Austerity: the greatest bait-and-switch in history

Mark Blyth, a delightfully sweary Scottish economist, talks for about an hour to Googlers about the stupidity of austerity as a means of recovering from recession, describing it in colorful, easy-to-grasp language. This is brilliant, accessible and important economics:

Governments today in both Europe and the United States have succeeded in casting government spending as reckless wastefulness that has made the economy worse. In contrast, they have advanced a policy of draconian budget cuts--austerity--to solve the financial crisis. We are told that we have all lived beyond our means and now need to tighten our belts. This view conveniently forgets where all that debt came from. Not from an orgy of government spending, but as the direct result of bailing out, recapitalizing, and adding liquidity to the broken banking system. Through these actions private debt was rechristened as government debt while those responsible for generating it walked away scot free, placing the blame on the state, and the burden on the taxpayer.

That burden now takes the form of a global turn to austerity, the policy of reducing domestic wages and prices to restore competitiveness and balance the budget. The problem, according to political economist Mark Blyth, is that austerity is a very dangerous idea. First of all, it doesn't work. As the past four years and countless historical examples from the last 100 years show, while it makes sense for any one state to try and cut its way to growth, it simply cannot work when all states try it simultaneously: all we do is shrink the economy. In the worst case, austerity policies worsened the Great Depression and created the conditions for seizures of power by the forces responsible for the Second World War: the Nazis and the Japanese military establishment. As Blyth amply demonstrates, the arguments for austerity are tenuous and the evidence thin. Rather than expanding growth and opportunity, the repeated revival of this dead economic idea has almost always led to low growth along with increases in wealth and income inequality. Austerity demolishes the conventional wisdom, marshaling an army of facts to demand that we recognize austerity for what it is, and what it costs us.

Mark Blyth: Austerity - The History of a Dangerous Idea (via Memex 1.1)


  1. Whenever there is a story about trying to live within one’s means, I always know it was posted by Cory.  I, for one, welcome balanced budgets.

      1. How the fuck is anybody supposed to blame the poor for their own poverty with that philosophy?

        1. It’s more like, your family was doing really well, and you just kept spending money and not saving it. Then you lost everything, but your child is starving and could die.

          You either, let your child die, or you take out a loan on your good credit to keep everyone in your family relatively safe from death and poverty.

          You wish you saved before, but you didn’t. And you can’t do anything about that now. But maybe next time, when you have an extra surplus of income, you don’t spend it, or give it away.

          1.  Except that you never spent that money on your children to begin with but rather gave it all away to rich old relatives.

      1. Actually that’d be just as bad as it is trying to balance it now.  In times of prosperity governments on all levels should work to creating enough of a buffer to offset the coming storm, because it will come.  If I receive a raise at work I don’t simply spend more to make the bottom line balance out, I save more because no one else should have to do it for me.

        1.  There is, and always will be, people in desperate need of government assistance. 

          When you have a substantial surplus, it’s pretty tough to insist people must suffer in preventable misery *right now* because we want to prepare for a crisis that may occur in the future.

          1. Well that is true, but given the nature of politicians shoving tons of money toward a project of any sort rarely accomplishes the end goals.  Now placing the appropriate people in charge of a project and letting them work their magic is different, but that rarely happens when dealing with the government.

            I understand what you are saying, but the flip side of that is the fact that there isn’t money available now to keep assistance going for 10x the amount of people that you had during the good times.  And a future economic crisis will always occur, at least as long as we are using currency and capitalism.

          2. On the other hand, running something like the “Wisconsin Plan” that tries to get long-term welfare recipients into work actually WORKS during a time of boom because there are jobs for those people to get into. 

            (Although, the way that system has been run in many places also, unfortunately, has tried to force many people who actually *shouldn’t* be in the job market because of disability or family needs such as childcare, eldercare, and caring for disabled family members is problematic in and of itself. But that’s a different story entirely.)

          3. I’ve always been involved with non-profits. Sure, there were still financial struggles, but on so many levels there were many new  initiatives happening. There was governmental and other non-profit support. To curb poverty, to enrich children’s lives, to reform criminals, teens, etc…

            Those were investments in a future, and to think that we suddenly don’t need them or they should be taken back because of banks….it’s just a tragedy for the people who are already disadvantaged and in need of outreach, and paints a bleak picture for the future.

          4. it’s just a tragedy for the people who are already disadvantaged and in
            need of outreach, and paints a bleak picture for the future.

            Absolutely.  I was simply pointing out that the same applies even when there isn’t a crisis.  People don’t stop suffering from mental illness, drug addiction, illiteracy, etc. just because the rest of the economy is chugging along.  A drop from 8% unemployment to 4% still means many millions unemployed.

