Rod Dreher

Rod Dreher


When austerity is the lesser evil

posted by Rod Dreher

Megan McArdle, referencing the NYT piece on how hard fiscal austerity has been on Ireland, makes an important point:

Austerity is an expensive form of insurance against a true fiscal crisis. And though it doesn’t necessarily seem like it when you’re not having one, fiscal crises are much, much worse than austerity budgets. Fiscal crisis means that rather than unpleasant cuts, you have sudden, unmanageable collapses in things like public pension plans. The resulting suffering is not unpleasant; it is disastrous.

She’s answering the point that other countries ought to avoid doing what the Irish government did by embracing harsh austerity, as opposed to borrowing more money for stimulus. Some countries, she argues, are in such a deep hole that continuing to borrow would only hasten a complete collapse in the fisc. For these countries, as bad as austerity is, it’s not the worst thing.
UPDATE: Here’s a good piece from David Leonhardt of the NYT explaining the argument between the pro-stimulus side and the pro-austerity side. I had not realized that the Germans are hardcore on austerity because of the role rampant inflation played in the rise of Nazism. That is, they’re terrified of turning on the printing press to inflate a nation’s way out of indebtedness.



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Oeno

posted June 30, 2010 at 3:26 pm


Actually it’s a running joke amongst Modern European historians that the Germans failure over and over again hasn’t been that they haven’t learned the lessons of Weimar, but that they see Weimar at every instance.



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Marcel Ledbetter

posted June 30, 2010 at 3:49 pm


This isn’t shared sacrifice, it’s everyone else fasting so the big guys can continue their feast. They’re Too Big To Fail. The whole purpose of everyone else’s austerity is to keep the fat cats, fat. Maybe “disastrous” for these guys means “we won’t be able to insulate ourselves.”



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rj

posted June 30, 2010 at 4:11 pm


Oh wow, a libertarian thinks the solution to the problem of the day is to cut government!
Next up, the Club for Growth thinks the solution is tax cuts and a Keynesian thinks demand-side pump-priming is the solution.
Yawn.



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elizabeth

posted June 30, 2010 at 4:16 pm


Just to maintain a little perspective on the causes of our troubles:
3dubyasDOTbusinessinsiderDOTcomFORWARDSLASHchart-of-the-day-bush-policies-deficits-2010-6
3dubyas = www
DOT = .
FORWARDSLASH =/
CAPTCHA: lathes commission



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elizabeth

posted June 30, 2010 at 4:21 pm


Karl G’s comment – about # 29 on the Robert Byrd post – addresses this pretty well.
http://blog.beliefnet.com/roddreher/2010/06/robert-byrd-who-grew-up-poor_comments.html



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BobSF

posted June 30, 2010 at 5:05 pm


Have you noticed, in the stimulus vs. austerity tussle, that those who advocate austerity, including an end to social supports which will truly result in people going hungry, losing their homes, etc., are largely the same people who insist that we canNOT burden the rich with higher taxes?
Maybe the solution is austerity for the rich and continued stimulus for the middle class. And if you really, really have to cut government expenses, let’s means test social security and end crop subsidies to agribusiness.



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elizabeth

posted June 30, 2010 at 5:20 pm


BobSF : You’ll appreciate the link I posted at 4:16.



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Jon

posted June 30, 2010 at 7:19 pm


The Germans don’t really do austerity because the German economy is every bit as supported by exports as China’s is. That keeps unemplpoyment is reasonable numbers and also keeps German businesses profitable even in slack times. I’d love to see Germany’s reaction if it were told as part of its austerity package it had to cut it’s exports by 25%.
By the way Matt Yglesias had an intetesting chart showing the unemployment rate of sevceral European (not all Eurozone) countries. Interesting fact was: Iceland was on of the lowest. that’s right– the country that, arguably, was hit the hardest by the meltdown. What gives? Well, Iceland is master of its own money still, so it’s been free to devalue to its heart content, keeping its economy still viable. This is why Greece, Ireland etc, are in the can and why the US is not.



