Austerity paper got it wrong

[Simon_Jester]

It might mean the end of Japanese capitalism as we know it to be replaced by something else- sufficient to fill Stas with vindictive glee at the fall of fat cats, and probably sincere intellectual interest at what the "something else" will be.

[K. A. Pital]

Also, real wages are declining in Japan. Just think about that - in a world with no growth, wages are constantly falling to make room for profits still to be made. I doubt that's gonna last too long.

You needn't sound quite so cheerful about the prospect.

That is a pretty brutal reality, but harsh constraints sometimes make people learn a few things.

[Admiral Valdemar]

I need to find the piece that Stuart Staniford of Early Warning posted recently regarding youth unemployment and mechanisation of the labour force. It seems technological progress is standing in the way of people being paid a wage in many positions.

[UnderAGreySky]

Interesting we're discussing Japan when they're in the middle of the biggest macroeconomic experiment in recent history.

The new govt and central bank together have pledged to do whatever it takes to move Japan from near-deflation to 2% inflation. Between printing money and fiscal initiatives, they're going full Friedman+Keynes at one go.

Intriguing.

[madd0ct0r]

I need to find the piece that Stuart Staniford of Early Warning posted recently regarding youth unemployment and mechanisation of the labour force. It seems technological progress is standing in the way of people being paid a wage in many positions.

dude, that complaint is as old as the weaving loom.

[weemadando]

Just wondering, has there been any country in relevant history (past 30 or so years) for whom austerity has actually worked? In the absence of other significant changes to their economy/demographics?

Why is it proving to be so popular now? Has it become purely punitive at this point? Surely with countries attempting it just sliding further in many cases as and the study being shown as inaccurate, it's got to be on the chopping block for at least a few nations.

[Fingolfin_Noldor]

Just wondering, has there been any country in relevant history (past 30 or so years) for whom austerity has actually worked? In the absence of other significant changes to their economy/demographics?

Why is it proving to be so popular now? Has it become purely punitive at this point? Surely with countries attempting it just sliding further in many cases as and the study being shown as inaccurate, it's got to be on the chopping block for at least a few nations.

Actually, you should try looking right above you, because Indonesia was forced by the IMF to commit to austerity, and the country nearly broke up. Indonesia took more than a decade to fully recover, and now it's economy is "poised to new heights".'

Personally, I look at all this huffing and puffing with some amusement, because Asia had its own meltdown back in 1997. Riots and revolution was in the air, and many SEA countries were forced to commit to Austerity or had to resort to tools such as currency controls. Now when Western countries eat their own medicine, ranting and wailing start. Oh the irony...

I think it is fair to say that Europe will be stuck in this quadmire for probably another 5-10 years, and the longer they take to deal with their problems, the longer it takes to recover.

[Irbis]

they didn't grow for, what, a decade? two?
It wasn't disastrous, as Japan still functioned well as a developed society, easily survived a honking great earthquake, tsunami and aftermath and continues to innovate technologically.

There are a lot of people who argue 'lost two decades' are nothing but a myth. Yes, Japan doesn't "grow" - but only compared to extremely high bubble in land and stock prices they had in 80s (and using GDP comparison adjusted for inflation). When you look at standard of living and economic indicators like strength of the yen and Japan’s trade surplus it doesn't look quite so bad - in fact, Japan had been keeping up with EU and USA, surpassing them in some points, even. Take it for what you will, but keeping the image of economic disaster neatly keeps criticisms away from Japan, such as heavily closed market and exports of highly subsidized profits, criticism easily levied on other similar Asian countries that are not in "crisis".

Why is it proving to be so popular now? Has it become purely punitive at this point? Surely with countries attempting it just sliding further in many cases as and the study being shown as inaccurate, it's got to be on the chopping block for at least a few nations.

Because soundbytes about state being like family and needing to tighten belt when in debt are, while having little in common with reality, easily bought by the masses? No one sane with any economical knowledge would ever vote for right-wing fiscal policies, but alas, it's easy to sell "let's lower taxes to the rich in case YOU ever become rich" to the ignorant and since any disaster the economic policy causes is way down in time, you can easily blame it on state overspending and these pesky leftists, not on economy crashing due to all money flowing to the rich and tax havens.

[weemadando]

Just wondering, has there been any country in relevant history (past 30 or so years) for whom austerity has actually worked? In the absence of other significant changes to their economy/demographics?

Why is it proving to be so popular now? Has it become purely punitive at this point? Surely with countries attempting it just sliding further in many cases as and the study being shown as inaccurate, it's got to be on the chopping block for at least a few nations.