        2. But paying down current debts during a period of prosperity gives you the ability to borrow more when the hard times.  So you’re basically saying, “No, we shouldn’t be creating a buffer.  Instead, we should be creating a buffer.”

    1. Whenever someone makes analogies between national budgets and personal or business budgets, and particularly when they use phrases like “living within one’s means” in that context, I know they either are deliberately misleading people or don’t understand how economies work or what money is. 

      As Blyth (and economic history) demonstrates, austerity in a downturn creates more debt, not less- while crippling the investments that would improve both the economy and most people’s lives.  Rebranding this privately created financial crisis- and the private debt it generated- as a public burden is the greatest bait and switch con in human history. 

      1. Economics is like physics in that the intuitions one develops at everyday scale are not applicable at vastly different scales.

        In other words, very very small things don’t behave like billiard balls, and economies don’t behave like personal finances.

          1. That’s another way in which economics is not like physics.  Money is not conserved.  Perhaps there is something in economics that obeys a conservation principle but money is not it.

        1. There’s a scene in the movie Dave where the new president figures out a budget using pencil and a notepad; it’s appealing to believe this is how government budgets work and a myth that political parties like to exploit; however, these budgets are much more complex.
          My ex used to manage a small portion of one government budget. I also worked with an accountant who moonlighted for a government project. Just to give you an idea of how different it is to work with this amount of money, both of these people told me that they had been trying to figure out how to get the rounding errors swept into their personal bank accounts (accounting humor ha ha ha), because when you round up or down in a government budget acceptable calculation errors are stated in the millions of dollars. 

          One of the things lay people could never understand was how my ex worked all day with budgets and still could not manage our household budget properly. It was hard to explain that managing our own cash was not even remotely related to corporate and government accounting skills. 

      2. I know they either are deliberately misleading people or don’t understand how economies work or what money is.

        In this case, you need only open his profile in order to choose.

      1.  Well you know, balancing budgets is important stuff. That’s why we never raise revenue appropriately and never stop throwing billions down the war hole. It’s all the fault of fat cat teachers..

    2. So… how do you respond to all these responses to your post or are you just trolling around these parts of town?

    3. Yes, austerity is great. We can pool our money, and tackle this problem together. I’ll obviously need to spend quite a bit of it on rare mint condition antique rusting nesting dolls, but you can cut back on frivolities like food, heat, and transportation so that the budget ends up balanced. Sounds fine to me.

    4.  Austerity leads to larger deficits – See: The Paradox of Thrift
      Also – when governments run budget surpluses, that leads to recession (because money is being pulled out of the economy).

    5. So you paid your own way as an infant, paid for your own schooling, will never take out a mortgage to buy a home or otherwise spend more than you take in at any point? 

      Overall, governments should keep debt a constant or declining percentage of GDP, but when there is a slump, its effective for them to run a debt, and to pay it down (like Clinton did, and was reversed by Bush).

      Look up “the paradox of thrift”. We cannot all start saving at the same time.

    6. Did you know that government debt is unlike private debt in fundamental ways?  The main way it is different is that without government debt, there can be no private sector income and no profit.  The sectoral balances view of the economy, which is an accounting identity and not up for debate, is that the entire wealth in an economy consists of public and private debt combined with foreign trade deficits/surplus.  If the private sector is deleveraging, which has been occurring since 2008, after decades of private sector debt-binging, and the nation is running a trade deficit, as the US has for decades now, the ONLY place for money to come from to make the economy function at all is government.  That is the main reason the government’s budget is not just different from a household or corporate budget, but diametrically opposed and opposite.  

      There is also the fact that governments don’t have to sell debt to print money. They can just print money.  You will cry INFLATION if governments print money to invest and generate economic activity (but somehow not if banks do the same).  But empirical, historical evidence shows that when unemployment is high and productive capacity is hugely underutilized, as is the case in the US for the past 5 years, that inflation is a bogeyman that simply won’t and can’t materialize.  Deficit hawks have been crying and worrying about inflation all that time and we haven’t seen it, because it is a hollow concern.

      Moreover, starving your way to prosperity simply doesn’t work.  Look at the nations that have suffered the harshest austerity over the past 5 years:  Latvia, Greece, Ireland, Spain and Italy.  Their economies are horrible, their debt to GDP rations are getting worse not better, and their unemployment rates are through the roof, at depression levels.  Austerity has done nothing but destroy them.  This has everything to do with the sectoral balances accounting identities, and the fact that debt to GDP has a denominator as well as a numerator.  Growth reduces the ratio as GDP rises.  If GDP falls, as when the public and private sector are both deleveraging, then debt to GDP rises.  

