Why Austerity doesn't work in the modern world. - Politics Forum.org | PoFo

Wandering the information superhighway, he came upon the last refuge of civilization, PoFo, the only forum on the internet ...

Everything from personal credit card debt to government borrowing debt.

Moderator: PoFo Economics & Capitalism Mods

#14866123
Why Austerity doesn't work in the modern world.

Neo-liberalism and/or the Austrian school of economics call for austerity when a nation has too much debt compared to its GDP. The ECB imposed austerity on Greece and the other PIGS during the 2008 economic crisis. Their ratio of debt to GDP actually went up because their GDP went down and so did their tax revenues.

Why does this happen.

There are basically 4 things a nation can tax.
. . 1] Heads – everyone pays a fixed amount. This might also include Hearth taxes, every house or hut pays a fixed amount.
. . 2] Land and buildings (= property) – you pay a percentage of the value of what you own. This might also include factories (= buildings) and the machines in them. Some nations have wealth taxes on really rich people, the UK does, I'm told.
. . 3] Consumption – you pay a percentage of the value of what you spend on consumer goods (not land and industrial machines). A sales or VAT tax.
. . 4] Income – you pay a percentage of your income, usually nothing if you make a little, something if you make more, and a higher and higher perentage of your income as you make more and more.

Most modern nations mostly tax consumption and income. The head tax is a thing of the past and in the US property taxes are only used by state and local govs.
This means that as the economy slows and incomes and spending drops, tax revenues of the nation also drops. This makes it hard to balance the budget by cutting spending, because when spending is cut, this cuts the incomes of some people. They then spend less. This cuts the incomes of more people. If the nation is taxing consumption with a VAT tax or a sales tax, then tax revenues fall as spending falls. If the nation is taxing incomes then tax revenues fall as incomes fall.
This results in the deficit going up compared to what might have been expected, unless Gov. spending is cut more. This also results in the GDP going down.

Therefore, in the ratio of debt / GDP, the numerator = amount of debt goes down less than expected AND the denominator goes down as might be expected. When you do the math the smaller denomitator makes the ratio go up, not down.

Now, if the nation relies on Property taxes and wealth taxes and these are not quickly reduced as the value of the property falls in the recession then the tax revenues will not fall. This also goes for net worth taxes on wealth (stacks, bonds, and cash in a bank, etc.).
. . However, the rich don't like wealth taxes because they are the only ones who pay them. The rich want to shift the tax burden onto the middle class and the poor as much as possible. However, this then makes austerity fail to do what the Neo-liberals say it will do.

On a similar note – paying down the national debt can only be done if the taxes used to do it fall mostly on the rich. This means the percentage raised from the rich must be at least as much as the percentage of wealth and income as the rich have compared to everyone else. It may even need to be more than this percentage.
. . This is because taxing the middle class and poor will cut their spending and this will start a recession in a few years. The recession will keep getting worse until the Gov. increases spending and ends the surplus. If the Gov. continues the surplus there will be massive public anger and this will lead to a new Gov. or civic unrest.
. . The rich would hate this tax system so it will never happen. All calls by economists to pay down (or pay off) the national debt are really just the rich asking for less social spending to help the poor and middle classes. And they want support the Gov. with taxes on the poor and middle classes. It is just the rich taking from the rest of the nation using the Gov. to do it for them.
. . The rich don't understand that their incomes will fall or at least not rise as much if everyone else is made poorer.
#14866234
@Steve_American

You say a government doesn't save as much as all that by cutting spending because that spending is income for some people and that income would go back to the government anyway, but if you actually look at the numbers that doesn't work because if the government is borrowing (and paying interest) to provide someone with an income then what percentage of that income does it get back? Food and Accommodation is typically not taxed and income tax is, even on the top rate, less that 50%.

A government that repays a loan with interest only to get back 10% of it in tax receipts is going to go hell very fast. It is exactly this kind of retarded economics that wrecks public finances in the first place.

Finance is a devil's bargain, no one (even governments perhaps especially governments) should take it witlessly, it does makes sense in the narrow case where the cost of the finance will be decisively eclipsed by the gains from it or in situations to smooth over unstable cash flow. To fund otherwise unaffordable luxuries is the most retarded use of finance no matter what random party gets a kickback from it.

----------

Would you take your own advice? Eg: You stack shelves in a supermarket and someone suggests to you that you should take a huge loan out to go on a holiday abroad which you otherwise would never think you could afford. You are afraid at first because its a loan so you will have to repay it and there will be interest to pay on it too. But your savvy finance advisor points out that all the money you borrow to spend is income for someone else: hoteliers, taxi drivers, airlines, restaurateurs etc. And what will they do with that income? They will spend it, like for example at the supermarket where you stack shelves and the extra business the supermarket gets from these newly enriched taxi drivers and hoteliers courtesy of your loan will certainly translate into a payrise for you... lol.

---------

tl;dr - trying to trick your gov into financial ruin for your own selfish short term benefit is treason.
#14866516
Steve_American wrote:@SolarCross
The US Gov. budget and my budget are totally different. What is good in one is bad in the other.