Actually, you should try looking right above you, because Indonesia was forced by the IMF to commit to austerity, and the country nearly broke up. Indonesia took more than a decade to fully recover, and now it's economy is "poised to new heights".'

Personally, I look at all this huffing and puffing with some amusement, because Asia had its own meltdown back in 1997. Riots and revolution was in the air, and many SEA countries were forced to commit to Austerity or had to resort to tools such as currency controls. Now when Western countries eat their own medicine, ranting and wailing start. Oh the irony...

I think it is fair to say that Europe will be stuck in this quadmire for probably another 5-10 years, and the longer they take to deal with their problems, the longer it takes to recover.

Indonesia also had a pretty massive set of political reforms at the time - let's not forget it was the end of the Suharto regime at about the same time.

I don't doubt that austerity can work when used in combination with other changes, but it seems that places in the EU being forced into austerity measures are doing it without them actually reforming the rest of their systems. Which makes me wonder how much of that is due to them already being, y'know white, and part of the EU.

[Fingolfin_Noldor]

Indonesia also had a pretty massive set of political reforms at the time - let's not forget it was the end of the Suharto regime at about the same time.

I don't doubt that austerity can work when used in combination with other changes, but it seems that places in the EU being forced into austerity measures are doing it without them actually reforming the rest of their systems. Which makes me wonder how much of that is due to them already being, y'know white, and part of the EU.

Austerity will probably work, but the way I see it is the southern nations, and France aren't being aggressive enough in reforming their economy for better competitiveness. Too many entrenched interests, and politicians too wary of the revolting masses, and politicians not willing to say the bad things that need to be said, especially when the people are so comfortable with their creature comforts and are unwilling to change themselves.

Contrasting against Indonesia, where the majority of people who are living hands and feet, and on a standard of living far lower than the average European, the Europeans are hard pressed to find sympathy here in Asia.

[NoXion]

Austerity will probably work, but the way I see it is the southern nations, and France aren't being aggressive enough in reforming their economy for better competitiveness. Too many entrenched interests, and politicians too wary of the revolting masses, and politicians not willing to say the bad things that need to be said, especially when the people are so comfortable with their creature comforts and are unwilling to change themselves.

If this vaunted "competitiveness" means a reduction in real wages among other things, then fuck it, it's little more than a code-word for the ability of the plutocrats to continue getting richer at the expense of everyone else.

Contrasting against Indonesia, where the majority of people who are living hands and feet, and on a standard of living far lower than the average European, the Europeans are hard pressed to find sympathy here in Asia.

I don't subscribe to the "we had to eat shit, so now you have to eat shit too!" school of politics. Mainly because it's promoted by those who have an interest in getting everyone but themselves to eat shit. It's also a typical divide and rule strategy, whereby the dissatisfaction felt by many over the current order of things is redirected from the real culprits to various scapegoats, including but not limited to foreigners (available in many offensive stereotypes), welfare recipients, the "undeserving" poor, and so on. Similar tactics are used to set workers from the private sector against workers in the public sector, who tend to enjoy better pay, pensions and working conditions than their private sector counterparts. Instead of the debate being centred around why private employers are being such stingy cunts despite enjoying record profits, the better-off public sector workers are attacked for their "lavish" wage packets and "gold-plated" pensions.

I don't think most Europeans are looking for sympathy from Asia and they'd be foolish for doing so, but any Schadenfreude felt by people in Asia over the European situation is gravely misplaced in light of the fact that the people of wealth and power fucking over Europe right now would happily screw Asia again if it served their purposes to do so.

[Admiral Valdemar]

dude, that complaint is as old as the weaving loom.

It is, but there was always more unskilled work to be done instead of manufacturing which machines couldn't do. Now, a lot of stuff is being done that machines didn't get chance to do before, such as guarding warehouses or working in service sector positions. It's no longer a case of robots making cars or textiles stealing menial tasks off humans. It's going further, and some see a Singularity event as being a huge threat to society if it ever approached that what Kurzweil and his ilk keep dreaming up.

[Fingolfin_Noldor]

If this vaunted "competitiveness" means a reduction in real wages among other things, then fuck it, it's little more than a code-word for the ability of the plutocrats to continue getting richer at the expense of everyone else.

They will always be richer at the expense of everyone else. Short of a revolution and you guys wipe clean the deck, nothing will get done. Either way, countries will sink at the rate things are going.

