep debt to GDP below 90% – a case he already states is ridiculous and not worthy of irrational “Twilight Zone fear”.

              Certainly sarcasm. He was not offering a solution, he was playing on theirs and illustrating what they want. The tell is how the whole scenario he describes starts and ends “not have to tax the job creators”… He was being funny. Read it again with that perspective in mind and you might get the joke.

              Anyway, Happy Holidays to you and yours.

              1. Tinky

                The title of his article is:

                “The folly of DC’s desperate deficit fear mongers”

                His “solution” was not meant to be sarcastic.

                You continue to misread it, or haven’t bothered to read the full article.

                Happy holidays.

              2. Tinky

                To underscore your misunderstanding, Baker wrote a similar piece for Aljazeera one month later. It was entitled:

                Debt-to-GDP nonsense

                In it, he again offers up the very same, proposed solution [bold emphasis mine]:

                “The argument over the debt-to-GDP ratio is especially annoying because it shows that these people don’t have the faintest clue what they are talking about. There are all sorts of obvious reasons why debt is not a good measure of the burden that we are placing on future taxpayers.

                For example, the government has a huge amount of assets that it could sell at any time and thereby reduce its debt. The Institute for Energy Research, an industry-funded research outfit, claims the government owns more than $120 trillion in energy resources. Let’s say they exaggerated by a factor of 10, leaving us $12 trillion in assets.

                If we sold off half of these resources, it would net the government $6 trillion. This would reduce our debt by almost 40 percentage points of GDP. That should make even the most ardent deficit hawk happy.

                Of course, it is not just physical assets that the government can sell.”

                1. legendary bigfoot

                  It is still true even if those assets have to be marked to market at sale time. Imagine the profit to be made from allowing corporations to comarket federal assets through branding-the BP Exxon House of Representatives, the AT&T Yellowstone National Park brought to you by Google Android, perhaps the Facebook Niagara Falls or the Starbucks Gettysburg National battlefield.
                  Federal deficits don’t matter. This is our due. Calling VP Cheney a dirty fibber on Christmas?

      3. washunate

        Yves, INET and NEP and others have been lecturing that topic for years. How many trillions of dollars do we have to deficit spend before the failure of things to improve indicts the hypothesis itself?

        Maybe what matters is not the amount of the spending, but rather, the distribution.

        And what is so bad about deflation? The attachment of moral judgment to inflation and deflation is rather bizarre outside of establishment monetary economics. The basic monetary problem confronting the bottom 80% or so of American households is inflation, not deflation.

      4. Jack King

        Good point Yves….but here is the rub. Nothing stops governments from running massives deficits even in periods of INFLATION.

        1. Yves Smith Post author

          The problem is the Fed has chosen to continue to fight a fight that dates from the 1960s, when Johnson was running large deficits at a time of full employment. He did not want to raise taxes to fund the war in Vietnam, which was already unpopular. Running deficits that are too low means lower levels employment, which reduces labor bargaining power. Thus this crying “wolf” about inflation is a major mechanism for the income and wealth transfer to the top strata.

      5. Teejay

        I’m not doubting your reply. Still I’m trapped between staying in an IRA CD that won’t even cover inflation or taking it out early a face penalties.

  2. Brooklin Bridge

    Can education provide the solution?

    I suspect that the educational bias occurs at all levels in the sense that much the same misinformation is provided regardless of neighborhood but progressively wrapped in more elegant pedagogical flim-flam-ery for the owner class. Basically, the bias changes, but not the message, as one goes from poor (austerity – this is your lot in life) to wealthy (austerity – you were born to make the tough decisions, it’s in your genes – and you’ll just have to accept the rewards, man up to your destiny and toss em a quarter on Sundays). The upper class does get a far better education, but the bias is or becomes unconscious over time.

    Basically, aristocracy is a nasty brutish cycle that keeps upping the ante of consequences.

