Amartya Sen: The economic consequences of austerity
newstatesman.com
newstatesman.com
Many people arguing against balancing budgets (or 'austerity' if you will) do so because the first budgets to be slashed are usually things where the benefits are long-term, such as education. But it's a false dichotomy that these are the only choices.
Then there's the economists, who will pull out some toy model and claim xyz is good/bad. Too me it seems more like religions (being a Keynesian, Austrian, etc), where people search for facts that confirm their positions.
The problem with most macroeconomic theories is that they ignore too many important details.
So for example, you can borrow money to invest in the future which is usually good in the long run, or you can spend it on things you don't need such as hosting international sports competitions, ineffective military equipment, ... This means you can come to completely different conclusions as to the effectiveness of government spending. In the words of Warren Buffet, we don't talk about 'quality' of GDP enough.
There's a nice paper by Mankiw on the topic of science vs engineering in economics:
I agree. Unfortunately, these are the only choices that are typically envisioned by people advocating balanced budgets, so they are automatically associated to the concept. It's the responsibility of such advocates to come up with alternative choices; alas, as we've just seen, they don't seem willing to entertain the possible existence of alternative paths.
> The problem with most macroeconomic theories is that they ignore too many important details. So for example [...] you can come to completely different conclusions as to the effectiveness of government spending.
Among the many important details these theories ignore is the actual identity of people responsible for such spending.
Budget cuts, when they are made, are done in the places where they will minimise the political damage to the party making the cuts.
It's not that nobody can come up with saving money in the bureaucracy, military&secret services, government subsidies, etc. It's just that they are costly in terms of political power and therefore not discussed at all. And the easiest things to slash are things your own voters don't care about and the easiest taxes to increase those that your voters don't pay.
I doubt that any kind of economic thinking goes into these decisions.
Except that that's not what it means. Norway has been running a budget surplus for years (because of oil), but is not engaging in austerity; the UK was running a deficit and engaging in austerity at the same time.
Austerity is generally understood to mean a reduction of the structural deficit in a time when the economy is struggling or contracting. It is considered counterproductive because it typically makes the economy even worse by killing domestic demand (directly and through cascading effects). See also the paradox of thrift [1].
Spending your way out of recession [in the midst of large pre-existing debt] has its own supporters and detractors. I've generally come to the conclusion that whatever your budgetary preference you can find an macro-economist to agree with you.
That's why I wrote that the UK was engaging in austerity. Past tense. Osborne abandoned austerity in 2012 (though the Cameron government's economic policymaking still does not show a clear strategy and the UK's economy is still pretty fragile [1]).
That the term "austerity" is sometimes used imprecisely (especially in colloquial speech) is not something I disagree with; however, austerity is not synonymous with having a balanced budget, as the OP claimed.
> Spending your way out of recession [in the midst of large pre-existing debt] has its own supporters and detractors. I've generally come to the conclusion that whatever your budgetary preference you can find an macro-economist to agree with you.
First, these are not the only two alternatives (fallacy of the excluded middle and all that). Second, critics of austerity do not rely on "finding a macro-economist to agree with them" but on the pretty clear evidence that at least for the ongoing crisis, austerity has been unsuccessful (change in government spending has been correlated with change in GDP; i.e., less government spending => less or negative GDP growth). In short, the hypothesis that austerity leads to GDP growth has so far been falsified by the evidence we have.
[1] Loss of real GDP and lower real wages compared to pre-crisis levels; a recovery largely fueled by consumption (in part, ironically, because of increased net migration to Britain) and rising housing prices, which is not sustainable in the long term.
That's a slightly optimistic definition of growth:
http://www.tradingeconomics.com/united-kingdom/gdp-growth
It might more realistically be called "bumping along the bottom."
But austerity doesn't just mean cuts in social services. It also means using "austerity" as an excuse to pay workers as little as possible, while making their living and working conditions as insecure as possible.
This has the interesting effect that what little growth there is very unevenly distributed, and most of the population doesn't benefit from it at all.
You have to think about this for a while to understand what's really happening: the true meaning of austerity is a calculated crippling of real economic expansion in favour of regressive wealth redistribution.
This is the one consistent meaning - and it also applies to the use of debt as a weapon against countries and individuals.
