The Myth that Austerity was a necessary evil

[Prestwich_Blue]

Austerity is an ideology not an effective economic model

Austerity failed on two levels.

Classic Keynesian theory envisaged a shift from private to public expenditure during a recession, in order to keep liquidity in the economy. So increased expenditure on public infrastructure and other similar projects. This is what Gordon Brown & Alastair Darling did when they were in government.

It also failed because, as Modern Monetary Theory says, a government with a fiat currency like Dollars, Sterling or Yen can carry out QE to maintain liquidity. This is what has happened over the last few years and the ECB is still doing it.

As long as interest rates and inflation are low, there is virtually no downside. The problems start when, like now, inflation rises and therefore interest rates.

 

[Brewster's millions]

So you have a broad understanding of economics. It doesn't make you right! You, more than anyone, must acknowledge that economics is a broad church with various conflicting models.

Economics might be a broad church but when it comes to government financing, there are lots of conventions which the video ignores (the video is obviously focussed in the US in any case), and from a UK perspective it is largely nonsense.

It is of course true that a country with an independent, fiat currency essentially can’t go bust - in extremis it can fund itself with T-bills - but the rest of the video is mostly bollocks.

The bigger problem with MMT though is that it completely ignores how QE (via the very low bond yields it brings) works to inflate asset prices across the economy - housing in particular - and how this impacts equality in turn.

It’s slightly ironic given that MMT has been embraced by the left. But you could argue that while austerity would have been worse for a short period in the absence of QE, inequalities across society - in terms of the haves and haves not on a long term basis - would likely be smaller than they currently are.

 

[bugsyblue]

How do we create a fairer society then? Surely there must be some consensus between the left and the right? Can we agree tax dodgers are bad?

 

[Cotontoquinn]

The Magic Money Tree still seems to work then??

 

[NPBlue]

I know people that are still convinced the country had run out of money, due to 'that note'.

One of them thought the hammer and sickle was still the Russian flag, and it was only a couple of years ago I pointed out to him that, erm, no, it isn't, and hasn't been for decades.

David Cameron admitted in his autobiography austerity was a political, and not an economic, decision. I have tried to explain on countless occasions a country can't run out of money, it prints it if required, and cutting tax revenues by £23B isn't a sensible solution for a treasury seemingly on its last legs financially, but it falls on deaf ears.

Our economic woes are down to Labour fucking up the finances, and that's that. We had run out of money, and it's all Gordon Browns fault.

 

[I'm With Stupid]

The meeting of two great minds here.

Nobel Prize winning economist Paul Krugman and......Matt Hancock.

Of course austerity was ideological, which is why they were using it as an excuse to cut things they wanted to cut long after they quietly stopped actually having a policy of austerity in the wider economy because of the damage it was doing to growth.

 

[Kippaxpete]

Economics might be a broad church but when it comes to government financing, there are lots of conventions which the video ignores (the video is obviously focussed in the US in any case), and from a UK perspective it is largely nonsense.

It is of course true that a country with an independent, fiat currency essentially can’t go bust - in extremis it can fund itself with T-bills - but the rest of the video is mostly bollocks.

The bigger problem with MMT though is that it completely ignores how QE (via the very low bond yields it brings) works to inflate asset prices across the economy - housing in particular - and how this impacts equality in turn.

It’s slightly ironic given that MMT has been embraced by the left. But you could argue that while austerity would have been worse for a short period in the absence of QE, inequalities across society - in terms of the haves and haves not on a long term basis - would likely be smaller than they currently are.

I'm obliged to defer to your superior knowledge on this topic. I am grateful, however, for your insight not least of all because it's encouraged me to explore the broader macroeconomics issue in more detail. I am curious though about the extent to which an economic model is adopted as a consequence of political ideology. An obvious example would be Thatcher's adherence to Friedman's theories the result of which, in part at least, was catastrophic harm to the manufacturing base and social fabric of this country. How can a policy driven exclusively by monetary demands give rise to a fairer, more equitable distribution of wealth? Surely, 'trickle-down' economics theory is fundamentally flawed as it relies on the fat cats abandoning the "greed is good" philosophy where their only goal is to line the pockets of the shareholders.

 

[BrianW]

The Tories wanted to shrink the State.
It was that simple - ideology. The brain-dead belief that the private sector is always better, in any field.

If the Tories really believed the country was 'bankrupt' they should have put up taxes, not cut them. It was very telling that their solution to an 'economic crisis' was to make the rich (much) richer. The rich do not generally spend their gains, thereby boosting the economy. Instead, they hoard them - usually in 'tax efficient' ways. Giving them money is like pouring ££££££s into a black hole. No one, but for them, benefits.

The cost of that error was Brexit. Because Austerity made people desperate. They wanted a simple solution. Brexit looked like one. They could not believe it could make life worse.

They were wrong. Simple solutions to complex problems are always wrong.

 

[Chippy_boy]

So you have a broad understanding of economics. It doesn't make you right! You, more than anyone, must acknowledge that economics is a broad church with various conflicting models.

Absolutely.

 

[NPBlue]

The Tories wanted to shrink the State.
It was that simple - ideology. The brain-dead belief that the private sector is always better, in any field.

If the Tories really believed the country was 'bankrupt' they should have put up taxes, not cut them. It was very telling that their solution to an 'economic crisis' was to make the rich (much) richer. The rich do not generally spend their gains, thereby boosting the economy. Instead, they hoard them - usually in 'tax efficient' ways. Giving them money is like pouring ££££££s into a black hole. No one, but for them, benefits.

The cost of that error was Brexit. Because Austerity made people desperate. They wanted a simple solution. Brexit looked like one. They could not believe it could make life worse.

They were wrong. Simple solutions to complex problems are always wrong.

It could also be said the the tories were fearful of the existential threat they saw from UKIP, and the referendum was nothing more than a lifeline for their continuation as a major political party.

They didn't think leave would win, and the result they expected would finish off UKIP.

Many ex UKIP members are now tory MP's and ministers.