Tuesday, May 22, 2012

In the Name of Austerity, Stimulus and Growth, Amen!

Paul Kuzhynski
Here's some food for thought. If you've been listening to the muffled and incoherent noises coming from the G8 and the surrounding political chattersphere, it's starting to sound like a prayer meeting: “In the name of Austerity, Stimulus and Growth, Amen!” And if you look at the individual leaders, what is there for them to do except pray?

Starting from the bottom, there is TheMan Who Wasn't There: the newly reinaugurated Russian president Vladimir Putin. He didn't even show up, but sent his obedient deputy Medvedev instead, who made positive noises about how wonderful the meeting was. Putin is a lonely man: he's been seen in public with his wife a total of twice over the last two years; his two daughters are living incognito somewhere in Europe, there are mobs of people outside chanting “Russia Without Putin!” over and over again, and even the VIPs present at the inauguration seemed to be half-concealing a message behind their idolatrous smiles: “Wish you weren't here, Vova!”

The situation in the US isn't that much better: even his (once) ardent supporters see Obama as slightly worse than ineffectual, while many others are happy to vilify him for things he had nothing to do with. One thing is certain: the office changed him far more than he has managed to change the office. Even if he gets reelected, it will be four more years of ineffectual waffling, futile attempts to stay the course laid in by his manifestly incompetent predecessor, and frontal assaults on our remaining civil liberties. And if his opponent gets elected, it will much the same, except without the thin plastic veneer of pretending to give a damn.

Germany's Angela Merkel doesn't have much of a reason to be cheerful either. Her political support is eroding with each election. The task of pleasing the Germans while holding Eurozone together is an impossible one: the Germans are fed up with carrying the weaker European countries on their shoulders, but if they don't, then all fall down. The European dynamic is different because there the states that make up the EU negotiate with each other directly rather through the opaque proxy of Washington. If New York and California had a choice as to whether to give Louisiana, Missouri and Arkansas an endless series of financial piggyback rides, they would tell them to go ask Jesus for a loan, and then these three states would be worse off than Greece. But eventually something has to give, both here and in Europe.

The new face, the freshly elected socialist François Hollande, hasn't had a chance to do much yet, but, uncharacteristically for an elected official, he seems to want to fulfill his campaign promises: he said that he will withdraw French troops from Afghanistan by the end of 2012, as promised. But his hand is weak: financially, France is not far ahead the Eurozone laggards; politically, Marine Le Pen's National Front is breathing down his neck.

And so, all they can do is pray: “In the Name of Austerity, Stimulus and Growth, Amen!” Growth is the holy grail, and austerity and stimulus will help us find it. But how?

Austerity is meant to bring deficit spending under control, curb the uncontrolled expansion of public debt, and avoid national default. But it has the unwelcome effect of triggering a severe recession, shrinking the tax base, and causing budget deficits to increase, not decrease.

Stimulus is meant to provide a way to kick-start economic growth, but the money for stimulus spending has to be borrowed, and this results in the expansion of public debt. And even an economist will tell you that a higher debt-to-GDP ratio results in lower growth.

This brings us to growth. The world is resource-constrained: the supply of most of the essential industrial commodities cannot be increased without triggering a price spike, which, in turn, will trigger another, even deeper, recession. Even with all the deep-water drilling (and spilling), fracking, tar sands and so on, there just isn't much growth potential for the US or the Eurozone, with their already high levels of per capita resource consumption.

Contrary to the ardent prayers of the world's leaders, the three-legged stool of austerity, stimulus and growth is a rickety piece of furniture: no matter which combination of legs they try put their weight on, they will end up sitting on the floor, and we will end up sitting on the floor with them. Now, sitting on the floor does not have to be uncomfortable. Perhaps, instead of praying, they should try some yoga: I am thinking of the lotus position. Repeating the same thing over and over again doesn't seem to be working; let's try meditating instead. Growth is over; now what?


Andy Brown said...

Rather than your rickety three-legged stool, I'd say we're on a catamaran, with both pontoons gone waterlogged. Time to see what we have left that floats and make whatever raft we can?

forrest said...