Structural deficit is a poorly-defined term, in the sense that there are many reasonable values for it. If you define austerity this way, then we can't even agree if we have austerity or not.
It's also not what most creditors care about. What does it matter if you don't get your money back because of cyclical or structural deficits?
Perhaps you misunderstood me, i didn't mean to imply that austerity is equivalent to a balanced budget. I used austerity in the sense of "increasing revenues and reducing spending" to balance a budget that is in the red.
If I have a model that doesn't work in smaller AND larger (whatever that means) contexts, it's a bad model.
Physicists admit it, economists might, politicians don't.
My own "religion" is that you should build a reward function for every actor in a system (be it state, politician, company, CEO, consumer, ...) and see how they react to different events (legislation, appearance and disappearance of new services/products, ...).
If you follow that line, you'll end up with a very pessimistic view and an Austrian mindset.
IMO game theory is the foundation of economics and it explains how it could look like, what's happening right now, why central banks collude and why any monopoly on violence and/or the issuance of money will degrade into what we currently have.
In the end, the budgets are irrelevant, politicians don't want to balance them and even if for some reason one does, his successors won't.
That seems like a very strange remark. First, macroeconomics va. microeconomics is not about large and small, but about the whole vs. parts of it. And that indeed makes a huge difference.
Second, we use different models all the time, pretty much everywhere. So in engineering small local systems you would use classical mechanics. In physics, not. There are similar examples in computer science.
To expand on that: A sovereign nation state has the power to tax, to legislate, and to regulate trade with other nations; outside the Eurozone, to issue its own currency. Households and businesses can do none of the above, but are subject to the decisions that their governments make on their behalf.
Only to be resurrected lately because the new unified models were empirically shown to have little macro predictive power, ie. They were wrong.
(There have been several "tests" of Keynesian thinking where Keynesian predictions agree with monetarist predictions, but such tests can't distinguish between the two theories.)
Most of the modern shift in economic thinking is based more on fashion than on new information. See, e.g., Scott Sumner on the topic: http://econlog.econlib.org/archives/2014/05/when_ideologies.... http://econlog.econlib.org/archives/2015/03/ways_of_thinkin....
However, steering the big system by looking at the big statistics while ignoring its much more deterministic effects on parts is both, an oversimplification and common practice.
Just think of a tax where they talk about future income streams for government but totally deny the costs (especially for complex taxations or ambiguous legislation). Or changes to the way GDP is calculated. Or "economical stimulation" via war.
I'd argue that global markets are chaotic (dynamical systems) and thus this statement is a little too simplified for my taste.
If you look at the surplus it works well for their exports but the salaries are at the same level they were in the 90s. So although unemployment is low and exports were going strong (hence corporations like BMW and Mercedes are making huge profits) the salaries were largely at the same levels. The German government decide to keep the surplus instead of spending money in local and foreign investment which keeps virtually the EUR low. It's a policy heavily criticized by both USA and European economists.
One might argue that these choices worked very well for Germany. Not very well for the rest of the Eurozone, especially the Mediterranean countries, which found themselves having huge deficits. The EU has structural problems which the German model speed up.
Now it's the other way around : the demographic transition is hitting the retirement age all over Europe and it is an alarming problems for many countries including France and Germany.
Interest rate convergence was one of the criteria for introduction of the Euro:
https://en.wikipedia.org/wiki/Euro_convergence_criteria#Crit...
Point 5, long-term interest rates
The ECB's mandate is to worry about price-stability, not the German economy
https://www.ecb.europa.eu/mopo/intro/objective/html/index.en...
Practice may of course deviate from theory, but i don't think it did much here.
German unification was 1990, we are talking about the time around 2000. Many central banks in the world lowered interest rates after the dot-com crash & 9-11 and the economic slowdown that followed.
You might argue that this caused asset bubbles, and i would tend to agree.
If it were up to me, i would add "avoiding asset bubbles" to the ECB mandate, if you want to you could regard it as a kind of price-stability mandate for assets.
Greece's House price index (2007=100) shows a cumulative rise of 44.3 from 2001 thru 2007, and a cumulative drop of 49 from 2008 thru 2014 - http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=129.RPP.A.G...