      There are arguments that debt to GDP is a stupid measure anyway, as the now discredited Reinhardt and Rogoff “study” serves to illustrate, but that is for another post.

      “Balanced budgets” have the advantage of sounding “nice’ in a pat and self-satisfied way,  and if you are of the puritanical or ascetic bent they can be appealing punishments, but they are economically illiterate and horribly destructive.  Where were your calls for “balanced budgets” when banks were over-leveraging their fraudulent loans and derivatives trades to the hilt?   Banks have treated their ability to create money as a license to commit fraud and engage in horribly irresponsible and destructive speculation, for short term unrealized gains that lead to massive bonuses for short term, fictional profits, and ultimately bankrupt the very institutions, and then nations, that have bestowed the money-creation gift upon these criminal banksters in the first place.

      The only thing I will say about government fiscal stimulus is that without true and deep reform of our banking and finance systems in the west, fiscal stimulus will have less impact than it should.  Does that mean governments should not be running large deficits now?  No.  But they should ALSO be breaking up too big too fail banks, jailing criminal banksters and imposing serious re-regulation on these failed institutions.

      So please keep what amount to faux-moralistic, self-flagellating beliefs about economics and balanced budgets where they belong:  in your room between you and your whip.

      1. Holy shit. I’m bookmarking this comment. That was simply beautiful- and enlightening!

      2. “without government debt, there can be no private sector income and no profit.”

        Err.. how did things work before government debt?

    7. The thing to keep in mind is that all sovereign debt is money that must be paid back by taxpayers (present or future) either in the form of losing current wealth or giving up potential income.

      The ideal situation is for income to grow faster than debt so that the debt burden shrinks over time (a slow winding down of debt).  Sudden cuts do not allow for that.  They must translate into immediate drops in wealth (or less income).  Anytime a state cuts it’s debt, it’s citizens must become poorer.

      The people at the top of the economic food chain (and/or the entities “too big to fail”) have enough clout to prevent any of the losses falling on them (the “asset protection” mentioned in the video), which means it must fall on someone else.

      The end result is that the people at the bottom of the economic ladder must see their wealth and/or income drop in order to preserve the status of those at the top.  If debt is going down and you’re not personally suffering, then someone else is taking your share burden for you.

      The kicker is that by doing it suddenly, you’re throwing out the entire idea of having income grow faster than debt so that the debt becomes less of a burden, in favor of just piling the burden upon those without much power such that the burden of the debt has actually increased instead.

      It’s a bit like a rich man facing financial problems deciding the way to solve it by cutting the wages of his servants, with the evil moralization of then pointing to how poor the servants are and saying they deserve it because obviously they don’t make enough money to afford any better sort of life.

      In the end, it’ll only bite the owners of companies in the butt.  No company hires more unless forced to by excess demand from customers.  Kill the income of the customers, sales will drop, and so will job growth. Piling the money at the top of the economic ladder doesn’t help because someone who makes 1,000x as much money doesn’t buy 1,000x as many cars, 1,000x as many meals, or 1,000x as many houses, pants, or anything else.

  2. This is spot on, I have been touting the same idea since our U.S. economy bombed out due to banks, derivatives and mortgage lenders. The biggest challenge is getting this info in front of policy makers, and then making them listen, process and admit. The GOP peddles fear, and will not stop, so I doubt any change is possible

    1. The GOP peddles fear, and will not stop, so I doubt any change is possible

      If you mean the GOP, I agree.  They are militantly resistant to change and protecting the status quo (rich corporatists and lackeys).  But, if you mean the rest of America that can and do critically think about such things, then I completely disagree with you.  They are ready for change.  They voted in Obama to do the job and now many of them despise him for not doing it.  It’s a learning process on a huge scale and it’ll take time and diligence, but it’s happening (despite constant propaganda to the otherwise).

  3. let me get the storyline straight:

    wealthy bankers make huge gambles using the investments and deposits of a wide base of average folks to ante up at the international Monte Carlo. Rich bankers then make off with insane profits on a system that eventually collapses on itself. Average people’s tax dollars are then used to bail out banks, impoverishing said average people, and indebting their nation, all while further enriching rich bankers. The ensuing economic collapse leads to a political environment that, through some well-placed shaming and fear mongering, can be manipulated into one where programs for the poor and middle class are gouged, and we all must be willing to make environmental, labor, energy, etc… “compromises” (policies rich bankers and industrialists have always advocated anyway) and everyone is told to hold their breath and not try to make a disturbance, so that the banks can swell with cash again, in hopes that our mysterious economy will right itself (unless we pleebs mess it up with our laziness and greed…)

    Man, it couldn’t have fit together better if it had been planned.