The money for stimulus spending does not "have to be borrowed"! That's the misconception that's led to at least the economic aspect of our ills. If you think of money as "social permission to use some quantity of stuff&labor", then there is no intrinsic reason to "borrow" this from people (who have already used their powers of giving/withholding permission so well!) in return for funneling yet more power into their hands in future. "Social permission" is a political matter, and people can safely renegotiate the way its apportioned-- so long as we find means (confiscatory tax levels on nonproductive wealth, for example) of limiting the quantities to the amount of stuff&labor actually available. & there's a whole lot more labor available (and forthcoming if their human needs are better met than currently) than we've put into productive use for many years.

Rather than "carrying the weaker nations on their shoulders," the investment class of Germany has been carrying their financial wealth (& power to do for themselves) out the window on their shoulders.

The physical resources (& sinks for the waste products) are another matter, far less amenable to political rethinking. Except on one level: "Living better does not always imply using more." If we weren't generally so busy driving ourselves nuts, driving freeway miles to do useless things, then back to escape from people they could perfectly well get along with-- if their economic/political systems hadn't excluded so many people from the loop, rendered us generally so desperate & strange...

Dmitry Orlov said...


Can you point to a Western government where such "political rethinking" is going on? Which of the G8 leaders is going to push through "confiscatory taxes on nonproductive wealth"? Who are you trying to kid?

Shadowfax said...

I don't know about your catamaran.Andy Brown..but mine ain't waterlogged??? and is unsinkable.
Got your liferaft??

forrest said...

Ellen Brown mentioned a US State government that's worked under a State bank for some very long time, operating that way. Without even trying to take back anybody's fraudulent gains; they just find it a cheaper way to run a State government.

Existing national governments, well, they don't seem to like that idea or even want to notice it. No reason for us to take the only option that makes any sense off our own agendas.

In my day people were assuming we'd stay with, even increase the graduated income tax-- & eventually even things out. Not sure how they made that idea disappear, but the process was probably financed by someone with more money than most of us could spend in a day. Who could buy more tv time than the rest of us.

It looks like liberal reforms are intrinsically unstable, unless people make extraordinary efforts to remember whatever happened the last time they let wolves handle the shepherding. Governments are boring, but they bite us whenever we let them put us to sleep.

I'm not sure there's a "solution." But it would be easy if enough people insisted. Okay, is the Collapse Party running anyone for office in San Diego?

Jeff Snyder said...

A snapshot of the ongoing collapse, for those who don't range wide enough to see that it is happening. Jim Quinn @ The Burning Platform talks about 30 blocks of squalor along the West Chester Pike into Philadelphia.

"I believe a country and a community will have a lot of what it values most. Our country has a lot of debt, a lot of vehicles, a lot of bombs, a lot of psychotic criminals running our economic and political systems and a lot of willfully ignorant drones – disguised as citizens."

A worthwhile read: http://www.theburningplatform.com/?p=30603

W. Gummidge said...

I have a solution....every Country should default on it's debt at the same time and day, to be mutually agreed.Game over!:)

Anonymous said...

"Jeff Snyder" seems awfully certain that America's problems are traceable to the existence of Black People. I don't see how that theme or theory relates to Dmitry's entry above.

Dmitry, a question about your labelling Bush43 as "incompetent." Wouldn't any assessment of competence depend on the person's goals?

In other words, one might say Bush43 was "incompetent" at governing or leading in a fair-handed way that advances everyone equally -- but that would assume his goal was to lead or govern in such a way.

I tend to see Bush43 as highly competent at deception and self-enrichment, though a bit incompetent at convincing me that his Texas persona and accent were real -- his deception there was a bit less competent than his general overall deception abilities.

Lucas Durand said...

I had to chuckle when I saw the title of this post - just the other day I was having thoughts in a very similar vein after reading some mainstrem reporting of the events at Camp David.

"...leaders of the world’s other top economies agreed that while Europe should still toil to reduce deficits, it must above all else promote widespread growth and job creation."

"In a group statement, the G8 leaders added they hoped Greece would remain part of the eurozone as it struggles to deal with a devastating sovereign debt crisis."

Our "illustrious leaders" still believe that they can exercise control over the outcomes generated by this overly-complex world.

Anybody know where the "growth" pills are?

The whole thing is starting to simply look farcical.

Jeff Snyder said...