As of February 2014, "Greece [had] suffered the second biggest property crash in the EU since the debt crisis began." - http://www.theguardian.com/world/2014/feb/28/home-ownership-...
From Q3'08 to Q2'14, Greek house prices declined by 41.6% in real terms - http://www.bankofgreece.gr/BogDocumentEn/PRODEXPO_Oct_2014.p...
The charts are remarkably similar for
Greece http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=129.RPP.Q.G...
Spain http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=129.RPP.Q.E...
Portugal http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=129.RPP.Q.P...
But i would still claim that in the case of Greece, the (masked) public debt crisis preceded the asset bubble whereas in Spain, Portugal and Ireland the public debt crisis followed the asset bubble.
The whole reason for all that austerity was that some countries were unable to refinance their debt and other countries are afraid they might not be able to refinance in the future. Refinancing debt in hard times becomes harder yet if it is externally financed.
You need to convince someone to lend you money if you want to run a deficit.
Love it or hate it, the Germans don't like a soft currency. The reason is probably the prelude to the rise of Hitler, which was marked by hyperinflation from printing too much money. It has been in their "DNA" since WW2, and no amount of economic handwaving is going to change that, at least in the forseeable future. In practice Germany has had a budget deficit nearly every year of course (such is politics), they just aren't that big.
The reason Germany joined the Eurozone was the absence of debt mutualisation. The Bundesbank warned that this was hard/impossible without political union, but they were ignored. And so, here we are.
The details are here
https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_R...
On the other hand, I understand that you're probably are a lesser mind and you simplify complex topics, like the one discussed here. It make you think you understand them. But you don't.
Your comment is implying that all Germans are Nazis. They are not.
You could attack me or you could use reason. You chose the first, so I'm not going to reason with you any more.
Austerity is a religion among the world's bankers and has been for some time; the US has been no less a subscriber to it than Europe and has been fully on board with imposition of austerity measures as conditions for World Bank and IMF efforts in the past.
Its getting noticed more in Europe because the attempts to impose it in the Eurozone have, unlike decades of IMF and World Bank efforts, actually targeted countries outside of the Third World that First World observers actually notice and care about.
But it is. Money is used to do productive things. Money is created when a bank issues debt. If no one is spending money, and paying down their old debts due previously reckless lending and borrowing, you have a depression, where lots of people want to work, but can't, because no one is buying anything. The only people making money are the lenders - until people start defaulting. Who is to kick start the engine?
Well, you've got four choices;
- the government, which works well if it is quality spending, ie. it's channeled towards infrastructure and/or consumption (see the U.S. vs Europe). but it is politically unpopular among the rich because it is theoretically inflationary.
- Or the central bank can buy up debt on the market (quantitative easing), but with everyone paying down their debts, this doesn't actually help the economy as much. Also not popular with the rich because it's inflationary.
- Wait it out, ie. Stop spending money and make everyone pay down their debts. This is the "austerity" plan, where a generation of people will be unemployed because of the supposed sins of the past - a cleansing ritual approach to the economy. Popular with the rich because they can afford to sit back and wait.
- Option four is a debt jubilee where creditors get a haircut and we all feel spurred to spend money again because we aren't so far in debt. This is popular with the masses and (obviously) unpopular with the rich. This is what happened to some degree in Iceland. And this is in effect what Greece is asking Europe to do as the most realistic outcome from the 2008 crash.
"But it's a false dichotomy that these are the only choices"
Actually, no, it's a real dichotomy. Either you believe in balanced budgets at all times, or you believe that deficit spending is justified sometimes. Similarly for occasional debt jubilees vs the sanctity of the bond holder. These are stark choices as they have major implications on entitlements like medical and social insurance in a crisis.
"Then there's the economists, who will pull out some toy model and claim xyz is good/bad. Too me it seems more like religions (being a Keynesian, Austrian, etc), where people search for facts that confirm their positions."
A model is just a consistent logical argument. Because economics is so tied to politics, the logical arguments get religious fast. That's kind of human nature.
Searching for facts to confirm (or contradict!) your position is usually a good thing - we call that empiricism. I'd note that not all economic traditions believe in empiricism (the Austrians do not, for example - they believe their system is axiomatic).
