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Thread: Krugman Wishes He Were Wrong Amid EU Austerity Backlash

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    Re: Krugman Wishes He Were Wrong Amid EU Austerity Backlash

    Quote Originally Posted by Somerville View Post
    "It's not like it will never work"? Really - could the commenter provide an example where it did work?
    I just did, Latvia, Iceland and Ireland.

    Iceland shut down its three major banks and then told the creditors - "too bad, you ain't gettin' paid". Non-Icelanders who had deposited money in the closed banks were told - "Eh too bad." The value of the Iceland krona crashed on the international market, which then caused the price of imports to skyrocket but it made Iceland a much cheaper place to visit, which brought in money to the nation's economy.
    Not correct, Iceland is paying back. They were just fighting about the terms. Greece defaulted in a much worse fashion than Iceland. And yes the Icelandic krona crashed, which it should because they had a massive current account deficit. But I don't see what that has to do with austerity.

    As there are only about 330,000 Icelanders, trying to compare the US economy with its 320,000,000 population, does seem to be a bit off.

    Now, think about the difference in the amount of offshore money that is in US banks and the amount that was in Icelandic banks - Do you honestly think that if US banks told those depositors - "Eh, too bad, you lost it" - that there would not be serious repercussions, repercussions that would affect the world's economy?
    US would have gotten better terms than Iceland simply because of its power.

    Ireland: from the Irish Times
    I think you missed the word relatively. Not every news out of Ireland, or Iceland for that matter is going to be good.

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    Re: Krugman Wishes He Were Wrong Amid EU Austerity Backlash

    Quote Originally Posted by Gimmesometruth View Post
    Let me update you and the chart.......the chart is tracking GNP, not gdp, and the result for the 4th quarter of 2011: -2.2%.
    So? GDP increased by 0.2%in that quarter and that is what really matters. If someone abroad invest in Ireland, then that is good for the Irish economy, but not visible in the GNP. Hence you need to use GDP. And the Irish economy is growing with about 1%. Ireland GDP Annual Growth Rate

    Compare that to Portugal, Spain, Greece, and Italy who are all dropping.

    .....or Spain...but wait, Spain didn't have the big deficits going into the crash, and they got hit by the housing crash just like Ireland and the US and the UK.....I guess everyone was "irresponsible".
    Um.. yeah. Irland, UK and the US was very irresponsible. Your point is?


    No, you misunderstand, the idea that "confidence" will overcome the natural tendency for consumers to pull back in hard times is a fairy tale. Consumers can't, their wealth has been severely cut down, income is down, job loss is high.....DEMAND is down. "Confidence" will not overcome these realities.
    Never said it did, and it's not about consumers either. Too much savings is not a problem. The problem is, no one want to invest. If no one invests, then no jobs are created, and unemployment stay high or keep increasing. Confidence is very important for investors.

    Ireland is not going the Iceland route, they can't....apples and oranges. And Iceland did not go into the same levels of govt cut backs, they kept social spending up and it is paying off. As I showed above, Ireland had a lower fourth quarter in 2011.
    Iceland increased taxes massively. In terms of austerity, it is the same thing.

    Now, austerity, as a means to lower debt via govt cuts in spending can work....WHEN AN ECONOMY IS NEAR FULL STEAM.....but if it is already experiencing lower private demand, removing govt spending makes the recovery longer and slower. That is not "neccecary" at all.
    Then what about Iceland, Latvia and Ireland. Did you just forget about them? Latvia is an increasing case, because no country cut faster or earlier than them. They fell by 18%, but look at them now. I am not saying we should take the same route, but it proves you wrong. Austerity can work.

    Waiting for full steam is not going to work, because there is no potential in Europe for massive growth. Most countries in Europe has never grown more than 1-2% like they did in 2010. Unemployment has always been high in Europe. Doing the waiting game just means you are going to end up like Japan, have massive deficits over many years. If the markets turn against you, then you are in trouble because you are forced to cut everything over one year.

    Problem with never ending stimulus is that it is never ending. Sometimes the economy needs to rebalance.

    Edit to add: The vote on austerity came in last night in France, you lost.
    Like many conservatives, I was cheering for Hollande. Choosing a President: The Long-Awaited Dan Mitchell Endorsement - Daniel J. Mitchell - Townhall Finance Conservative Columnists and Financial Commentary - Page 1 its two pages.