  3. Stephen Rhodes

    Setting aside the range of figures national energy assets could bring (at some time in the future when the oil glut subsides): the specter of a sovereign wealth fund as an adjunct (whatever) to the social security trust fund rises. Again, think Norway.

    Just the little question of carbon emission remains.

  4. jonf

    I even heard Obama tell us some time ago that, just like a household, we had to tighten our belts and lower the deficit. That is a favorite meme of anyone who wants to make spending cuts to social programs. The truth is the deficit only matters when we approach capacity and then only as inflation creeps in. We are nowhere near that today and have not been for as long as I can recall. Someone should remind me when the U6 unemployment rate was around 3%.

    So the idea of an arbitrary 3% to GDP limit on a deficit is utter nonsense. Yet the Eurozone insists on it and in fact, it has wings. If your country exceeds the threshold you are in violation of their arbitrary rule and there are serious consequences, not the least of which is an increase in the rate of interest you will pay on your debt as the vigilantes sell your debts. Which brings us to debt.

    Some think that when your debt gets over 90% of GDP you have crossed the rubicon. That may be true in the Eurozone, bc that is how the oligarchs defined it, but not so for a country that issues its own currency like the US. After all the Fed owns the printing presses. But it does make folks nervous when we hear them say we are going broke or inflation is about to break out. But we know that is foolish, as the Fed had been trying to get inflation up to 2% and is failing.

    One word on inflation: all inflation is not created equal. So if the price of food goes up there may be little anyone can do about it, if it is caused say by food shortages (drought and climate change). Same would apply to monopolists: remember $147 oil?

    Finally, I know there has been much discussion on debt free money, but why issue T Bonds at all? No bonds, then any debt is somewhat imaginary.

    1. Arizona Slim

      WE have to tighten our belts? And that was said by the same Obama who is about to cash in on his White House years and live out the rest of his days in luxury that the rest of us can only imagine?

      Yup, I’m certainly going to listen to him.

    2. tegnost

      all inflation is equal, some is simply not counted, just as you say the 90% threshold is a line in the sand drawn by brussells, it is what they say it is. I guess I think $147 oil led to demand collapse and indeed we’re still fighting that and to my mind unsuccessfully, partly because of a commitment by those in power to make engineering their own success as easy as possible, basically monopolism, something that has proven to be subject to regulation. It doesn’t have to be like that, it just is right now. To the money issue, the dollar bill in your pocket is a bond of zero duration, you are proposing a barter system so at some point a banana is as good as anything else…but the value of your banana will decrease rapidly until it’s no longer a banana while your dollar can go through the wash and still be good. That dollar must be issued at some point and can’t appear out of thin air or it has no value, and the duration creates the value with more stability simply to help the whole comic masterpiece work more efficiently.

  5. Dan Lynch

    I don’t buy the article’s historical narrative.

    Conservatives have ALWAYS opposed spending on social programs and ALWAYS used the deficit as an excuse (unless the deficit was due to war or tax cuts for the rich). This was true during the New Deal; FDR himself was a deficit hawk.

    Nonetheless for years the public supported social programs and no politician dared to cut them. Not only were the politicians worried about votes but also the welfare state was a way to head off a left wing revolution.

    What changed? I would say the change began in 1976 with the election of Rockefeller-funded Jimmy Carter, who immediately launched an austerity program. Support for Keynesian economics was further eroded by the 70’s stagflation which we now know was caused by Mid East oil but at the time the “left” were like deer in the headlights, with no clue what to do.

    The final nail in the coffin was the fall of the Berlin Wall and the collapse of the USSR, discrediting communism. After that, “there was no alternative” to corporate capitalism. Or more accurately, the left was slow to formulate an alternative and to this day is still struggling with an alternative as we have observed with Syriza. It’s not enough to oppose austerity, you have to have a constructive plan to fix things.

  6. Keith

    Money itself is just an artificial construct that groups of people put in place to facilitate trade amongst themselves.

    Over 90% of money today is just strings of one’s and zero’s stored on computers that represent that money.