"The problem with most macroeconomic theories is that they ignore too many important details."
The point of a model is to have predictive power without being so complicated that it's impossible to use. There's some subjectivity as to what is "important" in making an argument.
"So for example, you can borrow money to invest in the future which is usually good in the long run, or you can spend it on things you don't need ..... In the words of Warren Buffet, we don't talk about 'quality' of GDP enough."
That would be because we are still stuck in debating whether government spending helps at all, which is anathema to a large number of property holders. Among those that want stimulus - look at the Econ blogosphere! - there have been endless debates circa 2008-2009 about quality stimulus vs. pork spending stimulus.
Those discussions have ceased because austerity has become the political rule in Europe (and to a lesser degree but still strong in a polarized US electorate). No point debating what to spend money on if there's nothing to spend. So debates have turned to QE and debt writeoffs - two of the other four tools left that I mentioned above.
If debt paying is increased, then buying is reduced, ok. And that means the previous level of growth is reduced. Which has a multiplicative effect because everybody is betting on increased growth, by investing in a bigger operation etc. Which leaves them struggling to pay off THEIR debt.
Maybe if we all were content with reasonable growth, instead of buying lottery tickets all the time, betting on increased growth. But you'll get in trouble with your investors if you 'miss out' on any opportunity. This investment market is insane.
Your second paragraph basically explains the debt deflationary spiral at the core of Keynes' economics.
I agree that speculative investment is a problem, but we are (in Europe / the U.S. is doing relatively fine) still talking about "unreasonably low growth" given levels of unemployment - people that are idle and want to work! An economy that isn't growing has become closer to zero sum: one persons gain is another's loss.
Given the historical strength of the rich at retaining and growing their relative share, this doesn't bode well for the masses. Depressions and recessions spark revolutions when they last too long.
You know, monetary theorists make me dizzy.
Please explain how people were able to live before debt was defined as money? Because there was a before, and people lived by then.
What monetarists often forget is that inflation (both positive and negative) exists. What's a surprising and ironic realization, because "inflation" is the thing they study.
You can make any kind of shady accounting, and define any kinds of equality you want at the monetary side of the economy. In the end, the real side will distribute everything that is produced to people that want it, and set the real wealth of the economy. If you want to claim that monetary phenomena cause real problems, well, you must claim a link between them, because it's not automatic, and "money disappears" isn't one (although "prices are sticky" is).
Not really. Money historically was created for tallying and clearing credit accounts. It was debt that led to exchange. This has been explored pretty heavily in recent books from Felix Martin, Graeber, Weatherford, etc. Of course money is more than debt -- but it is intrinsically linked. Hard money is something of a delusion.
Also, people did use hard money at the past. No we should not go back there, but it did exist, and people didn't starve because of that.
I agree, of course. Most exchange was gift or reciprocity-oriented. I'm just saying that money emerged for a variety of reasons, one of which (probably the biggest) was to clear accounts as communities grew to a scale where reciprocity can't scale. Barter as Adam Smith describes it never really existed in ancient societies.
"Also, people did use hard money at the past. No we should not go back there, but it did exist..."
Again, also agree.
", and people didn't starve because of that."
But they did! Numerous economic crises, whether depressions or hyperinflation can be traced through ancient times - the 3rd century fall of the Roman empire (hyperinflation), the various Italian banking crises in the 14th and 15th centuries, Tulip mania, panics and depressions through the 1700s and 1800s, leading to the failure of the Gold standard (the ultimate hard money backstop) in the Great Depression....
Going back to your first response, "If you want to claim that monetary phenomena cause real problems, well, you must claim a link between them", but that's what Keynes (and others) spent a lot of time actually doing in the 1920-40's. The world got complicated and the gold standard broke down. The rise of shadow banking makes things even more complicated in this age.