    Of course people want stimilus and not austerity. Kids want to eat chocolate and soda, not vegetables. But sometimes vegetables is good for you.
    Last edited by Camlon; 05-07-12 at 06:33 PM.

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    Re: Krugman Wishes He Were Wrong Amid EU Austerity Backlash

    Quote Originally Posted by iguanaman View Post
    Ireland is doing well?
    Oh... yes. Relatively.

    Spain :


    Greece:


    And remember. Ireland had much bigger problems than Greece.

    And what about Latvia. No country cut more than they did.

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    Re: Krugman Wishes He Were Wrong Amid EU Austerity Backlash

    Quote Originally Posted by Camlon View Post
    So? GDP increased by 0.2%in that quarter and that is what really matters. If someone abroad invest in Ireland, then that is good for the Irish economy, but not visible in the GNP. Hence you need to use GDP. And the Irish economy is growing with about 1%. Ireland GDP Annual Growth Rate

    Compare that to Portugal, Spain, Greece, and Italy who are all dropping.
    I was not using using gdp. "GNP strips out the part of GDP that includes factor flows to foreigners, and in particular profit repatriation to foreigners. In other words, GNP gives a measure of the value of goods and services produced in a country that is earned by domestic institutions and individuals". For Ireland, GNP gives a much better picture of domestic production.


    Um.. yeah. Irland, UK and the US was very irresponsible. Your point is?
    My point is that is a extremely generalized statement with lots of assumptions.



    Never said it did, and it's not about consumers either. Too much savings is not a problem. The problem is, no one want to invest. If no one invests, then no jobs are created, and unemployment stay high or keep increasing. Confidence is very important for investors.
    See now, this is where your basic understanding of economics breaks down. Investment doesn't happen without cause, there has to be the primary driver for investment to happen in a market like Europe or the US, and that is demand for whatever you are producing....it is not a "build it and they will come" situation. Businesses right now are NOT investing because.....DEMAND has dropped greatly. This is why this recovery (or any severe recovery) is not going to happen without the govt making up the difference in DEMAND, either by purchases or stimulus directly to consumers or by increased hiring of the jobless. Confidence fairies are not the solution.


    Iceland increased taxes massively. In terms of austerity, it is the same thing.
    No, it is not since austerity effects lower income earners to a much greater amount than marginal increases in taxation. As I said, Iceland has kept up social supports, so tax effects on lower income earners is offset.


    Then what about Iceland, Latvia and Ireland. Did you just forget about them? Latvia is an increasing case, because no country cut faster or earlier than them. They fell by 18%, but look at them now. I am not saying we should take the same route, but it proves you wrong. Austerity can work.
    Austerity is not being used in Iceland like Ireland, we already went over this. I have not studied Latvia.

    Waiting for full steam is not going to work, because there is no potential in Europe for massive growth. Most countries in Europe has never grown more than 1-2% like they did in 2010. Unemployment has always been high in Europe. Doing the waiting game just means you are going to end up like Japan, have massive deficits over many years. If the markets turn against you, then you are in trouble because you are forced to cut everything over one year.
    Many countries on their own currencies have had long periods of high debt to gdp ratios, they survive....but that is not the point, the time to work on cutting your debt is when you can afford to, not when it causes the greatest damage.

    Problem with never ending stimulus is that it is never ending. Sometimes the economy needs to rebalance.
    Straw, I wasn't talking about "never-ending" anything.


    Like many conservatives, I was cheering for Hollande. Choosing a President: The Long-Awaited Dan Mitchell Endorsement - Daniel J. Mitchell - Townhall Finance Conservative Columnists and Financial Commentary - Page 1 its two pages. Of course people want stimilus and not austerity. Kids want to eat chocolate and soda, not vegetables. But sometimes vegetables is good for you.
    Well that is funny because the rejection of Sarkozy is widely seen as a rejection of austerity.
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    Re: Krugman Wishes He Were Wrong Amid EU Austerity Backlash

    Quote Originally Posted by Gimmesometruth View Post
    I was not using using gdp. "GNP strips out the part of GDP that includes factor flows to foreigners, and in particular profit repatriation to foreigners. In other words, GNP gives a measure of the value of goods and services produced in a country that is earned by domestic institutions and individuals". For Ireland, GNP gives a much better picture of domestic production.
    No it doesn't. GNP includes what residents produce. That means, if an Irish person creates a job overseas, spend most of his money in UK, then it is included. It is not GDP with profits to foreigners removed.