    In the UK, 3% of money is hard currency (notes and coins) and the rest, 97%, is just one’s and zero’s stored on computers.

    This comes into existence through someone at a bank typing it into a keyboard as the basis of a loan at a bank or Central Bank.

    An arbitrary system that we all accept and as long as there is confidence in that system, it works.

    All sorts of things have been used as money in the past, e.g. shells, feathers, stones. An arbitrary system that everyone accepts and as long as there is confidence in that system, it works.

    Unfortunately, our monetary system has the same problems that have dogged monetary systems for millennia.

    The wealthy like to hoard money, whatever form it takes, in times past they would hoard gold coins and often bury and hide them on their land. Today they have tax haven’s to do their hoarding, the same thing basically.

    The hoarding of the wealthy means there is not enough money in circulation to facilitate trade by those that want to buy and sell products and services. The velocity of money today is at record lows and demonstrates hoarding at an unprecedented rate.

    Those in charge will say there is no such things as a free lunch, but set up trust funds and inheritances for their children so their children do get a free lunch. It is this ability to pass wealth down the generations that really causes the wealthy to hoard on a massive scale. It has always been the same since the dawn of civilisation.

    This circumvents natural Darwinism (there are no inheritances and trust funds in the animal world) and helps to keep the children of the wealthy at the top rather than the most able.

    Recessions and depressions are essentially caused by the arbitrary tokens that we call money being in the wrong places. The people that want to buy and sell products and services cannot because others that can consume no more have hoarded all the arbitrary tokens of trade (money).

    A debt based monetary system, as we have now, compounds the problems as money can only be created through debt.

    a) Those with excess capital invest it and collect interest, dividends and rent.
    b) Those with insufficient capital borrow money and pay interest and rent.

    We have seen the desperate attempts to get those with insufficient Capital to take on more debt, e.g. Payday loans, sub-prime mortgages, sub-prime auto loans, student loans, etc …

    Those that need debt to spend are now maxed out on the stuff.

    The wealthy never need much debt in the first place and can consume no more.

    There is little scope for successful investment by the wealthy as there is no demand in the system. The wealthy can now only participate in blowing asset bubbles and driving up the value of things that exist already, e.g. property, fine art, classic cars … etc … . Totally un-productive, even to themselves when the asset bubbles burst and the things that existed already return to their original valuations.

    Also, compound interest, another feature of our arbitrary monetary system, rapidly causes debt problems to spiral out of control.

    Central Banks around the world have held interest rates at record lows since 2008 to try and keep the compound interest from over-whelming the current system.

    We need to deal with the underlying problems in our monetary system:

    1) The age old problem of hoarding by the wealthy, which tends to keep the tokens of trade out of the hands of the people that want to trade leading to recessions and depressions.
    Sensible limits to inheritance and trust funds would force the wealthy to spend the money they earn back into circulation rather than hoard it in vast amounts.
    It would also create a more level playing field, helping the most able get to the top and not produce such a bias towards the children of the wealthy. Darwinism working again within the human race.

    2) Debt based money with compound interest is a recipe for disaster and the constant cycle of booms and busts that we experience is a consequence of this system. It also requires constant growth as the money loaned into existence does not cover the interest payments, the world is now reaching its resource limits and constant growth is no longer a possibility.
    Positive Money presents a stable alternative that does not require constant growth.

    Though the immediate problem is the hoarding of the tokens of trade (money) by people who do not spend it into the economy, the same problem all civilisations encounter sooner or later.

    1. Tinky

      The Velocity of Money has crashed to its lowest levels in 60 years because, since the 2008 crisis, those with big money, the very ones who have benefitted tremendously from subsequent economic policies, have been hoarding it?

      Cue John McEnroe…

      1. Keith

        The tokens of trade (money) are constantly being taken from those who would buy stuff with austerity, unemployment and stagnating wages so those that can consume no more have more of them.