  4. I haven’t had time to listen to the whole thing but does he mention and look at Japan and it’s 20 year + struggle?  It’s tried almost all the current economic theories.

    1. The important lesson from Japan is that all the economic theories are bunk and the economists who get paid large amounts of money to write articles in your favourite newspaper are shysters.

      Nobody has ever invented a cure for recessions.

    2.  Go over to Krugman’s blog, search ‘Japan’, and read – he’s been doing yeoman’s work on Japan for years. 

      Long story short:  Japan has done much better in their extended financial crisis than ‘the West’ has, and (as of a few weeks ago) they’ve unexpectedly and suddenly decided that basic Keynesianism works, that basic monetary policy is the beginning of the end of their crisis, and instituted a bit of quantitative easing.  And, so far, it seems to be working.

      1. The main thing the Japanese did wrong is the same thing we are doing wrong:  they refused to break up and clean up their banks and instead used “quantitative easing” to keep the zombie banks stumbling around.  The irony is that people like Tim Geithner and Ben Bernanke mocked the Japanese as an example of what not to do when your banks build huge debt bubbles and then collapse.  Then they went and did the exact same thing.

        Without cleansing the corruption from the banking system by firing/jailing the criminals that run them, and writing down or erasing debts that can’t be paid, fiscal stimulus, while useful, becomes less useful because much of it just goes into prolonging the debt payments that are crippling the nation in the first place.

        1. That’s factually incorrect. Up until literally a score of days ago, the Japanese had been terrified of monetary policy and treated inflation like an unequivocal evil. Very unexpectedly, and for reasons no one is entirely sure of, Abe has done an about-face .

          What Japan faced, and currently faces, is a classic liquidity trap, which has nothing to do with zombie banks. Japan isn’t Greece; they don’t owe money to anyone aside from their own citizens. I realize the zombie bank narrative is very satisfying to those on the Left (like myself), but we aren’t conservatives; it’s important that the story not be the story.

          1. I think you are confusing monetary interventions with fiscal interventions.  Monetary policy is about recapitalizing and providing liquidity to banks and fiscal stimulus is about pushing cash directly into the economy.  “Abenomics” is about fiscal stimulus, and they are experimenting with this big time now, as you say, which is fantastic.  The Japanese had a housing bubble back in the 90s, the collapse of which left their banking system zombified.  I am of course simplifying.  As Mark Blyth points out in his lecture a lot of what cause Japan’s trouble was the fact that it was an export-based economy, with internal demand a far second, and a currency appreciation due to the plaza accord sank them.  But they most definitely did, back in the 90s and into the ‘oughts, do just what we are doing with our banks now: pretending a solvency crisis is really a liquidity crisis, not writing down bad debts while infusing banks with reserves and not reforming them.  At least some of the Japanese bankers had the good grace to kill themselves when they helped tank their economy.  Our banksters could learn something from them.

  5. “They’ve got the leeches on the caorpse, end they’dre oap-ning up the veins.”  This guy is priceless.

  6. I thought the core idea with these austerity budgets is that states like Greece can’t afford to maintain spending levels because no one is willing to lend them any more money.  It’s an issue of the impossibility of spending without any money or credit. 

    I can’t watch the talk at the moment.  Maybe he goes into this.   This is also not an argument for or against the concept of austerity.  It’s just my understanding of the situation’s inherent difficulty.

    1. You are correct about Greece.  There, the problem is that the natural reaction to the current situation would be to massively devalue their currency (i.e. leave the EU) and default on external loans, all of which would be catastrophic to the European union.

      However, lack of lenders is not currently a problem for many countries.  A glance at the interest rates on most government treasuries will tell you that.  The main debate is whether government spending pays off in increased growth, and the answer, as almost always in economics, is “sometimes”.

      In other words, given there are examples of government spending leading to both prosperity and doom, we are free to follow our own personal prejudices with pretty the same much authority as the ‘experts’ (who are lined up in equal numbers on both sides).

      Personally, I subscribe to the idea that if there are so many factors that economic prediction is nigh impossible, we might as well go with the course of action that causes the least short-term misery.  (i.e. I’m anti-austerity.)  However, I try to be realistic enough to acknowledge my preferred policy could blow up terribly.

  7. I know such terms are merely rhetorical and open to interpretation, but is it fair to call austerity “the greatest bait-and-switch in history”, which implies we were somehow tricked, when everyone knew from the outset that the idea that austerity was any kind of a fix was bullshit?