I don't subscribe to the "we had to eat shit, so now you have to eat shit too!" school of politics. Mainly because it's promoted by those who have an interest in getting everyone but themselves to eat shit. It's also a typical divide and rule strategy, whereby the dissatisfaction felt by many over the current order of things is redirected from the real culprits to various scapegoats, including but not limited to foreigners (available in many offensive stereotypes), welfare recipients, the "undeserving" poor, and so on. Similar tactics are used to set workers from the private sector against workers in the public sector, who tend to enjoy better pay, pensions and working conditions than their private sector counterparts. Instead of the debate being centred around why private employers are being such stingy cunts despite enjoying record profits, the better-off public sector workers are attacked for their "lavish" wage packets and "gold-plated" pensions.

I don't think most Europeans are looking for sympathy from Asia and they'd be foolish for doing so, but any Schadenfreude felt by people in Asia over the European situation is gravely misplaced in light of the fact that the people of wealth and power fucking over Europe right now would happily screw Asia again if it served their purposes to do so.

I think people in Asia don't give a fuck as to what you guys are doing, so long as you get your economies on track and don't hold the world's economies hostage just because you guys can't get on with the suffering which needs to be suffered.

[Guardsman Bass]

It is, but there was always more unskilled work to be done instead of manufacturing which machines couldn't do. Now, a lot of stuff is being done that machines didn't get chance to do before, such as guarding warehouses or working in service sector positions. It's no longer a case of robots making cars or textiles stealing menial tasks off humans. It's going further, and some see a Singularity event as being a huge threat to society if it ever approached that what Kurzweil and his ilk keep dreaming up.

It's more that they changed the definition of "unskilled" labor over time. Compared to 18th century peasants, modern low-skilled workers in the rich countries are highly skilled and educated.

You could still have human labor even in a situation where machines could theoretically replace humans for any particular task where specifically having human beings providing it isn't part of the task. Machines come with their own costs, and humans could still have a comparative advantage in performing certain tasks even if the machines have an absolute advantage (opportunity cost and all that).

Instead of the debate being centred around why private employers are being such stingy cunts despite enjoying record profits, the better-off public sector workers are attacked for their "lavish" wage packets and "gold-plated" pensions.

"Record profits" basically means "Financial Sector profit growth" in the US, where the Financial Sector represents north of 30% of corporate profits (and growing). Take it away, and it's questionable how profitable the rest of the economy is. Most corporations aren't earning record profits, or even good profits.

It's sort of like how in the US, public sector union benefits actually aren't that hot when you take out the lavish benefits that Public Safety Unions get (firefighters and police). And that was deliberate - state and local officials loved giving them massive pensions and benefits in lieu of having to come up with the pay necessary to get them in the present (I would like to pay you tuesday for a fireman today).

We're already adapting in the sense of transitioning to the model of a large chunk of the former workforce living permenantly on free handouts, we just call it food stamps / disability allowance / housing benefit etc.

We're doing it the inefficient way, too. It would be much better just to give every citizen or legal resident household a straight check instead of a bunch of fragmented welfare benefits, and then let them choose to earn supplemental income on top of that. You could even nix the minimum wage - earning $19,000 a year isn't quite so bad if it's on top of $20,000 in income you're already getting.

[Starglider]

If this vaunted "competitiveness" means a reduction in real wages among other things, then fuck it, it's little more than a code-word for the ability of the plutocrats to continue getting richer at the expense of everyone else.

The amusing thing is, the opposite of austerity is loading up on masses of government debt. Government debt that pays more and more extortionate interest rates as the credit rating of the country declines; interest that represents a transfer of money from taxpayers to bond-heavy hedge funds. So every faux populist attempt to transfer the money from plutocrats to public-sector busybodies 'workers', actually transfers money (with the magic of tax avoidance) from middle-class taxpayers to plutocrats. Of course they may print money instead of borrowing it in which case just sucker them into sending the new money to banks and into traded markets and yacht party all round. Just be sure to unload those bonds on some gullible pension funds before the default or hyperinflation sets in, and then repurchase local assets after the crash.

So austerity isn't actually a good way of siphoning money into plutocrat pockets (it supresses velocity of money and essentially that means less siphoning opportunities) but it does have one unique benefit; forcing privitisation of assets governments wouldn't normally sell. A few years of austerity is normally enough for that, but those damned Germans sitting on the free money spigot at the ECB might extend it more than necessary.

It's no longer a case of robots making cars or textiles stealing menial tasks off humans. It's going further, and some see a Singularity event as being a huge threat to society if it ever approached that what Kurzweil and his ilk keep dreaming up.

