Skip to comments.‘Austerity’ versus ‘Growth’
Posted on 06/12/2012 6:38:16 AM PDT by Servant of the Cross
Western governments clothe their irresponsibility in misleading words.
Who would not prefer growth to austerity? That is the false dichotomy that insolvent Western governments, both here and abroad, are now constructing. After all, everyone prefers growing things to starving them. Yet in truth, there is no such clear-cut choice.
In other words, austerity is a lie. For all the talk of terrible hardship and suffering, most of insolvent southern Europe still enjoys entitlements undreamed of by prior generations. When the French lamented that they were being squeezed to death by postponing retirement, they meant to age 62 rather than 60 a futile reform soon to be rescinded by new French president François Hollande.
In the case of the United States, austerity does not mean significant cuts in food stamps, reductions in unemployment eligibility, or a raised retirement age, but simply not adding new entitlements to those that recently were vastly expanded. It is a trademark of human nature that people resent any reduction of a benefit, or even only a moderate expansion of it, far more than not having it offered at all. Talk today of cutting the Medicare Prescription Drug Benefit or No Child Left Behind, and hysteria follows without recognition that neither program even existed before the presidency of the unpopular George W. Bush.
But there is an even worse fraud in the new notion of austerity: It now commonly refers only to the level of government spending versus revenue, not to fundamental changes in the nature of regulated and closed economies. Austerity the pruning back of government support is supposed to lead to all sorts of social tensions and civic unrest. By contrast, growth even more government spending restores calm. But if labor markets are highly regulated and inflexible, if the tax structure is byzantine and punishes entrepreneurs while promoting the black market and cheating, and if government regulations crush new businesses, then the problem goes well beyond a question of expanding or cutting government benefits.
The crisis in Greece involves not just the question whether the government must cut services and prune its labor force, but also the fact that the entire Greek legal system and national culture punish risk-taking and profit-making while rewarding timidity within a landscape of envy and jealousy. What the Greek government chooses to spend is important, but is rendered unimportant if endemic tax cheating and the regulatory straitjacket are left unaddressed.
In the case of the United States, had Barack Obama reformed the tax code to promote investment and entrepreneurialism, vastly stepped up oil and gas leasing on public lands in lieu of subsidizing Solyndra-like boondoggles, and trimmed back regulations, the economy would have grown far faster, even despite Obamas vast deficits. To take an example from the private sector, the Harvard graduate with $200,000 in student loans and a sociology degree is in terrible shape; the Harvard graduate with the same level of debt and an engineering or business degree is not.
But if the bogeyman term austerity is misleading, even more ridiculous is the fuzzy new idea of growth the notion that by not cutting back massive borrowing and high deficits, governments can create new wealth and grow themselves into prosperity. Here in the United States, we grew by adding $5 trillion in new borrowing and got annual GDP growth of less than 2 percent, 40 months of 8 percentplus unemployment, $4-a-gallon gas, and serial $1 trillion deficits. If having near-zero interest rates, borrowing more than all previous presidents combined, and putting 50 million people on food stamps is a policy of growth, what would be needed to actually show results? Negative interest rates? New debt of $10 trillion? More than 100 million on food stamps?
Does anyone think austere Texas is growing more slowly than big-government California or New York? When southern-European countries piled up trillions in debt over the last decade, did such public stimulus and growth lead to far greater productivity, wealth, and security than in austere Germany or Scandinavia?
So there is a disturbing counterfactual element of never enough inherent in the growth argument. There is little empirical evidence that borrowing creates national wealth, but it is still promoted on the principle that past efforts to boost the economy by running up gargantuan deficits always were too small. Thus Obama supposedly failed to restore the economy in his first term only because he did not dare to borrow $10 trillion rather than a mere $5 trillion even though most severe recessions by now would have given way to a natural cycle of robust recoveries.
Finally, there is one more problem with the fake growth/austerity juxtaposition. They are both simply reflections of much deeper ideologies that drive politics. Growth is a euphemism for the politics of hiring lots of government workers, preferably unionized, and expanding the number of people dependent on government, who in turn owe politicians their jobs and reciprocate at the polls in expectation of even greater largesse. The costs of expanding the number of government employees and offering them ever higher salaries, benefits, and retirement packages are met not through increasing productivity, but rather by increasing taxes on those who mostly make their livings under very different conditions in the despised private sector.
Growth, then, is a sort of gorge the beast antithesis to the Reaganite starve the beast model. Both ideologies seek to avoid insolvency through a game of chicken of front-loading the cost and hoping the other guy will blink first when it comes to paying for it. But where the Reagan model sought first to cut taxes, so as to cut revenue, so as to force down the size of government and prune federal dependency, the Obama paradigm seeks first to grow government, which increases dependency and therefore requires more taxes itself a good thing because it means redistributing income from those who have no clue that they have passed the point at which they no longer need to make any more money.