Lant Pritchett
+ Author Affiliations The Kennedy School of Government. e-mail: lant_pritchett@harvard.edu
Abstract
Cross‐national data show no association between increases in human capital attributable to the rising educational attainment of the labor force and the rate of growth of output per worker. This implies that the association of educational capital growth with conventional measures of total factor production is large, strongly statistically significant, and negative. These are “on average” results, derived from imposing a constant coefficient. However, the development impact of education varied widely across countries and has fallen short of expectations for three possible reasons. First, the institutional/governance environment could have been sufficiently perverse that the accumulation of educational capital lowered economic growth. Second, marginal returns to education could have fallen rapidly as the supply of educated labor expanded while demand remained stagnant. Third, educational quality could have been so low that years of schooling created no human capital. The extent and mix of these three phenomena vary from country to country in explaining the actual economic impact of education, or the lack thereof. Copyright Oxford University Press 2001
I am skeptical of all the highly corrupt organizations (FIFA, Olympics) that are private companies, often tax exempt, externalize costs and privatize profits. But in case of Munich, I think the Olympic games in 1972 and the heavily investment in infrastructure for this games, has actually more than paid off for Munich.
He also fails to distinguish between the degree of austerity imposed in the UK and Europe. In the UK, the Conservative government has taken steps to balance the budget by reigning in public spending (benefits in particular) in order to cut the deficit. It is a world apart from the extreme measures that were imposed on countries like Ireland[2] and Greece[3].
For context: The New Statesman is a left-wing publication. The left-wing in Britain are deeply opposed to the (right wing) Conservative government's austerity policies.
1: http://www.ukpublicspending.co.uk/uk_national_debt_chart.htm...
2: http://www.independent.ie/business/personal-finance/the-10-w...
3: http://www.newyorker.com/business/currency/what-austerity-lo...
Steps that pretty much failed spectacularly, considering current levels of debt. However, the markets trust this government will keep cutting ad infinitum in order to pay back their debt, so they trust them enough to lend them more money at decent rates. It's like a lender trusting a borrower willing to prostitute or sell his children above an unwilling one.
"Market trust" is a big joke, and also what underpins the whole economic structure of our times. It's insane.
People often confuse the national debt and the budget deficit.
The national debt is like a credit card bill. To pay off that debt, you need to spend less (including the interest on the money you owe) than you get paid, so you can give the surplus to the credit card company, thereby reducing the amount you owe them. If you spend more than you get paid, your credit card debt goes up (i.e. you're running a budget deficit).
In other words, the budget deficit must be eliminated (i.e. turned into a budget surplus) before the government can begin to reduce the national debt.
In 2008, the UK government spent ~£150bn more than it earnt, so the national debt grew by that amount. Last year, it spent about £90bn more than it earnt, so the national debt is still rising. The good news is that the deficit is falling. The government aims to eliminate it by 2020, at which point they will be in a position to start reducing the size of the national debt.
Just to give some context to this, the UK national debt is currently £1.56 trillion [1]. Reducing this by anything other than a token amount is an enormous undertaking.
[1] https://en.wikipedia.org/wiki/United_Kingdom_national_debt
Where you have the power to pay it off at will because you create the money. Assuming sovereign currency. (http://www.theguardian.com/commentisfree/2014/mar/18/truth-m...)
It's really funny-money. Bureaucratic number-shuffling to make debt peons. To force people to chase numbers all their lives. Ever wondered what money is to an entity which creates it by changing numbers on a computer?
https://news.ycombinator.com/item?id=9796611
In other words, austerity doesn't work.
In other words, that graph supports the idea that austerity helps reduce debt.
"As the IMF recommended, imports were reduced and exports were increased. The effect of the cuts in imports in Romania, a net importer of food from the West, was however not correctly estimated by the foreign analysts and it led to food shortages.[5] By 1986, it paid half its debt[3] and it finished paying its whole debt early in 1989, ahead of schedule. Nevertheless, the austerity policy continued even after all the debts had been paid." https://en.wikipedia.org/wiki/1980s_austerity_policy_in_Roma...
Austerity is really just the latest trick used by bankers to shift their debts on to lower classes. If you want more details, I highly recommend Mark Blyth's explanation ( https://www.youtube.com/watch?v=B6vV8_uQmxs#t=674 )
I think that is the first time I've heard Gordon Brown described as visionary. He's normally considered one of the worst post-war Prime Ministers.
And Brown decided to wage his own childish sustained attack on Tony Blair for the whole time he was Chancellor of the Exchequor as well.
But on top of all this, Brown was a bully to his subordinates as well.