Reality is wingnut insensitive, you need to tone that shit down before they start feeling their feelings and whinging on the floor.
#14866522
SolarCross wrote:Which means you care about one but not the other?


What do you get from dragging out the exposure of your own incompetence? Bullshit arguments only work in sound bites, they're not meant to be explicated and defended. Do you not understand how bullshit works or are you out to deliberately hurt the cause?
#14866523
What do you get from dragging out the exposure of your own incompetence? Bullshit arguments only work in sound bites, they're not meant to be explicated and defended. Do you not understand how bullshit works or are you just out to hurt the cause?

Go easy on SolarCross, Sivad. Being a useful idiot for the elite can't be an easy life. Lol.
#14866528
Governments that use austerity' to reduce or eliminate their deficits, invariably target those with no political voice in which to make such governments change policy.

'Austerity' is a euphemism for economic war against those targeted, it is NOT about 'defict-reduction'.

This IS a FACT,because the ''deficits' & governments spending are not reduced or eliminated but INCREASED during 'austerity'.

YET! The sole purpose of targeting 'welfare' for instance, is that those on welfare are doing so at the expense of the workers,which,according to political(NOT-economic)doctrine, is hurting those in work & making the workers pay more taxes than necessary.
Looking at this we can see this is UNTRUE, that taxes increase due to the 'deficit spending', which increases DEBT & INFLATION.
It is also said by government that,"We MUST live WITHIN our MEANS",which,considering 'deficit spending being on steroids, massively INCREASES NATIONAL DEBT INTEREST,even in a period of artificially kept low interest rates,cost virtually the same as the increase in government spending.


This explains who the 'WINNERS' are & who the 'LOSERS' are.

In the UK, the WINNERS are the FINANCIAL MANAGEMENT COMPANIES that receive some £40 BILLION per annum, from Additional Pension Relief as a direct result of the HMRC 'FOREGOING' tax that would otherwise be paid each year by the RICH & 'BETTER OFF'.
That is the way that the TORY government literally STEALS money from the POOR to give to the above mentioned 'rich' & 'better off'.

Another way that money is 'siphoned-off' by the TORY government, is by the 'Buy-To-Let'-'Housing Benefit'system that in effect, BUYS 'PRIVATE' property for the BTL Landlords, whose mortgage interest is paid by the TAXPAYER through the Housing Benefit payments.
The BTL landlord pays between 25-40 capital value of a BTL property up front, the other 60-75% cost of the property is born by the taxpayer through HB.
Thats not all, the BTL landlord also reaps the Capital appreciation of the value from price increases
& increased YIELD on the value when rent increases during price falls or stagnates.

ALL 'income' should be taxed at source for the employed & 'self-employed' should be made to PROVE EVERY PENNY of their NET profits for tax purposes EVERY year & HMRC should have ABSOLUTE power to impose MANDATORY, UNLIMITED FINES on those DEFRAUDING the taxman.
The tax system is set up by POLITICIANS, in order to DIVIDE & RULE, this is NOT what the original intent for taxation was.

In the UK both main political parties copy each other on tax & spending.

We need a 'Democratic' form of government, the status quo has FAILED, people are devided by values or hypocrisy on taxation-Benefit policies when it comes to issues like unemployment,disability,pensions, foreign aid, the EU contributions through customs like V.A.T or the issue of migration.

It's clear that our TAX system, like so many other things in the UK are NOT being addressed for the modern era, this HAS TO CHANGE.

The young have, like politicians that bequeathed them, the anticipation & sense of entitlement that older generations never had experience save the 'RICH' - 'BETTER-OFF'.

'Austerity' is the law of 'diminishing returns' in action, it's cutting one's throat to spite the others face,in the beginning, you get 'popularity' of sorts(TRUMP), you end up with chaos & division(divide-rule)that benefit neither King or country.
#14866544
Sivad wrote:What do you get from dragging out the exposure of your own incompetence? Bullshit arguments only work in sound bites, they're not meant to be explicated and defended. Do you not understand how bullshit works or are you out to deliberately hurt the cause?

Ad hom & strawman ^ , you must be left wing, pleased to meet you.

It was a very relevant question, @Steve_American claimed that bad advice that would be bad for himself to follow would be magically good for the government but failed to say why exactly that government is supposedly immune to bad advice. One obvious reason for a difference is that @Steve_American cares about what happens to himself more than he cares what happens to the gov.

I can relate to that; I personally wouldn't wish financial collapse on anyone but if it had to be someone then anyone else than me would do just fine. It isn't particularly rational to care overmuch for the fate of strangers.
#14866610
@SolarCross,
But, I did mention why good advice for people and corps. is bad advice for the US Gov. I said the Gov. is not a person. The Gov. is not at all like a person. Yes, some schools of economics ignore this fact and ask the reader to think like they are the same and ask "What would happen if a person behaved like the Gov.?" MMT and others will clearly say that this is a huge mistake because the Gov. is not like a person.

So, I'll make an effort to explain it to you. However, this deserves its own thread, so I'll ask you yo go to my new thread and read my reasons there.
#14922125
SolarCross wrote:Steve_American wrote:
@SolarCross
The US Gov. budget and my budget are totally different. What is good in one is bad in the other.
SolarCross wrote:Which means you care about one but not the other?