Wow, Karl, that's a leap. I don't know how anyone who reads Dimitry's blog could draw the conclusion that collapse has anything to do with race, though I am sure racism definitely makes America's collapse worse and accelerated for blacks and hispanics. If anything, the condition in the neighborhoods Quinn describes shows what's coming to large numbers of the rest of us. Like the proverbial canary in the coal mine, collapse is happening to minorities quicker and harder because they are on the lower rungs of society and are victims of racism. Quinn's description of the squalor has nothing to do with race, and if you read his piece carefully, that is pretty clear. He's pretty clear that what he see exhibits what our society - the totality - is and values. It is even more clear if you are a regular reader of Quinn's blog. There is nothing racist about him.

Contrary to your inference about my thought processes, I do not attribute Quinn's description to race. Since I am a published author on various societal issues, you are welcome to read a sample of my works at Lew Rockwell to see if you can find any Charles Murray or other style racist underpinnings to my thoughts. As someone who comes from rural Pennsylvania, populated by lower class, poor and welfare class white people who used to have manufacturing jobs and a reason to live beyond the "entertainment" coming up on tonight's television shows, I can tell you that where my mother lives, the same things are happening. They have just not progressed as far as Quinn depicts - yet. The one saving grace of that area is that it still has active farms, including Amish, which provides a base level of economic support that so far is saving it from the depths that Quinn describes. So far.

vera minuz said...

I will meditate on this problem.........,,,,,.....!......hmm.
It does not matter. All will suffer and die in the end. What does matter is the joy and ecstasy we embody on the journey. That journey could be one of collective assent, collective desent, or a combination of the two. It just so happens that we are recognizing that the physics of limited energy implies that we will be experiencing collective desent.
So what, in the long run you will suffer a death, so try to help others, try to spread joy and enjoy the ride for however long it lasts.
Surrender to the inevitable and find peace.
Try meditation.

DeVaul said...

"Okay, is the Collapse Party running anyone for office in San Diego?"

Actually, every politician running for office there is part of the Collapse Party -- they just don't know it.

After the collapse, when they do know it, a great many politicians are going to be upset that they did not receive their "Lifetime Achievement Award".

Anonymous said...

Jeff Snyder, please drop the pretentious lingo.

Your link went to an "essay" by a racist who was complaining about too much public assistance being spent on malt liquor and fried chicken in the "30 blocks of squalor."

I'm not sure how you or the linked "author" gets to "cultural canary in a coal mine" from there, but it's not through logic or reasoning. It's through assumption and unchecked belief.

You foisted a stereotype onto Black folks and now pretend to empathize with them merely by giving them canary status? That's funny.

I think you and the linked author forgot to talk about drunken Irishmen, greasy Italians, wet-backed Mexicans, overindustrious Asians, and cold meticulous Germans. I mean, as long as we're trading in stereotypes we may as well stick to the theme everywhere.

But please, drop the pretentious long words that say nothing. Please.

saddlenode said...

"even an economist will tell you that a higher debt-to-GDP ratio results in lower growth."

I have yet to see evidence that this is _necessarily_ the case. Usually this assertion is simply stated as something self-evident, without any proof.
First of all fiscal stimulus does not necessarily push up the debt-to-GDP ratio. If the resulting growth is higher than the expansion of debt than the debt-to-GDP ratio may actually fall (with a lag).
Furthermore a rise in the debt-to-GDP ratio in itself does not mean much. If borrowing costs are low than the accrued burden on the expenditure side is usually minimal. Interest payments usually make up a very small part of developed nation's budgets (less than 5-10%). So even if interest payments rise due to higher borrowing (and this is not necessary at all! borrowing costs for the US and UK have actually fallen since 2008 in spite of high borrowing) this can be a much smaller sum than the extra revenues gained by higher growth.
All in all the deficit/debt hysteria seems to be based on a number of assumptions which are in most cases simply false. Just in terms of the monetary flows the case for stimulus is overwhelming.

Another question is of course bottlenecks in terms of _physical_ resources and Orlov's work is mainly focused on that. Even if a growth policy would work in terms of the money flows, we might very well hit limits in certain physical resources on which growth is predicated upon. Sadly, to consider the economy as a system of _physical_ flows is not something that economics (AFAIK) is concerned with. a pretty sad science I would say: mostly hollow propaganda when it comes to the processes it is supposed to investigate, and nothing to say whatsoever when it comes to the relationship of economic growth to the physical environment.