        Pointless and self-defeating.

        1. Tinky

          I am not advocating for austerity.

          There are a number of major contributing factors to the collapse of the VOM. Hoarding (primarily by banks) is one, but hardly the only one.

          1. tegnost

            change hoarding to concentration of capital, in our current situation it is concentrated in too narrow a band. how would you advocate for that more specifically, you say hoarding which implies there is a big subterranean cave filled with idle wealth when the narrow subset is quite active with their wealth and how they deploy it. The government can spend money into existence in the lesser capitalized portions. The gov’t can also charge a fee on the accumulation of capital in a narrow band thus inspiring those with access to capital to spread it around more.

              1. tegnost

                among many others, yes, my personal preference would be carried interest and offshored corporate taxes in particular including but not limited to that managed from nevada as I don’t consider that offshore. That, in my opinion, is where the big dollars are. Estate taxes can at least encourage a spreading around, but in the end the estates would be smaller with a rational corp/big money taxation. To those who say they’ll go somewhere else? See ya like the SuperSonics…notice how much trouble they’re having getting another team? Thought we’d be so desperate (GP was my hero, even got his autograph, but couldn’t care less anymore). Base apple in myanmar and see how much they like it. Now visiting san diego and chuckling mightily about the Chargers brinksmanship. Guess what, once you lose your fans they don’t care anymore. As discussed with a right leaning cousin (yes you can have a reasonable discussion with the other side because we are in crazyworld), there’s a deal to be made that can be realistically beneficial to both sides, but the teams owners want it all on a silver platter. I think the Spanos family could deserve a massive estate tax. A bunch of pinko socialists and freeloaders!

        2. fajensen

          Not really, because as long as one can merely magick new money into existence, via OTC-derivatives contracts pledged as collateral for loans at the central banks, one has no need for money to “circulate”; indeed “those who buy stuff” are just competition bidding up prices. If consumption is really needed, robots can do it!

  7. Vatch

    History teaches us that peacetime austerity can be horribly disastrous. Some examples:

    British austerity during the 19th century included the Great Irish Famine of 1845-1849: The Irish population was about 8 million people in 1841, and the death toll of the famine was at least a million. This is a huge percentage loss of life. Due to the combination of deaths with emigration and births that did not occur, the 1851 population of 6.5 million was estimated to be about 2.5 million lower than expected. Since food was exported during the famine, this was definitely an extreme case of austerity.

    Soviet austerity during the 1930s: Millions died, and food was exported during the famine period of 1931-1933. Austerity is often associate with conservatives, so I guess conservative austerity enthusiasts must be pleased with the performance of the eminent conservative Josef Stalin.

    Chinese austerity during the Great Leap Forward of 1958-1962: Tens of millions died — perhaps as many as 45 million. The same irony about conservatives and Stalin is true about conservatives and Mao, but on a far greater scale.

    Merry Christmas.

  8. ben chifley

    july 24 2015: Krugman:Ignore the ‘MIT gang’ at US economy’s peril Paul Krugman says while economists of the ’70s discarded Keynes, he never went away at MIT.‏

    MIT: Libertarian Haven | Independent Political Report‏

    Soros | MIT Global Education & Career Development‏

  9. washunate

    This is a pretty remarkable piece of rambling drivel. To the extent coherent points can be taken away from this, it appears there are at least two major flaws:

    1) There is absolutely no link between public opinion and CAB. Germany chooses to have national healthcare, passenger rail, and renewable energy. The US chooses to have national security, predatory medicine, and car-dependent sprawl.

    2) There is absolutely no link between austerity and concentration of wealth and power. France has a much more equal distribution of wealth than the US. Yet the US has run enormous deficits while France is supposedly constrained by the techno mumbo jumbo nonsense of the EU.

    The notion that ‘austerity’ is sold to the public is just a blatant falsehood. Americans don’t support the budget priorities in Washington. It’s a collective action problem, not a public opinion problem.

Comments are closed.