That's not a singularity; it's not a transformation of society by intelligent actors we can't predict. It's not even a cool dystopian cyberpunk novel. That's just the vanilla science fiction scenario of having no use for a large chunk of the population (without specialist hard-to-automate skills). We're already adapting in the sense of transitioning to the model of a large chunk of the former workforce living permenantly on free handouts, we just call it food stamps / disability allowance / housing benefit etc.

"Record profits" basically means "Financial Sector profit growth" in the US, where the Financial Sector represents north of 30% of corporate profits (and growing).

and financial sector salaries and bonuses are trending back up so no complaints about equity there (well, no more than usual, traders complaining about how their bonus is 'barely into seven figures' is part of the job description )

[Simon_Jester]

The ruthless-pragmatist problem with the whole "uneducated people are surplus population" thing is that it's not clear we can supply enough educated people to keep the machine running, unless we have a large enough population base to breed them from and provide social support.

But the more we marginalize the current generation of uneducated people, the less likely it is that their children will become educated and be useful to the plutocrat-technocrat classes, so the system becomes inherently unstable...

[Zaune]

That's not a singularity; it's not a transformation of society by intelligent actors we can't predict. It's not even a cool dystopian cyberpunk novel. That's just the vanilla science fiction scenario of having no use for a large chunk of the population (without specialist hard-to-automate skills). We're already adapting in the sense of transitioning to the model of a large chunk of the former workforce living permenantly on free handouts, we just call it food stamps / disability allowance / housing benefit etc.

If by "transitioning" you mean blaming the unemployed for their own predicament and desperately trying to force them into jobs that simply don't exist anymore, at least in this country.

[weemadando]

Look Zaune, all we have to do is eliminate govt spending (preferably on wasteful social programs) and eliminate minimum wage, OHS and other employment constricting systems until we can begin competing with Asia in manufacturing again.

[Admiral Valdemar]

The ruthless-pragmatist problem with the whole "uneducated people are surplus population" thing is that it's not clear we can supply enough educated people to keep the machine running, unless we have a large enough population base to breed them from and provide social support.

But the more we marginalize the current generation of uneducated people, the less likely it is that their children will become educated and be useful to the plutocrat-technocrat classes, so the system becomes inherently unstable...

Maybe there's just too many people, period, as they say.

[K. A. Pital]

I need to find the piece that Stuart Staniford of Early Warning posted recently regarding youth unemployment and mechanisation of the labour force. It seems technological progress is standing in the way of people being paid a wage in many positions.

Luddism. It's not technical progress; it is the reluctance of the capitalists to grant full wage positions to people working less than 8 hours a day. Seems we need another movement - the 6-hour workday one.

[Simon_Jester]

If by "transitioning" you mean blaming the unemployed for their own predicament and desperately trying to force them into jobs that simply don't exist anymore, at least in this country.

This is a predictable response of assholes to a problem like that.

Their reflexes are set one way, to one set of conditions (say, "anyone motivated can get a job," which was at least vaguely like the truth, for a majority of years in the 20th century and up through 2007).

They draw conclusions accordingly ("anyone who doesn't get a job isn't motivated enough.")

This ignores changes in the status quo, such as:
-The Internet means that everyone applies to everything, the static-to-noise ratio goes up and it can now be nearly impossible for anyone NOT in the top 10% of the applicant pool to get a job offer in a timely fashion
-The economy is in chaos and this directly impacts hiring/firing decisions
-Average level of educational requirements is going up at the same time that the average quality of education is remaining constant or declining for a huge complex of reasons.

If I had to wrap it up in a nutshell, I think... the responses to 21st century employment conditions can be either "we need to discard the unnecessary people" or "we need to really push to keep the quality of our human-capital up to a level consistent with the demands of our new economy."

Most people in the existing power structure choose the option that doesn't involve more work.

[Starglider]

Luddism. It's not technical progress; it is the reluctance of the capitalists to grant full wage positions to people working less than 8 hours a day. Seems we need another movement - the 6-hour workday one.

There is easily enough theoretical demand to keep everyone employed at 40 hour weeks. The majority of the population would live like a multi-millionaire if they could and that would require vastly more production than we have. The only reason we couldn't have full employment in principle (assuming perfect distribution of labour) would be physical constraints; availability of energy and raw materials. I am quite confident that isn't a factor, in that there are lots of luxury goods and qualitative improvements in existing goods that people want, that require only more labour not physical resources (e.g. hand-crafted and personalised items).

