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Austerity policies do more harm than good, IMF study concludes

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  • Austerity policies do more harm than good, IMF study concludes

    Austerity policies do more harm than good, IMF study concludes
    Economists give strong critique of neoliberal doctrine ushered in by Ronald Reagan and Margaret Thatcher in the 1980s

    A strong warning that austerity policies can do more harm than good has been delivered by economists from the International Monetary Fund, in a critique of the neoliberal doctrine that has dominated economics for the past three decades. In an article seized on by the shadow chancellor, John McDonnell, the IMF economists said rising inequality was bad for growth and that governments should use controls to cope with destabilising capital flows.

    The IMF team praised some aspects of the liberalising agenda that was ushered in by Ronald Reagan and Margaret Thatcher in the 1980s, such as the expansion of trade and the increase in foreign direct investment. But it said other aspects of the programme had not delivered the expected improvements in economic performance. Looking specifically at removing barriers to flows of capital and plans to strengthen the public finances, the three IMF economists came up with conclusions that contradicted neoliberal theory.

    “The benefits in terms of increased growth seem fairly difficult to establish when looking at a broad group of countries,” they said. “The costs in terms of increased inequality are prominent. Such costs epitomise the trade-off between the growth and equity effects of some aspects of the neoliberal agenda.

    “Increased inequality in turn hurts the level and sustainability of growth. Even if growth is the sole or main purpose of the neoliberal agenda, advocates of that agenda still need to pay attention to the distributional effects.”
    More here:

    https://www.theguardian.com/business...tudy-concludes
    “You have to dream big. If we want to be a little city, we dream small. If we want to be a big city, we dream big, and this is a big idea.” - Mayor Stephen Mandel, 02/22/2012

  • #2
    Absolutely correct, and obvious.
    Let's make Edmonton better.

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    • #3
      you see Greece did try that but didn't work out well and Greece is still in financial and economic unstable ever since that Greece took Austerity measures.
      Edmonton Rocks Rocks Rocks

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      • #4
        There would be no benefits if capital travels freely but not labor. That was a no brainer.

        For more on the Reagan/Thatcher revolution watch PBS's excellent "Commanding heights", a 3 part documentary covering the theory and practice of modern economics.

        It became obvious to me that it took 30 years after sublimating the economy to the war effort for the private sector to institute a coup in the form of Reagan/Thatcher and retake the "commanding heights" of the economy away from government.

        Free trade/capital flow was one of the tactics employed by the self-styled 'Atlases' of the world to make a comeback.

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        • #5
          A left wing paper interprets an IMF study to falsely conclude left wing policies work best. Who would have guessed? Of course borrowing more than you earn makes life nicer today. Until the interest costs hit home... but then, our grandkids can worry about that, right (like Ontario residents do today, losing the equivalent of a brand new subway line each year to interest costs)? Endless future growth will supposedly pay for endlessly spending more than earn... austerity isn't nirvana but head in sand isn't either.
          Last edited by moahunter; 30-05-2016, 01:37 PM.

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          • #6
            Originally posted by moahunter View Post
            Of course borrowing more than you earn makes life nicer today. Until the interest costs hit home...
            Haven't you heard? ZIRP is here to stay.

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            • #7
              Don't worry children, you can have anything you want, we will just put it on the Mastercard.

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              • #8
                Originally posted by ralph60 View Post
                Don't worry children, you can have anything you want, we will just put it on the Mastercard.
                Actually, that works quite well for many countries as long as they issue longer-term debt in their own currency. Individuals and corporations are not countries though so the rules and consequences are very different even though the paper looks the same. Even the ratings agencies, yes the very ones that screwed up ten years ago, didn't seem to understand that only five years ago during the US fiscal crisis.


                https://en.m.wikipedia.org/wiki/Unit...crisis_of_2011
                Last edited by KC; 30-05-2016, 10:17 PM.