    I don’t feel we were tricked into accepting austerity so much as we were never given another choice to begin with.

    1. I don’t feel we were tricked into accepting austerity so much as we were never given another choice to begin with.

      Depends on who you talk to.  I studied right wing radio for many years and they repeatedly grind it into your brain ad nauseum.  It’s what helped to (evil) spawn the TeaBaggers, Inc. into power among many other corporatist mechanisms that produce and implement austerity measures.

      For example, Wisonsin had a choice and failed miserably when people on the right AND left were hoodwinked. Walker should have been thrown out on his ass by most of Wisconsin along with support from the entire USA. Instead people on the left mocked the activist’s struggle and failed them miserably.

      Will we ever learn? Yes, but it’s going to be a slow process. Some of us (ahem) take longer to learn than others.

      1. The left was with labor. Don’t confuse socially liberal, but otherwise rightwing/neoliberal  Obamacrats with the left.

        1. However you want to define them, the left (overall) failed miserably to stick up for Wisconsinites for the Walker recall.  Of course the far left did like they always do and rallied for them, but I’m talking about more mainstream lefties.  I remember it very clearly because it was frustrating as hell.

      2. is it fair to call austerity “the greatest bait-and-switch in history”, which implies we were somehow tricked, when everyone knew from the outset that the idea that austerity was any kind of a fix was bullshit?

        I think it’s fair.  Everyone didn’t know- and still doesn’t.  Talk to 100 people on the street, and a big percentage (a large majority south of the Mason-Dixon line) will throw out tropes like “government has to live within it’s means”, “we have to balance our budget”, “we don’t tax too little, we spend too much”, not to mention talking about all those shiftless no good bums who won’t work, but just collect welfare. In the majority view it’s not about investment and infrastructure, education and research, it’s about some weak concept of pay as you go.  This is the result of an ideological marketing (con) job in which most media has colluded. The mass of people were told they would be better off if the “austerians” had their way, and if social safety nets and benefits were cut- because, unlike bailing out the banks, these social expenditures are too costly. The bait and switch is that the majority are instead financing the banks, while making themselves much worse off. And most don’t know it. 

  8. “Listen! Strange women lying in ponds distributing swords is no basis for a system of government. Supreme executive power derives from a mandate from the masses,
    not from some farcical aquatic ceremony.”

    “Be quiet!”

    “Well, you can’t expect to wield supreme executive power just because some watery tart threw a sword at you!”

    “Shut up!”

    “I mean, if I went around, saying I was emperor, just ’cause some moistened bint lobbed a scimitar at me, they’d lock me away!” –Monty Python and The Holy Grail

    1. Unqualified lacustrine females handing out dangerous cutlery would be SO much better than the current system…

      1. All this talk and debate, but the older I grow, the more I realize the rules are simply no different than the schoolyard; the bullies cornered the market on candy sales before our generation ever even entered the public school system. And no matter our efforts, we must buy the candy, their candy, at the prices they set, based on closed-door conversations that really have little to do with reality or the sciences. To boot, sciences would fail; math can’t predict selfish behaviors insomuchas ISBAfix scandal or even Samsung’s evil empire of monopolization. I don’t know when you were born, jonbly, but my generation got the shaft, and the one after me doesn’t care to fix the problem, they are too jaded by the bleak and too removed from the boomers’ world.

  9. I usually don’t care enough to point out mistakes in reasoning or facts on the internets. This article however is astoundingly wrong and I see here in the comments complete ignorance of that fact.

    I won’t challenge the core argument that government spending can create net positive prosperity. There are plenty of resources that already address this and refute many of the points in the video before I couldn’t take any more and turned it off. For example, Human Action is a great book on economics built upon apodictic truth using the epistemological tool of performative contradictions to leverage the axiom of non contradiction(just try denying the claim that humans act and you find that you affirm the very thing you seek to deny). Or you could go the route of less thorough but more direct investigation and check out the debate on the role of government spending by Bob Murphy and Karl Smith up on youtube. These and other formal treatments of the subject completely dismiss the amateur and unsupported claims I see here in the comments. Anyone interested in more rigorous investigation of the truth should do a search for those items I mentioned above.

    So what I want to address is one of the very first claims made in the article; that government are calling for and implementing austerity. First, definitions:

    austerity in terms of government spending would be defined as a state where government is spending less. Less than it has been, less than it has coming in as taxes, that kind of thing. Most importantly, austerity excludes behavior where one is still going into debt and or monetizing its excess costs over taxation.

