How do cutbacks save economies? : Thu Oct 11, 2012 1:03 pm  

Two factoids prompt the question:

1. The claim that 93% of households in Scotland take out more from the public purse than they contribute; as I've no particular reason to think Scotland's case is in any way extraordinary, then presumably broadly similarish stats would apply to other European nations;

2. The stats that the unemployment rate in the most troubled Euro nations, Greece and now Spain, is now around the 25% mark.

If these economies need to recover, how can they, if a quarter of the population is jobless (and as we all know the actual figure will therefore be higher) and if hardly any households are net contributors into the national pot?

This is a genuine question, not a speech, I'm asking what it is that the organisations that prescribe the medicine believe will drive the economic recoveries needed, and where governments with plainly no pot to pis.s in wil get the money to repay the "loans" etc currently being handed out by the trillion.

Re: How do cutbacks save economies? : Thu Oct 11, 2012 1:05 pm  

"How do cutbacks save economies?"

They can't.

Even the IMF (hardly a bastion of leftyism) agrees. It has stated (IIRC the data correctly, off the top of my head) that, of 170 examples where austerity polices were enacted in countries, not a single one produced growth.

Re: How do cutbacks save economies? : Thu Oct 11, 2012 1:08 pm  

That isn't surprising to me, but I suppose what I'm asking for is a potted explanation of the basic theory behind austerity measures as I can't find it anywhere and can't imagine what it might be.

On the basis that if somewhere (like Greece) must, above all, apply strict austerity measures, that surely should only be on the basis of a firm and public theory as to how and why this is likely to work?

Re: How do cutbacks save economies? : Thu Oct 11, 2012 1:09 pm  

If the gov don't cut back on their expense, and are low on funds, where does the money to pay that expense come from?

Re: How do cutbacks save economies? : Thu Oct 11, 2012 1:11 pm  

Richie wrote:

If the gov don't cut back on their expense, and are low on funds, where does the money to pay that expense come from?

Oy! I'm asking the questions!

Re: How do cutbacks save economies? : Thu Oct 11, 2012 1:12 pm  

Ferocious Aardvark wrote:

Oy! I'm asking the questions!

That's the answer though! In a question

Re: How do cutbacks save economies? : Thu Oct 11, 2012 1:14 pm  

Richie wrote:

If the gov don't cut back on their expense, and are low on funds, where does the money to pay that expense come from?

Basic economics say you either cut the expenses OR increase the income.

Re: How do cutbacks save economies? : Thu Oct 11, 2012 1:17 pm  

Ferocious Aardvark wrote:

1. The claim that 93% of households in Scotland take out more from the public purse than they contribute; as I've no particular reason to think Scotland's case is in any way extraordinary, then presumably broadly similarish stats would apply to other European nations;

I'd like to see how the figures staked up and what definitions they were using, also taxes on the person are only a part of a governments income.

Re: How do cutbacks save economies? : Thu Oct 11, 2012 1:29 pm  

Big Graeme wrote: I'd like to see how the figures staked up and what definitions they were using, also taxes on the person are only a part of a governments income. Supposedly based on figures from the Office of National Statistics. I've found this: http://www.cps.org.uk/files/reports/original/121005151233-TheprogressivityofUKtaxesandtransfers.pdf

Big Graeme wrote: I'd like to see how the figures staked up and what definitions they were using, also taxes on the person are only a part of a governments income. Supposedly based on figures from the Office of National Statistics. I've found this: http://www.cps.org.uk/files/reports/original/121005151233-TheprogressivityofUKtaxesandtransfers.pdf

Re: How do cutbacks save economies? : Thu Oct 11, 2012 1:29 pm  

Ferocious Aardvark wrote:

That isn't surprising to me, but I suppose what I'm asking for is a potted explanation of the basic theory behind austerity measures as I can't find it anywhere and can't imagine what it might be.

On the basis that if somewhere (like Greece) must, above all, apply strict austerity measures, that surely should only be on the basis of a firm and public theory as to how and why this is likely to work?

There are particular issues in Greece (around a culture of large-scale tax avoidance) that make that a specific case.

But the point is that austerity economics are a con.

The great idea (if you want to call it that) as propounded (certainly in the UK) is that cuts are essential in order to tackle the deficit. You stop spending as much – and use it to pay of the debt.

The flaw in this reasoning is simple. If you put more people out of work, you decrease revenues and increase expenditure (unless you have absolutely no welfare available for those who are out of work). So in reality, the debt increases.

There is an argument that, if you want to make cuts to public spending, then the best time to do so is during the economic good times – in other words, when the job market is such that people who are made redundant will have little difficult finding alternate jobs of a comparable nature (in wage terms at least).

It is absolute economic illiteracy to pretend that, without those jobs available, cuts will do anything more than increase a deficit.

The problem in the UK, however, is that the simplistic (and incorrect) equation is being used by the government as an excuse for cuts that have nothing to do with the economy/deficit and everything to do with pursuing a small state ideology, and finding ways for themselves and their friends in big business to make increased profits.

But while many people do not find the idea of cuts and austerity palatable, it seems intuitively correct, because it effectively treats the national economy as though it were the same as a household budget. And that, while understandable, is wrong.