Unfortunately for him, Murdoch did not trust him not to come after his interests, so here we are.
The politicking between the two was juvenile, but I'd rather blame Brown for his insistence on semi-privatised (and ruinously expensive) funding for public projects through the misuse of PFI.
That aside, Sen may actually be right in that Brown kept it together after 2008.
The Tory press love to blame him for 2008 in its entirety, including the parts he had no control over. But that's because the Tory press is full of vile liars, criminals, and frauds. (Some of whom have spent time in jail now.)
A more sober assessment is less unkind to Brown as an economist - if perhaps not as a politician.
To your other points:
- Calling Blair a war criminal is just childish name calling.
- Thatcher is one of the best post-war Prime Ministers, together with Clement Atlee, depending on your politics.
- The left-wing press has its own share of liars and frauds. The Daily Mirror was at least as complicit as the Murdoch press in phone hacking. And Johan Hari, Guardian Journalist, is probably the biggest liar in journalism of moderd times.
We're still waiting for the Chilcot report, but the US side has more or less admitted that the pretexts for the Iraq war were made up nonsense.
At least half a million people died in that war, and the results for the region were catastrophic - although very profitable for certain contractors.
I'm not quite sure what else you need to describe someone as a war criminal. But it's not just my opinion: it's a sentiment that's been voiced in the House of Lords.
As for Thatcher - charisma hardly maps to competence, and many of Thatcher's protectees and associates were - let's say - questionable company for a moral leader, with some extremely unsavoury hobbies that are being investigated by the police. This hardly speaks well of her judgement or character.
The Daily Mirror has very limited political influence, and last time I looked there was no one from the Mirror in the Cabinet running Communications for No 10 - until they were tried and jailed.
It would be interesting to find out exactly how and where phone hacking started. I suspect it wasn't invented by the Mirror. Naturally I can't prove that. But I do know that as far back as 1994 journalists from another newspaper were handing out illegal addictive drugs in return for tip-offs. So phone hacking is just the tip of the iceberg.
And Johann Hari actually wrote for the Indie, not the Guardian.
Considering the Mail regularly "repurposes" content from the entire web without attribution, accusing him of being the worst journalist ever is slightly hyperbolic - although to be fair the Mail does usually try to rewrite the content at least a little, which makes it okay, I guess.
I don't think that's the case. Even countries that were against military action, such as France, believed Saddam had WMDs.
>>I'm not quite sure what else you need to describe someone as a war criminal. But it's not just my opinion: it's a sentiment that's been voiced in the House of Lords.
The same as for any other criminal - a conviction by an actual court.
>>As for Thatcher - charisma hardly maps to competence, and many of Thatcher's protectees and associates were - let's say - questionable company for a moral leader, with some extremely unsavoury hobbies that are being investigated by the police. This hardly speaks well of her judgement or character.
I suspect we won't agree on her political competence but if you implying some of her ministers were paedophiles, I suggest you also look at Grevill Janner (Labour) and Cyril Smith (Liberal).
>>Considering the Mail regularly "repurposes" content from the entire web without attribution, accusing him of being the worst journalist ever is slightly hyperbolic - although to be fair the Mail does usually try to rewrite the content at least a little, which makes it okay, I guess.
I think repurposing or copying content from other websites is not as serious a journalistic sin as inventing large parts of stories. Hari didn't just plagiarised, he knowingly lied. He also cyber-stalked people on wikipedia as well. http://www.huffingtonpost.com/2011/07/20/johann-hari-fabrica...
"My vision is of a Britain where there is not stop go and boom bust but economic stability" April 2000 British Chamber of Commerce speech.
FWIW I don't believe Gordon Brown was primarily responsible for the crash. But neither do I believe he was primarily responsible for the good years.
As to visionary. Well, let's say somewhat less than 20/20.
It is unfair to say that he caused the crisis and in hindsight he could do more to prevent and mitigate it. However he did much better than most of his peers abroad and better than his successor.
He is generally much more warmly received by economists (Paul Krugman) and economic historians (Skidelsky) and journalists (Martin Wolf).
Here is Martin Wolf on the end of his term: http://www.ft.com/cms/s/0/3074d7ba-5ec0-11df-af86-00144feab4...