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                • #9
                  A very important distinction which the acolytes of austerity always tend to 'mis-remember'. A debt serviced by wages (me/you) is very very different than a debt serviced by taxing powers. This allows for Keynesian economics quite well: borrow to finance deficits during lean years, pay it down during 'fat' years (why it's in the Bible too)

                  Originally posted by KC View Post
                  Originally posted by ralph60 View Post
                  Don't worry children, you can have anything you want, we will just put it on the Mastercard.
                  Individuals and corporations are not countries though so the rules and consequences are very different even though the paper looks the same. Even the ratings agencies, yes the very ones that screwed up ten years ago, didn't seem to understand that only five years ago during the US fiscal crisis.


                  https://en.m.wikipedia.org/wiki/Unit...crisis_of_2011

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                  • #10
                    And when the Mastercard hits its limit, there's always the Visa.
                    Debt has to be serviced, it's serviced through taxes, which are paid by wages. Keep running up the bill, when it comes due, I will be retired and it will be your problem.

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                    • #11
                      Originally posted by Safir View Post
                      A very important distinction which the acolytes of austerity always tend to 'mis-remember'. A debt serviced by wages (me/you) is very very different than a debt serviced by taxing powers. This allows for Keynesian economics quite well: borrow to finance deficits during lean years, pay it down during 'fat' years (why it's in the Bible too)

                      Originally posted by KC View Post
                      Originally posted by ralph60 View Post
                      Don't worry children, you can have anything you want, we will just put it on the Mastercard.
                      Individuals and corporations are not countries though so the rules and consequences are very different even though the paper looks the same. Even the ratings agencies, yes the very ones that screwed up ten years ago, didn't seem to understand that only five years ago during the US fiscal crisis.


                      https://en.m.wikipedia.org/wiki/Unit...crisis_of_2011
                      Inflation, currency devaluation, taxing power, etc. What are the debt holders going to do? You buy $10 or $20 billion in USD bonds and you get paid in USD. What are you going to do? Unless they're resids/strips, your coupons come in in USD. Your only 'leverage' (no pun intended) is when refinancing is needed. If they're increasingly getting deeper in debt then you want to keep the dance going.

                      The problem in Greece is that their payments were in euros and they couldn't devalue to boost their exports. Greeec, Alberta, Ontario - might as well be the same.

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                      • #12
                        Originally posted by ralph60 View Post
                        And when the Mastercard hits its limit, there's always the Visa.
                        Debt has to be serviced, it's serviced through taxes, which are paid by wages. Keep running up the bill, when it comes due, I will be retired and it will be your problem.
                        They hope to inflate their way out of it. Pay it off with higher wages, highe taxes, devalued dollars. The pensioners get screwed over due to their fixed incomes and cuts to pension benefits due to years of obscenely high expected rates of return.

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                        • #13
                          Originally posted by ralph60 View Post
                          Don't worry children, you can have anything you want, we will just put it on the Mastercard.
                          But enough about the legacy your generation chose to leave those after it.
                          I think of art, at its most significant, as a Distant Early Warning system that can always be relied on to tell the old culture what is beginning to happen to it. —Marshall McLuhan

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                          • #14
                            How is what is going on now any different?

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                            • #15
                              Originally posted by Dialog View Post
                              Originally posted by ralph60 View Post
                              Don't worry children, you can have anything you want, we will just put it on the Mastercard.
                              But enough about the legacy your generation chose to leave those after it.
                              Environmentally, maybe.

                              Financially speaking it's the younger generation that thoroughly assisted in screwing things up this last time around. As we approached the year 2000 there was generally a reduction of deficit financing in the US anyway. The long bond even disappeared briefly.

                              Then came the big military build up and the opening of the flood gates to getting everyone and his dog into housing and using their LOCs as ATMs. The financial crisis involved younger generations (mostly first time home buyers of home buying ages from about 2001 - 2007). The rescue and bailout bailed out the institutions that held the bonds and mortgages related to the younger generation's debt explosion. ( Check out Fannie Mae Freddy Mac financings.)

                              In Canada under Paul Martin we "tamed" our deficit as well. Harper was doing the same until demands for fiscal stimulus appeared everywhere.

                              So I think we've gone full circle. The older generations had their debt built up and stabilization periods and now the younger generations are taking a stab at the same thing.
                              Last edited by KC; 31-05-2016, 10:07 PM.

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