    GDP is much better, because it is what a country produce. There is no debate. If you believe we should use GNP instead of GDP, then convince the governments first.

    My point is that is a extremely generalized statement with lots of assumptions.
    That Ireland, UK, US and Greece was irresponsible. Are you kidding me? Are you suggesting that they were responsible?

    See now, this is where your basic understanding of economics breaks down. Investment doesn't happen without cause, there has to be the primary driver for investment to happen in a market like Europe or the US, and that is demand for whatever you are producing....it is not a "build it and they will come" situation. Businesses right now are NOT investing because.....DEMAND has dropped greatly. This is why this recovery (or any severe recovery) is not going to happen without the govt making up the difference in DEMAND, either by purchases or stimulus directly to consumers or by increased hiring of the jobless. Confidence fairies are not the solution.
    That is just a liberal talking point. Why do so many liberals think we haven't heard arguments mentioned a million times before. Maybe I disagree. Have you ever thought about that?

    It is true that demand is dropping, but it wasn't dropping in 2010. If demand is the only problem, then you should expect a strong rebound. But there is no recovery. Also, have you noticed that a failure in Greece can bring down the growth of the whole EU. If only demand due to austerity is the problem, then Greece should be a minor actor.

    I know you don't like it, because you want to think spending solve all problems, but confidence is part of the problem. What Europe needs is investment, and investment is driven by confidence. Sure, lack of demand reduces confidence, but so do irresponsible actions and lying from the EU. From what we know, we can not trust the growth estimate of the EU at all. We know they have no clue what they are doing and anything can happen. We know there might be a backlash. And we know it will be very difficult to overcome the regulations. Its not a climate people want to invest in, and if companies don't invest, then jobs are not created and people become poorer, hence lower demand.

    No, it is not since austerity effects lower income earners to a much greater amount than marginal increases in taxation. As I said, Iceland has kept up social supports, so tax effects on lower income earners is offset.
    How is that even relevant? Do you think the economy is driven by poor people? The economy is driven by the working middle class, and they experienced tax increases and spending cuts in Iceland. Iceland proves you wrong, Austrerity can work.


    Austerity is not being used in Iceland like Ireland, we already went over this. I have not studied Latvia.
    So you are pretty much saying that you are favour of austerity only if it is in form of tax increases?

    Also, you probably should study Latvia, because they prove you wrong. Austerity can work. And it seems like fast austerity works much better than slow austerity. That may seem weird for you, but it is because you ignore confidence as a factor. But if you don't then you will see that long austerity, especially combined with lying, means companies are not willing to invest. They never know when you have hit bottom, they have no confidence in the economy. With a fast drop, then after the crisis the economy and the people can recover.

    Also, a fast drop gives the economy the opportunity to rebalance.

    Many countries on their own currencies have had long periods of high debt to gdp ratios, they survive....but that is not the point, the time to work on cutting your debt is when you can afford to, not when it causes the greatest damage.
    But what if that time never comes. Japan tried your tactic, look at what happened to them.

    No, you need to solve your problems during the crisis. Let the economy rebalance first. Don't inflate it with more and more debt. Don't let it die either though. So what do we mean by rebalance. Lets take Greece. Greece wages in the Euro is way too high. Having no austerity means the wages will stay high, Greece will remain uncompetitive. Inflating yourself out of your problems, and stating that you are going to solve them afterwards is not going to work.

    Again, just look at Japan. They prove you wrong. They went from a debt level of 30% to 220% now. After the crisis in 1990, they decided to spend themselves out of their problems. It just lead to zombie firms who only survived on government stimulus. It also lead to large deficits they were never able to reduce.

    Straw, I wasn't talking about "never-ending" anything.
    What if the economy never recovers. You keep spending, but growth seems to never be there? The day you will stop spending, the economy will collapse again, and you will be in a much worse situation than if you did nothing.

    Well that is funny because the rejection of Sarkozy is widely seen as a rejection of austerity.
    That might be in France. I am not French, and I vote for what is best for right wing ideology. Hollande, and her devastating policies (e.g. 75% tax rate) for France is the best for right wing ideology.
    Last edited by Camlon; 05-07-12 at 08:03 PM.