If politicians talked not of growth versus austerity but of borrowing and spending versus fiscal discipline, then there would be very little public support for their disastrous agendas. Instead, we are supposed to like the nurturers who grow and despise the austere who hack away.
Its that simple.
VDH completely exposes the socialistic 'emporers', here and in Europe, who have no clothes.
Sorry, but this one is not simple. The thing we need to get rid of is the system set in place in 1913 which basically implemented Alexander Hamilton's idea about using government debt as a main basis for money.
Under present rules, government BORROWS money into existence and we sit around paying interest on money which banks create out of thin air while, clearly, if anybody trusted governments to do it, they could as easily create money out of thin air themselves with no interest being owed.
Austerity IS bad for business and we need a real solution, but simplicity is not likely to be part of that solution.
Austerity of the indolent class means growth for the productive class. Government, like friction, is a parasitic force, and too much of either prevents the machinery from working.
GOVERNMENT austerity is NEVER bad for business. The source of Government spending is ALWAYS from taxes (think 'spread the wealth') and therefore takes the choice of how it is spent within the economy away from the 'earner' and gives it to the Government. How's that working out?
President Ronald Reagan knew this in his very bones ... The most terrifying words in the English language are: I'm from the government and I'm here to help.
Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.
We pay a high price for mathematical ignorance. The typical voter has no concept of the level of gov’t debt or how it affects his or her economic well-being. Consider this simplified, linear representation of spending and growth. The actual process is difficult to model using even the most complex mathematics but many core principles can be expressed simply.
For every dollar a private citizen productively earns and then spends, economic activity is increased by one dollar. As productivity increases and more people contribute productive work to the economy, growth occurs. For every dollar gov’t spends, economic activity is increased by one dollar less the amount required to pay for past gov’t spending. It takes tax revenues and dilution to increase gov’t spending. Growth can occur if gov’t enables productivity increases but is more difficult because of past debt overhead. Gov’t spending is also not as efficiently targeted or timed as when a private citizen spends.
Increasing taxes takes money out of the private citizen’s discretionary spending ability and reduces the fast, effectively-targeted spending which that citizen engages.
Of course, gov’t’s past debt is now at a very high level in the US and we can see in Greece how that cannot be increased forever without consequence. Dilution (inflate/default yourself out of debt) eventually becomes the only way out.
I say again, this issue is not simple and you clearly do not understand it. The United States went until 1913 without any sort of a permanent income tax; are you claiming that the federal government never spent any money between 1789 and 1913???
Best resource on the net for this sort of thing is Ellen Brown's site:
The only option they have right now IS inflation. However, there is not enough activity in value creation to achieve any velocity.
There is a high price to pay for losing the trust of the productive class.
Austerity should apply uniquely to government. Less government means more wealth for all. So the very purpose of government boils down to just two things: defending the nation from external threats; and protecting its citizens from abuse by subordinate governments, private organizations, and criminal individuals.
This does not equate to small government, just *efficient* government. It also means accepting several very powerful axioms.
1) The civil rights of individuals are more important than governmental control, and the civil rights of individuals are more important than the *desires* of others to impinge on those rights, for whatever reason.
2) Foreign nations and citizens can be seen as “friends” only if they are real democracies. But they can only be seen as “partners” temporarily, to achieve goals outside of the United States. As such, international treaties are only legitimate if they do not impinge on our individual civil rights *or* our sovereignty.
3) Government invariably seeks more power than it is authorized, often through insidious means such as largess and judicial precedent. So we must not be shy in both *popularly* recognizing what is unconstitutional, and in the case of established systems, to come up with a philosophy of systematically reducing, then eliminating them, while causing as little harm to the citizenry as possible.
That some bitterly protest that they “do good” must be countered that for every benefit they bestow, they create even more harm in the long run, and that there is no justice in government helping one person if it hinders others who will have to pay for it.
Now, this being said, worshiping at the idol of “growth” or “productivity” is also illusory, because it measures success using a national, not individual scale. “Productivity” is greatest when there is slavery, for profits are high and costs are low. “Growth” just means the concentration of wealth and resources for an increasingly limited number of people to manage.
This leads to the largest potential area for reasonable government growth, the regulation of the activities of those who desire growth and productivity to insure that which reaching for those goals, they do not impinge on the civil rights of other citizens.
Yet this function of government should be exclusively in the realm of limiting or preventing abuse; not to unfairly provide for those who do not, or no longer pursue growth and productivity in their own lives.
This means that government largess must end. And while they can legitimately create a legal mechanism for individuals to create this for themselves, government should not force it, nor redistribute funds from the productive to the non-productive, for doing so is unjust to the former group.
However, the only way any of that government debt will ever be paid off (without incurring new debt) is through the taxation of its citizens, which is a redistribution of wealth. And I absolutely believe that the citizen earners would spend it better, generating far more economic growth than federal bureaucrats ever could.
An article that I really like (partially due to the title) is: End the Fed? Ron Paul Is Wrong for All the Right Reasons.