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mdavid

posted June 30, 2010 at 11:22 pm


One can answer all the economic questions of today merely by reading Ludwig von Mises:
Cause of the current Great Recession?
Credit expansion can bring about a temporary boom. But such a fictitious prosperity must end in a general depression of trade, a slump.
Why it’s a waste of breath arguing with progressives about economic matters?
No one should expect that any logical argument or any experience could ever shake the almost religious fervor of those who believe in salvation through spending and credit expansion.
How government fueled booms via debt slam the poor?
Credit expansion and inflationary increase of the quantity of money frustrate the common man’s attempts to save and to accumulate reserves for less propitious days.
The absurdity of the bailout culture?
If it were really possible to substitute credit expansion (cheap money) for the accumulation of capital goods by saving, there would not be any poverty in the world.
Fact: The current Great Recession was created by the relentless increase in debt over 40 years. There is no way out of austerity. The only choice we have is how soon we want to face the music, and how bad we want it to be (hint: the longer we postpone, the more painful it will be).



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hlvanburen

posted July 1, 2010 at 12:18 am


When those advocating austerity cast their oxen on the fire first, I will believe them. Until then, not so much.
For example, when an austerity advocate comes to me advocating dropping the tax incentives for children and home ownership, I’ll be much more open to listening to (and perhaps even discussing with them) their ideas.
It’s easy to preach austerity when others have to sacrifice. Come to us and talk about how you see yourself sacrificing in this mess and maybe you’ll get a different reception.



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mdavid

posted July 1, 2010 at 1:27 am


hlvanburen, when an austerity advocate comes to me advocating dropping the tax incentives for children and home ownership, I’ll be much more open to listening to (and perhaps even discussing with them) their ideas.
Ahh, that’s the beauty of it all. These sort of threats and accusations may have made sense back in the ’80’s and ’90’s, but it’s way too late now for fixes. It doesn’t really matter what you, nor anyone else, thinks or wishes to discuss at this stage. Austerity Is Here. Think you can improve things by taxes, printing, or whatever crazy ideas? Go for it! I will just make it worse: the taxes will plunge, the jobs will vanish, and the Bond Vigilantes come riding to the rescue and put all the fantasies to bed.
No, the only choice at this stage: do we go willingly and minimize the pain, or try to use the hair of the dog as a tonic and really make it hurt? Sorry, but every party has a hangover, and this party was one wild debt ride. Liberals had their fun for 40 years since we got off the gold standard. Now, liquor is gone, and it’s time to grow through pain. But it is fun to watch the protests…



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Quiddity

posted July 1, 2010 at 2:41 am


Rod writes: “I had not realized that the Germans are hardcore on austerity because of the role rampant inflation played in the rise of Nazism.”
That’s not correct. The inflation was in the early 20’s. It was a recession in the early 30’s – and high unemployment – that propelled the Nazis into power.
Re McArdle’s fondness for austerity: Now that the bankers and asset holders have been bailed out it austerity for the rest of us. Too bad the bankers (and shareholders and bondholders) didn’t get to benefit from the austerity.



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Jon

posted July 1, 2010 at 6:40 am


Re: The current Great Recession was created by the relentless increase in debt over 40 years.
But the above was itself necessitated by the rise in inequality and the stagnation (or worse) of income for people below the upper class. Measures which exacerbate the underlying source of trouble will not solve the problem.
And if austerity causes tax revenues to fall, how does this help the deficit? We need economic growth to solve our problems, not hecatombs to false idols.
Of course the real reason austerity is being pushed in certain quarters has nothing to do with the economy and eveything to do with the fortunes of the Republican party wich, bereft of a ghost of a positive program for the future, can only hope for the failure of the Democrats and if this wrecks the country as well, they could not care less.



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mdavid

posted July 1, 2010 at 9:32 am


Jon, And if austerity causes tax revenues to fall, how does this help the deficit? We need economic growth to solve our problems
It doesn’t. Just like the Great Depression, when GDP went down as we paid off our debts, it will go down again. It doesn’t matter what policy attempts are made. What people forget about the GD is that we stimulated the heck out of the economy, and it didn’t do a thing.
not hecatombs to false idols.
Snort. These “false idols” are a simple as living within one’s means. Wow, some radical idea there! As it is said, when you live on the bubble incline for 40 years, pretty soon it seems like level ground!
Of course the real reason austerity is being pushed in certain quarters has nothing to do with the economy
Sigh. For libs, everything is politics. There is no “real world” out there. As I said above, it really doesn’t matter what anyone, nor any party, wishes. The economy is correcting after a massive debt bubble that is popping. Do what you will – austerity is here and will get worse no matter what we do – for all. The only thing left to decide: will we actually lose the currency and truly collapse? We might indeed, based upon the policy response so far.