Krugman: http://krugman.blogs.nytimes.com/2008/10/17/hints-of-spring/ - "Gordon Brown may have saved the world, after all"
I can't read the FT article as it's paywalled, but I don't think Krugman can be called an economist any more. He's more of a paid troll for the NYT.
How can you say he's done better than his successor? We can never know how the economy would be doing now under Brown.
All the arguments about printing more or printing less money completely sidestep the real issue: how do you improve the productivity of the Greek economy. Economists have opposing theories that it's either really good, or really bad, to drop money from helicopters or just outright give it to banks.
None of these people are looking at the Greek economy saying "this is how they can double tourism", etc. Over the long term these are the decisions will create actual sustainable growth.
As for getting back the €360B, well, I wish all parties better luck with their decisionmaking next time. Seems like they need aid more than they need loans.
Well not really - it effects millions of people lives and billions / trillions in economic output and in the 1920's case led to Hitler and WW2. It's not like what colour to paint the bike shed.
Oh, I don't think you should cite Japan as any example anywhere. The financial situation over here is catastrophic, and there's not telling when the country actually hits the wall, but when it will it will hit it BAD. Demographic decline, Productivity stagnating, retirement paid by workers (less and less of them), humongous debt (spelling out default of hyper inflation in the mid term) - and a Nobel laureate should know that GDP growth is far from a good economic indicator...
> and austerity, as Keynes noted, is essentially anti-growth
Huh, does the author seriously believe that Keynes was constant in his beliefs? The guy changed his mind about many things thoughout his life: http://www.economist.com/blogs/freeexchange/2013/11/economic...
Wait, if the UK, which doesn't suffer from these problems quite as badly, still has lower GDP growth than a country that does, that says something bad about UK's growth. So it seems clear then that the UK has done something badly wrong.
> GDP growth is far from a good economic indicator
It should be good enough. For one thing, large systematic movements in any indicator can be used to measure things, and the indicator doesn't have to be totally precise for it to be useful.
Even if GDP was an effective indicator, the author is completely wrong about his assumptions: the GDP growth for the UK and Japan during 2000-2008 is almost identical: http://www.tradingeconomics.com/japan/gdp-growth Just add the UK at the bottom to compare, you will see both lines are on top of each other's.
Are GDP numbers a good indicator of the success of economic policies? They aren't that useful if you ignore all the details.
Here is an example when comparing US and Japan GDP growth numbers:
http://research.stlouisfed.org/publications/es/article/10011
"In summary, three structural factors seem to account for the difference in GDP growth between Japan and the United States in the post-1990 period: (i) the slow population growth in Japan, (ii) the employment rate, and (iii) the decline of average hours worked in Japan from a very high level to the level in the United States. It seems useful to consider these findings when Japan’s experience is used to draw policy conclusions for the United States."
And yet we have been lectured by numerous economists (sometimes with Nobel medals on them) about the implications these raw GDP growth numbers supposedly have for economic policy.
Indeed if we're going down this road then the broken window fallacy contains a contradiction (and so must be false) because it assumes full employment to reach its conclusion. Something that, should it be true, would probably cause the problem we're trying to solve to disappear.
"Nobel Prize-winning economist Amartya Sen considers the alternatives."
There is no such a thing like Nobel price Winners. There are Winners of Central bank's created Nobel Memorial price that of course say what the Central Banks want.
To say that the crisis that we have today is the consequence of austerity is like saying that because you feel bad when sober the morning after getting drunk, the problem is being sober in the first place.
There is no Western country today that is austere at all. All of them are spending more money that they have, most of it on bad investments.
This always has ended on one place: destruction of capital. It should had been done in an ordered manner but they decided to kick the can ignoring the problem but making it worse in the future.
Instead of removing the bad investments from the system, they had used the working part of the system to save the bad, actually rewarding the bad actors(that made a killing at the start of the bubbles.e.g 20% profits per year in Greece real state).
When Greece was bankrupt years ago, the problem was not solved giving them more money, and indebting them even more.
The proper solution was to bankrupt Greece as soon as they could not pay. Of course this would have bankrupted the irresponsible French and German banks that lend money to Greece in the first place. "Saving Greece" was in fact saving French and German banks and allocating the losses on public hands.