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    Re: Krugman Wishes He Were Wrong Amid EU Austerity Backlash

    Quote Originally Posted by lizzie View Post
    Assuming you have been seeing the rioting in Europe as a result of the austerity measures, I'm figuring you know where the cuts are being made. If those cuts into social welfare spending were not absolutely necessary, I highly doubt we would be seeing them.
    Folly is believing that humans can live and exist outside the laws of nature. As hard as they may be to accept, they work.
    LOL. Imagine. A Govt. doing something that is unnecessary? Impossible? Not only were the harsh cuts unnecessary they were counterproductive and made the debt situation worse along with the economy of those poor souls. There are no "laws of nature" in Govt. There are good govts. and bad Govts. though. The French and Greeks just got rid of a bad Govt. for example.

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    Re: Krugman Wishes He Were Wrong Amid EU Austerity Backlash

    Quote Originally Posted by Camlon View Post
    No it doesn't. GNP includes what residents produce. That means, if an Irish person creates a job overseas, spend most of his money in UK, then it is included. It is not GDP with profits to foreigners removed.

    GDP is much better, because it is what a country produce. There is no debate. If you believe we should use GNP instead of GDP, then convince the governments first.


    That Ireland, UK, US and Greece was irresponsible. Are you kidding me? Are you suggesting that they were responsible?


    That is just a liberal talking point. Why do so many liberals think we haven't heard arguments mentioned a million times before. Maybe I disagree. Have you ever thought about that?

    It is true that demand is dropping, but it wasn't. If demand is the only problem, then you should expect a strong rebound. But there is no recovery. Have you noticed that a failure in Greece can bring down the growth of the whole EU.

    I know you don't like it, because you want to think spending solve all problems, but confidence is part of the problem. What Europe needs is investment, and investment is driven by confidence. Sure, lack of demand reduces confidence, but so do irresponsible actions and lying from the EU. From what we know, we can not trust the growth estimate of the EU at all. We know they have no clue what they are doing. We know there might be a backlash. And we know it will be very difficult to overcome the regulations. Its not a climate people want to invest in, and if companies don't invest, then jobs are not created and people become poorer, hence lower demand.


    How is that even relevant. Do you think the economy is driven by poor people? The economy is driven by the working middle class, and they experience tax increases and spending cuts in Iceland. Iceland proves you wrong, Austrerity can work.



    So you are pretty much saying that you are favour of austerity only if it is tax increases?

    Also, you probably should study Latvia, because they prove you wrong. Austerity can work. And it seems like fast austerity works much better than slow austerity. That may seem weird for you, but it is because you ignore confidence as a factor. But if you don't then you will see that long austerity, especially combined with lying, means companies are not willing to invest. They never know when you have hit bottom, they have no confidence in the economy. With a fast drop, then after the crisis the economy can recover.

    Also, a fast drop gives the economy the opportunity to rebalance.


    But what if that time never comes. Japan tried your tactic, look at what happened to them.

    No, you need to solve your problems during the crisis. Let the economy rebalance first. Don't inflate it with more and more debt. So what do we mean by rebalance. Lets take Greece. Greece wages in the Euro is way too high. Having no cuts means the wages will stay high, Greece will remain uncompetitive. Inflating yourself out of your problems, and stating that you are going to solve them afterwards is not going to work.

    Just look at Japan.


    What if the economy never recovers. You keep spending, but growth seems to never be there. The day you will stop spending, the economy will collapse again, and you will be in a much worse situation than if you did nothing.


    That might be in France. I am not French, and I vote for what is best for right wing ideology. Hollande, and her devastating policies (e.g. 75% tax rate) for France is the best for right wing ideology.
    You still are clinging to the existance of the "Confidence fairy" I see. I've got news for you there is no Santa Claus either. Most of Europe is back in recession and those with the most austerity have done the WORST. I love how you point to Ireland, not only is thier unemployment over 14% but their borrowing costs are higher than Spain or Italy and they haven't cut nearly as much from their budgets. Austerity has been an epic fail!