    Yet this is exactly the case in categorically every western nation. Even the nations to which the term is most commonly applied, they are not in any way austere. They are still overspending and going into debt. In the case of the US, the austerity measures amount to a reduction in spending that doesn’t even halt the planned increases in the deficit, let alone the debt. 

    I’ll provide a source below to give specific numbers but I just want to explain the qualitative argument first to reveal the frustrating blind spot in people’s thinking I see here and elsewhere on this subject. Suppose a man was hugely in debt, and each year he was still overspending, and each year that amount of overspending increased. Suppose also that he introduced what he called an austerity plan on himself; that plan  did not reduce his debt, nor did it reduce the current overspending that is making him more in debt; all his plan does is reduce by a fraction the amount he had planned to increase the amount he intended to overspend next year.

    To call this austere and to mean it would be so not true I would have to say that this is a form of insanity with no hyperbole. It is indescribably bizarre that a trained economist could use such language and be taken seriously. All I can do is assume that Mark Blythe is a propagandist, an intellectual, part of the priest class which serves rulers by legitimizing various forms of power over people.

     EU austerity:
     US sequestration:

    1. There is a great deal of irony in your comment when you call the other commenters amateurs and then go on to compare government finances with personal ones. But you cited something by Mises early on and I knew some lame thought experiment that has no empirical grounding in actual economics was about to follow. The total reliance on axioms about entirely sums up why Austrian School economics is wholly worthless in the real world, and its practitioners are reduced to internet trolling actual economists with sado-monetarist gold buggery.

      1. I was rather surprised when googling a chunk of his comment didn’t bring up a host of identical ones.

      2. Even though you are not interested in truth(see your ad homs and poisoning the well arguments), I will answer for the sake of others who may read this. If it were just a conversation between us, I would have told you that I would not participate in the illusion of discussion that isn’t in fact using the methodology of seeking truth. It would be self abuse to participate for the sake of appealing to reason and evidence with you alone. The fact that moderators here are also jumping in on this abuse tell me what I need to know about this site and the general interest in truth over political partisanship(I am grateful at least that they permit this post to go through). Still, I suspect at least a few people who read these comments are curious. So it is them I shall address.

        I expected someone would take issue with the comparison. I saw others already mention that sort of thing above that one cannot use atomic economic elements to draw conclusions about large societal ones. Although I think such comparisons are indeed valid in some other contexts, I had explicitly avoided using the comparison in any other way except to describe the misapplication of the term austerity. I specifically pointed out that austerity is a function of the degree of spending and so my comparison was between the overspending among a fictitious example of a single individual and a government overspending. I made the case that government spending could not be validly called austere and to call it such is beyond absurd; it is downright delusional. My comparison was an attempt to remove some of the fog of abstraction around large numbers and impersonal debts so that it would be clear how far from ‘austere’ governments are behaving.
        I did not use that comparison to draw any other conclusions. It was not a comparison of government and personal finances. It was a comparison of the misidentification of austerity applied to governments and the misidentification of austerity applied to an individual.

        So when I am accused of amateur economic arguments because of such a comparison, it only exposes misunderstanding on the part of the accuser. Either governments are still overspending(and overspending at a greater rate now than before as is the case in the US) and the term ‘austere’ is nonsense or governments are not overspending(or overspending less) and I am wrong. That is the means by which my argument can be validly challenged.

        Next, onto the claim that because I made a ‘lame thought experiment’ there was no empirical evidence to follow. This is quite ironic that someone would appeal to evidence and yet not notice the fact that I indeed provided evidence(in the sources, both of them) which is exclusively about data.

        I won’t go into the bigger issue regarding dismissal of axiomatic reasoning in favor of empiricism here. Again, I really want to keep on point with this one single issue of calling something austerity when it is not. I will however offer resources for those who would like to see why the natural scientific methodology cannot investigate economics. The answer lies within the epistemological proof for the validity of the natural scientific method itself(which happens to not be derived from empiricism by the way). You can have a look at Bacon’s work on the topic when he and others popularized its use or if you want treatment specifically on the subject of why the natural scientific methodology does not meet its requirements for valid application for economics, have a look at Hoppe’s work on ‘Praxeology and Economic Science’.

        I hope at least some find this information valuable. If Antinous and jetfx are representative of the readers here, then I shall stop annoying you all and stop commenting.

          1. Troll an Austrian Schooler, and without fail you will get a long winded response. I stopped seriously debating them a while ago, and just waste their time with snarky comments that they are compelled to reply to with long quotes mined from Mises and Hayek.

          2. You’re fun.

            Was it this part that thrilled you?

            ” … the bigger issue regarding dismissal of axiomatic reasoning in favor of empiricism … ”

            I know it sure was thrilling for me.