As such the basic reason we don't have full employment is that with globalisation, a large fraction of demand increase in developing countries lead to increases in production in developing countries. Having the government 'stimulate demand' by pumping in money just leaks out through trade deficits to China etc. Rent-seeking and other parasitic activity by the very rich causes inefficiency and inequality but not lack of demand of labor, because in isolation pricing mechanisms adjust to maintain overall demand (as seen in say the gilded age). The basic problem with globalisation is that it connected extremely unequal parts of the world for the first time; capitalism applies pressure to equalise conditions across open markets but the process of making developed and developing world conditions equivalent takes many decades. But hey it's increasing global equality and that's what you hate-the-rich people want isn't it? Turns out you have to hate yourselves for being rich first worlders, even if you are at the local poverty line.

That said there are definitely local fixes possible. Why does Germany have a massive trade surplus and Spain a huge trade deficit, despite being fairly close in standard of living, geography, infrastructure development etc? Structural and cultural factors that could be fixed with enough effort.

[Guardsman Bass]

Luddism. It's not technical progress; it is the reluctance of the capitalists to grant full wage positions to people working less than 8 hours a day. Seems we need another movement - the 6-hour workday one.

There is easily enough theoretical demand to keep everyone employed at 40 hour weeks. The majority of the population would live like a multi-millionaire if they could and that would require vastly more production than we have. The only reason we couldn't have full employment in principle (assuming perfect distribution of labour) would be physical constraints; availability of energy and raw materials. I am quite confident that isn't a factor, in that there are lots of luxury goods and qualitative improvements in existing goods that people want, that require only more labour not physical resources (e.g. hand-crafted and personalised items).

There are also digital goods and services, which just rely on server space and energy.

As such the basic reason we don't have full employment is that with globalisation, a large fraction of demand increase in developing countries lead to increases in production in developing countries. Having the government 'stimulate demand' by pumping in money just leaks out through trade deficits to China etc. Rent-seeking and other parasitic activity by the very rich causes inefficiency and inequality but not lack of demand of labor, because in isolation pricing mechanisms adjust to maintain overall demand (as seen in say the gilded age). The basic problem with globalisation is that it connected extremely unequal parts of the world for the first time; capitalism applies pressure to equalise conditions across open markets but the process of making developed and developing world conditions equivalent takes many decades. But hey it's increasing global equality and that's what you hate-the-rich people want isn't it? Turns out you have to hate yourselves for being rich first worlders, even if you are at the local poverty line.

I don't think it "leaks" out that much, even in the case of the US where we can basically print money and export it for goods (most countries don't have that luxury). Trade represents a relatively low fraction of US GDP, and spending on goods and services bought and sold in globalized markets represent a small fraction of income for all but the poorest Americans. Boosting aggregate demand is mostly going to boost American consumer spending on domestic goods and services.

I can't really comment on British trade exposure without more data.

That said there are definitely local fixes possible. Why does Germany have a massive trade surplus and Spain a huge trade deficit, despite being fairly close in standard of living, geography, infrastructure development etc? Structural and cultural factors that could be fixed with enough effort.

That's why they should never have adopted a common currency. That trade deficit would have corrected itself if Spain still had its own currency and Germany wasn't trying to deliberately keep the value of the Deutschmark low in the pre-Euro situation.

[K. A. Pital]

There is easily enough theoretical demand to keep everyone employed at 40 hour weeks.

Bullshit. People don't have the money to pay for the available luxury and not-so-luxurious items already which is evident from the current crunch (tried to do that with borrowing for 20 years, didn't work out).

Oh. You said theoretical. As in la-la-land. Got ya.

But hey it's increasing global equality and that's what you hate-the-rich people want isn't it?

Yes. I want nothing but total equality between the First World and others. This would mean all politics would be made in Asia.

[Simon_Jester]

There is easily enough theoretical demand to keep everyone employed at 40 hour weeks.

Bullshit. People don't have the money to pay for the available luxury and not-so-luxurious items already which is evident from the current crunch (tried to do that with borrowing for 20 years, didn't work out).

Oh. You said theoretical. As in la-la-land. Got ya.

Theoretical demand- "everyone would get this thing if they could." I doubt that's disputed. The problem here is that a caveman-level model of the economy handwaves the process by which demand for products relates to demand for labor.

Certainly, enough people want enough things that we could keep everyone busy supplying those wants. Which is what Starglider's statement really means. But the answer to "which of your wants are you going to be able to provide?" is stratified by income. And "what income will you be able to have?" depends on things like education, geography- things that do not change quickly or easily.

So the wants that could most easily keep us all busy fulfilling them are ignored, because they are desires of poor people, and desires which are not critical to their survival.