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    Re: Krugman Wishes He Were Wrong Amid EU Austerity Backlash

    Quote Originally Posted by iguanaman View Post
    You still are clinging to the existance of the "Confidence fairy" I see. I've got news for you there is no Santa Claus either. Most of Europe is back in recession and those with the most austerity have done the WORST. I love how you point to Ireland, not only is thier unemployment over 14% but their borrowing costs are higher than Spain or Italy and they haven't cut nearly as much from their budgets. Austerity has been an epic fail!
    No confidence is part of the reality. You may not like it, because you want to think spending solve all problems. As I explained in the post you quoted "If demand is the only problem, then you should expect a strong rebound. But there is no recovery. Have you noticed that a failure in Greece can bring down the growth of the whole EU. " How can you explain that, if confidence is not a factor. Economically, Greece is a minor actor.

    Ireland was probably the country with the largest problems. Italy hardly had any crisis problems at all, Spain had an inflated construction sector, but their banks were sound. Ireland however, had no sound banks, inflated construction sector, and a broken financial industry. They had a deficit of 30% during the crisis. So why should the Irish bond yields be lower? Also, their bond yields have dropped massively over the last year.

    Also, what about Japan. Japan did exactly what you and Krugman wanted. They inflated the money supply, but it didn't help. Because inflating the money supply with no austerity means that you are not solving your structural problems and it gives you a permanent deficit. Often, the economy becomes addicted to deficit spending. It will only stay afloat if you keep borrowing. Why do you think crisis occurs? They occur, because a bobble pops. Your solution, keep filling the bobble. Austerity often fails when there is no plan or understanding of your problems, if it is combined with lying it gets even worse, but no austerity is certainly proved to be a failure.

    Edit: I thought he talked about Iceland. Easy to mistake those two. I see that you chose to not talk about Iceland or Latvia? Why?
    Last edited by Camlon; 05-07-12 at 08:47 PM.

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    Re: Krugman Wishes He Were Wrong Amid EU Austerity Backlash

    Debating with you pro-stimulus liberals have made me think, and I have changed my mind a little. Sorry, not that way.

    In past, fast corrections were the norm. The GDP would drop massively, and then increase again. Double dip recession like in Europe were unheard of. For instance in 1973 Greece GDP dropped from 8% to -6% in one year. In Finland the GDP growth dropped from 5 to -6% in two years. What about Greece today under the biggest recession since 1929? Over two years the GDP growth dropped from 3% to -3%. Only a 6% drop. In America it dropped even less.

    Maybe the problem is not doing austerity too soon, but we did it too late. Maybe we should do austerity during the crisis. To prevent the economy from completely collapsing, it can be couples with spending projects that can easily be removed after the crisis. Let the economy correct itself, and then the economy has a really good opportunity to recover. For instance, after the drop in GDP, Finland has had very impressive growth.

    The problem with Austerity today is that it lasts so long. In the period of having austerity, no one is going to invest. People are not getting prepared for further cuts, they get in worse shape, and no one knows when we hit the bottom. The way the economy works is that some jobs are destroyed and some are created. If no one creates jobs, then job losses are going to accumulate, like in Spain. An example of cutting is Latvia. Latvia was a little bit extreme, as their GDP contracted with 18%. But after the crisis the economy started recovering again, with a 6% growth, with a unemployment drop of 6%, a massive reduction in trade deficit. Iceland also cut massively during the crisis, and it was coupled with stimulus. They seem to be doing fine right now. If EU hadn't postponed the crisis, had the real crisis in 2009-2010 and made some tough choices. Then the EU wouldn't be in this mess.

    Reducing the deficits (austerity) has to be done anyway. No one is going to lend Greece more money, and if they did then Greece will have the same outcome as Japan. Reducing the deficit (austerity) will lead to lower GDP growth, even in good times. Better to do it when the economy is contracting than to risk a double dip recession. Having two really bad years is better than 5 miserable ones.

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    Re: Krugman Wishes He Were Wrong Amid EU Austerity Backlash

    Quote Originally Posted by PeteEU View Post
    By the measure of the Anglo-American right wing... Ireland was their baby after all.. the Celtic Tiger.... for years the Anglo-American right wing went on and on.. on how the rest of Europe should do like Ireland and that Ireland was the next rising star. Well.. the truth about Ireland is being hidden from people, because it would cause a run on the UK if Ireland went belly up.
    it wasn't the UK and America that drew Ireland to the rocks that was all Europe.

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