Nice insult there.
Can you not understand that I believe that the theory you are married to is destroying Europe and hurting America? MMT would do much better.

Anyway, I heard Dr. Randell Wray the other day explain why it is stupid for people to use a family budget to decide what the US Gov. should do.
He was asked to explain it and he replied. ---
The difference is a family is like an individual but the Gov. is a collective. What is good for an individual may not be good for a collective. For example the people in a sold out movie theater are a collective. If they all try to jump up and run out at the same time the result will be very bad and only a few will be able to actually run out. The rest will be caught in the traffic jam and some may even be crushed to death.
. . But, any individual could get up, move to an aisle, and run out, as long as everyone else stayed seated.

Or we could look at Dr. J.M. Keynes' paradox of thrift. Yes, it is good for an individual to save for a rainy day. However, if all the families in the US save $1000 in a calendar quarter then the 200M families will all together save $1000x200M == $200B and this will have a negative effect on the nation's GDP. It might even kick off a recession.
. . . So, what is good for an individual family is not good for all the family's as a whole.

And how would the US Gov. save anyway? The Gov. tried to do that with the Soc. Sec. Trust Fund. It bought US Bonds with tax dollars [to save them until later]. Did that work out well? No, it did not. The Gov. is now just borrowing to pay off the Bonds as Soc. Sec. needs them. It did not keep the Gov. from needing to borrow now.

SolarCross, it seems like you don't care about the massive negative impact that Neo-Liberal policies are having on the incomes of the average American. [And also ave. European.] All you care about is that the rich get richer. Stuff that.
#14922311
Tainari88 wrote:The rich get richer and that is what most of the right like. Why act surprised Steve? :)

He had said that I care about my budget, but I don't give a shit about the [maybe later] consequences of continued deficits of/in/with the US Gov. budget.
I was just pointing out that he doesn't give a shit about the consequences now [not maybe later] of the current practice.
And MMT says that there are no consequences to continued deficits as long as they are not continued after real full employment is reached.
#14922313
Steve_American wrote:He had said that I care about my budget, but I don't give a shit about the [maybe later] consequences of continued deficits of/in/with the US Gov. budget.
I was just pointing out that he doesn't give a shit about the consequences now [not maybe later] of the current practice.
And MMT says that there are no consequences to continued deficits as long as they are not continued after real full employment is reached.


Bad values, it all boils down to bad values. Can't escape it. If you have bad values? You won't have a trouble free society. Period. Bad values in economic thought has grave consequences. I don't cry for privileged people who refuse to deal with the problems associated with unequal distribution of wealth.
#14922319
Tainari88 wrote:
Bad values, it all boils down to bad values. Can't escape it. If you have bad values? You won't have a trouble free society. Period. Bad values in economic thought has grave consequences. I don't cry for privileged people who refuse to deal with the problems associated with unequal distribution of wealth.

Why would I cry for privileged people who are letting people suffer unnecessarily?
Sorry, I don't get the point of that sentence.
#14922327
Steve American the point is that you can do your economic analysis and in the end if you have people with bad value systems making economic decisions the trickle down voodoo economics that the conservative sector uses and is never effective in reality? It won't help. You got to have sound economic theories coupled with sound value systems. You can't have a divorce between those two. Got to have good values and sound economics.
#14922983
What is with you people?
There are 15 replies and not one of you said even one thing about the OP's main point.

The main point is that by taxing incomes instead of the wealth of the rich* we have changed the tax structure to make austerity not work as it did 100 years ago.

This should be a huge thing, but I hear crickets.

Austerity is not working. I suggest this is why. Then no discussion of my point.

So, I'll ask you-all to say something on point, please.

.

.* . Note: taxing the wealth of the rich just makes them want to suck more from the masses so they end up with the same after tax income as they do with the current system. If they can, then fine. If they can't, then why is this better than endless austerity? [The austerity is 'endless' because the sick economy never will improve enough to justify ending the cure (i.e. the austerity)].
#14923200
It is abhorrent to many people to tax what you have already earned. Taxing property and wealth is to deny ownership of what you have earned. Whether it makes sense economically does not matter to me because of the inherent unfairness.
#14923208
One Degree wrote:It is abhorrent to many people to tax what you have already earned. Taxing property and wealth is to deny ownership of what you have inherited. Whether it makes sense economically does not matter to me because of the inherent unfairness.

Fixed it for you, One Degree. :)
#14923211
Potemkin wrote:Fixed it for you, One Degree. :)


Got me. :)
I don’t deny that is a problem. It is also a problem I don’t have a solution to. Inheritance tax strikes me wrong also.

Edit: Actually that is not true but the solution is in my ideal world of only allowing local ownership. The wealthy then become an asset to the community because they can’t invest their money anywhere else.

I think preparation is of some benefit. There is[…]

Bill Barr has to go

1) Like what? Imperialism? Bigger, richer coun[…]

Harry does not have a drop of Windsor blood in hi[…]

Not true, but you can not do anything about the[…]