        1. You mistake me, I am very much interested in truth, which is precisely why I don’t subscribe to Austrian School Economics. As you admit yourself, it’s not scientific. The thing is, any claim about how the economy works, is empirically testable. If you want to make a claim to truth and tell me that your truth cannot be subjected to scientific scrutiny, well, I’m going to make fun of you.

          Introducing a “Suppose a man…” hypothetical to remove the “fog of abstraction” in the comments is hilarious, because you just brought another abstraction to the table, and one that does much to obscure the debate by turning macroeconomic issues into a pocketbook problem. For Austrian Schoolers, every economic issue can be reduced to Robinson Crusoe Economy abstractions so appropriately idiotic conclusions can be drawn about sovereign debt crises. I suppose the part of the story where Crusoe engages in the racist exploitation of Friday accurately models capitalism as it exists.

          Why I am I ridiculing you rather than employing reasoned arguments to refute you? Well, your first post about the semantics of austerity wonderfully illustrates what I’ve experienced actually debating Austrian School folks in the past. Criticize a concrete example of capitalism’s failures, and then watch your opponent No True Scotsman out of it. Commenters here criticized austerity as it actually exists, and you simply redefined the term as an abstraction, blamed it on the government, and called everyone amateurs for being able to see economic reality. 

          1. But how can you argue with the poster in the face of “…apodictic truth using the epistemological tool of performative contradictions to leverage the axiom of non contradiction”?

            That’s gotta be a quote from Monty Python, I swear.

    2. “Austerity in terms of government spending would be defined as a state where government is spending less. Less than it has been, less than it has coming in as taxes, that kind of thing. Most importantly, austerity excludes behavior where one is still going into debt and or monetizing its excess costs over taxation.”

      And here we have another case of bait and switch, the right redefining terms so they can pretend 27% unemployment in Spain and Greece has absolutely nothing to do with austerity.

      The big blind spot here is that the right wingers confuse the process (austerity) with the end goal (balanced budget). It’s sort of like saying pain is not pain until the pain ends.

    3. Man, those horrible intellectuals, using the word “austerity” just because other people do. No appreciation for economics built upon apodictic truth using the epistemological tool of performative contradictions to leverage the axiom of non contradiction, the way it’s done on the streets.

  10. I’m strongly pro austerity. Slash the defense and the homeland security budget, end the war on drugs, and break up anything too big to fail. Try that bit of austerity first, and then we can talk about the size of grandma’s social security check.

    1. We’ve been spending too much as a country, and we need to tackle the abusers of the system. *stares at poor people*

  11. 1. Show slide for 1.2 seconds
    2 Transition to a shot of the back of the speaker’s head while he blathers on about the slide the online audience can’t see.
    3 Rinse, repeat.

    You’d think that online lectures would be a solved problem. Apparently not.

  12. My notes, just on the internal contradictions of his talk:

    – There were plenty of people talking about the crazy level of federal debt in 2006. They were the ones who were mocked when they talked about the coming crash and a recession. He was right that the Republicans weren’t jumping up and down about it, but that’s because they have no actual problem with it – see below about the doubling of spending under Bush.

    – He says that there was no orgy of public spending. However, when you look at the numbers, it’s very clear that there WAS an orgy of government spending – in fact, he alluded to it when talking about wars of choice. The U.S. government *doubled* spending in the 2000-2010 time frame, far in excess of economic growth. And his own charts show massive year-to-year public expenditure growth in virtually all the Euro countries.

    – Social Security does not have a surplus, or a trust fund. This is a trivial thing that seems to be difficult to understand. What Social Security has is a bunch of non-market goverment debt instruments – i.e., the government owes money to itself. These are not assets, they are simply an accounting measure. Social Security is already paying out more than it takes in with payroll taxes, so it is already insolvent.

    – You might note that despite his assertion that European countries are engaging in austerity, he does not show a chart of their annual expenditures. One would think, from his assertions, that such a chart would show drastic cuts in actual, real, inflation-adjusted expenditures. Of course, the reason he doesn’t show that chart is because it blows a huge hole through his argument. In fact, European governments largely have not cut a thing, and the ones who have made tiny trims of maybe 1%. Government expenditure as a whole are still at least twice what they were in 2000, and often far more – across Europe, the United States, Japan, and virtually everywhere else.

    What European countries call “austerity” has boiled down to massive tax increases, especially in VAT taxes. Thus, it should be no surprise to anyone that their economies have taken a hit and are suffering the consequences of their choices.