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hlvanburen

posted July 1, 2010 at 12:35 pm


“Sigh. For libs, everything is politics.”
As it is for the cons. Your point?
Tell you what…here are some austerity measures I could get behind.
1) Raise the eligibility ages under Social Security and Medicare to 70 and 67 respectively for those born 1960 or after (this would include me since I was born in 1960).
2) Remove the cap on FICA/Medicare contributions. If a flat tax is good for income taxes it’s also good for FICA and Medicare.
3) Rescind the mortgage interest deduction on income tax filings. If you can’t afford your home without this you have no business buying one.
4) Rescind all deductions and credits for children on income tax filings. If you can’t afford your children without these you have no business having them.
5) End all agricultural price supports and subsidies.
6) Enforce all leases in place for resource mining (fossil fuels, minerals, etc.) and actively pursue all royalty payments due the government.
7) End all military procurement/production programs deemed unnecessary and unneeded by the Pentagon and President. If the Pentagon says we do not need a weapons system why should we stand idly by while Congress authorizes spending for these pork-barrel projects.
These are just a few things that come to mind. There are others that I am sure the creative minds here could develop. But please, if the first words out of your mouth when it comes to anything relating to austerity is to hit the poorest in our society before hitting others who profit much more under our system of governance, I am not even interested in talking with you. Let’s start at the top of the food chain, not the bottom.
The powerful and wealthy have not complained during the “good times” about how unequally they gained when compared to others. Why should we now listen to their complaints about them being the first to feel the austerity pinch that everyone says “must” happen?



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mdavid

posted July 1, 2010 at 9:32 pm


hlvanburen, “Sigh. For libs, everything is politics.” As it is for the cons. Your point?
Not true. Many cons are like me – we are merely looking at it from an economic point of view. I don’t see many libs like that, they are like you, they wish to use the crisis to make policies. To many, even most cons, politics are not really the issue, rather it is accepting the harsh reality first, and only then discussing solutions.
Tell you what…here are some austerity measures I could get behind.
Every single one of your ideas is an attack on conservative policies and hence politically impractical. I could easily make my own list – it would involve privatizing all schools, ending very federal subsidy (starting with public radio and ending with education), cutting the military in half and coming home, etc. But who cares? They are merely political impossibilities. Fact: we will have to wait for the money to run dry, and then everyone will get whacked.
My point: forget the politics, we will never agree. There will be no agreement between libs and cons. Most likely we will raise taxes to keep paying for government unions, and kill the private sector in the process to the point of revolution. Actually, the time to look for public solutions ended way back in the 1990’s when people were trying to warn of impending doom and nobody (especially libs) cared. Sorry, but the time for austerity has now arrived, and it won’t be a liberal paradise where all liberal ideas become policy. No, it will be a mess, where all the bad stuff stays and all the honest people get shafted. Time to protect oneself.
But please, if the first words out of your mouth when it comes to anything relating to austerity is to hit the poorest in our society before hitting others who profit much more under our system of governance, I am not even interested in talking with you.
Well, don’t talk to yourself then – your point #4 would be bad for the poorest – many who are poor would then be paying taxes, and children would be hit hardest. But again, it’s moot. Crisis is here. Just wait another few years.



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hlvanburen

posted July 2, 2010 at 8:27 pm


mdavid: “Every single one of your ideas is an attack on conservative policies and hence politically impractical.”
It depends. When enough conservative politicians are suspended from the end of a hangman’s noose in the National Mall, you will be surprised what will pass Congress.
And this is my point, mdavid. Unless our central government falls completely, it is they who will enact the policies which will put into law this austerity period. Taxes WILL go up, like it or not. Services WILL decrease, like it or not.
However, as those policies begin to come into force, if it is perceived by the lower classes that they are being thrown under the bus to save the skins of the top 10% wealthiest in the nation, look for a revolution not unlike what happened in France.
Those who have profited most from the stupidity of our past 30-50 years of unsustainable economic policy must be the first ones called upon to sacrifice under this new austerity you seem so anxious to welcome. If not, they the unwashed masses will revolt. And given how many guns there are out there in their hands, it will not be pretty.



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