    – Note that cutting government spending does not equal cutting overall spending, nor does it necessarily cause a hit to GDP. Consider where the government gets its money – it takes tax revenue, or it borrows. Since borrowing has to be paid back eventually by taxes, it simply be treated as deferred taxes (at interest!). If the government does not take the taxes to spend them, does that money simply sit and do nothing in the economy? Of course not. And unlike government spending, which is often directed to economically negative activities like building tanks for wars of choice, private spending is much more likely to be economically beneficial.

    – He claims that the time to cut spending is in the boom periods. However, historically, governments never cut spending during boom periods – they expand it! The runup in U.S. government expenditures from 2000-2013 is a perfect example.

    – He’s completely right that we should have let the banks fail. The too-big-to-fail extortion racket is a huge drain on our economy. However, you’ll note  that virtually all mainstream economists were FOR the bank bailouts in 2008, without a shred of evidence to conclude that a bunch of rich bankers going broke was going to cause any kind of serious economic damage to the real economy. THAT is the real bait and switch of the century, not austerity as practiced by Europe.

    1. The meme that there hasn’t been austerity is wrong. You have to look at percentages based on GDP and also subtract unemployment payouts. The latter is particularly important because it shows a per person payout which increases as austerity in other sectors trigger job cuts.  That’s the whole point of Keynes argument, and it’s been borne out in all over Europe.

    2. without a shred of evidence to conclude that a bunch of rich bankers going broke was going to cause any kind of serious economic damage to the real economy.

      Without going into whether they should or should bnot have bailed out the banks, I will say that mainstream economists in general supported the bailout because there’s very good evidence thathaving your bank system collapse causes long-term, wide-spread economic harm.

      When most companies in the modern world rely on a line of credit to sustain day-to-day operations, a loss of the LOC (most allow the bank to demand full repayment at any time) can literally cause almost instant closure, fire-sale of assets, etc.

      Now, maybe the apocalyptic 30% unemployment might not have occurred, or maybe we’d have been better off with the banks going down even with a huge disemployment effect.  You could argue either.  However, claiming that there isn’t a shred of evidence is ignoring the last several hundred years of economic bank crises is simply factually incorrect.

    3. There were plenty of people talking about the crazy level of federal debt in 2006.

      There were some talking about how it was crazy to cut taxes, mostly for the rich, while running two wars “off the books” and failing to invest sufficiently in things that create long term economic growth.  Many of these people were called “Democrats”, and they were outvoted. 

      However, historically, governments never cut spending during boom periods – they expand it! The runup in U.S. government expenditures from 2000-2013 is a perfect example.

      Like many other things in your post, this is factually incorrect. Post WWII he US reduced the debt to GDP ratio in every administration except for Reagan/ Bush I, and Bush II. Governments do (and should) spend more in deep recessions and recoveries- like now. It leaves us better off in the long run. We actually have a mostly good history of rebuilding our reserves on the upside of the business cycle. The reduction of the debt from 1992-2000 (complete with early 90’s tax increases that were going to send us directly down the recession toilet, according to Republicans, led by the Newt) is a perfect example of THAT.   And national debt is completely unlike personal of business debt- so long as it doesn’t grow far faster than the real economy over generations, it’s a non-issue. Unless you are part of the rentier class and can profit from deflation. 

      If the government does not take the taxes to spend them, does that money simply sit and do nothing in the economy? Of course not.

      Um, yes, it has been- that is part of the problem- and why monetary policy has been marginally effective.  Businesses have been sitting on trillions they won’t invest, because there is no demand. Because everybody is saving/ deleveraging at once- that’s what makes a recession, and this one was a doozy. Austerity makes that worse. 

      The overarching point is that government debt had essentially nothing to do with economic collapse- that was an entirely private enterprise accomplishment brought on by massive over leveraging, speculation, and a lack of responsibility or long term focus in securities markets. Every bad dollar of US mortgages had $50 at least in side bets placed on it in the derivatives casino, leveraged so highly that the house of cards was very fragile indeed. Yet the people who had nothing to do with creating the mess are the ones being told they need to pay for it- by not getting educations, not having jobs, not having health care, losing pensions- while the bankers get to keep their winnings.

  13. “In the worst case, austerity policies worsened the Great Depression and
    created the conditions for seizures of power by the forces responsible
    for the Second World War: the Nazis and the Japanese military

     Nazis, yes. Japan, no.

  14. He completely ignores the affect that the Basle II had on the holding of government bonds….  Otherwise, an amusing economics lecture.

  15. Politically extremely interesting, and excellently presented and all that, but I came here to comment that I downloaded “Rising Sun”, and yes, it was hilariously racist. Incredibly, it was made in 1993.

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