Eh?

UK austerity v US stimulus

What friggin\’ austerity?

The budget deficits in the 8-10% range. Since when was that austerity?

And the US deficit is about 10%: since when is the same damn deficit austerity in one country and stimulus in another? Since the Tories are in one and St. Obam in the other?

And for those who want to argue that it\’s the cuts to come. That everyone is pulling in their horns now given the future cuts. Erm, you do realise that\’s a form of Ricardian Equivalence.

The RE which, if true, means that Keynesian stimulus cannot work?

8 comments on “Eh?

  1. Simple – The Left’s Rule of Budgets- If you increase your borrowing to 10% of GDP, thats a stimulus. But if you cut your borrowing to 10% of GDP, thats austerity. To the Left its not the actual numbers that matter, but the direction of travel.

  2. Has the Left worked out that Obama is facing an election in November and therefore the letting slip the Dogs of Deficit and Inflation, which will have to be re-leashed in 2013?

  3. Pingback: Enough picking on Ritchie – Now I want some of whatever Tim’s smoking « Left Outside

  4. Come on Tim you know better than this.

    Financial Crisis + recession leaves you with deficit of say 10%.

    admittedly this state of affairs can be regarded as ‘stimulus’ relative to some absurd counter factual in which policies were in place to keep the deficit at 0% when a large negative shock hits the economy. But just imagine what those policies would have to look like.

    So, we find ourselves with a big deficit and think, right well we have to start cutting – THIS IS AUSTERITY. But what do you know, it turns out that when you cut £1 from government expenditures the deficit doesn’t fall by £1 because the cuts hurt the economy, raise unemployment etc. so the deficit only falls by some (much?) smaller amount.

    The size of the deficit does NOT TELL YOU HOW MUCH “AUSTERITY” there has been.

  5. “So, we find ourselves with a big deficit and think, right well we have to start cutting – THIS IS AUSTERITY.”

    What is it this year? A 0.9% cut? Now that’s some harsh austerity.

    I can see how it totally justifies the BBC and the other leftie media continually screaming bloody murder about it.

    “But what do you know, it turns out that when you cut £1 from government expenditures the deficit doesn’t fall by £1 because the cuts hurt the economy, raise unemployment etc.”

    When the state involves itself in as much of the economy as it thinks it can get away with, what do you expect?

    It’d be far better if it sorted the mess out ASAP, and removed itself from private business, rather than let this whole charade keep dragging on.

  6. “I often tell my first year undergraduate students that if they write anything like ‘Ricardian Equivalence says fiscal stimulus will never work’, they are in danger of failing.” -Simon Wren-Lewis, http://mainlymacro.blogspot.com/2012/01/mistakes-and-ideology-in-macroeconomics.html

    @Jim: “Simple – The Left’s Rule of Budgets- If you increase your borrowing to 10% of GDP, thats a stimulus. But if you cut your borrowing to 10% of GDP, thats austerity. To the Left its not the actual numbers that matter, but the direction of travel.”

    But really “austerity” vs “stimulus” is about spending, not borrowing.

    I think the reason “direction of travel” matters so much, is that rather than comparing to some fictional, hypothesised counterfactual, we often resort to using the recent past to give us a half-sensible reference point. Less departmental spending than before is cuts ergo austerity. An alternative would be to compare current spending to the levels of spending that had previously been planned for this period – current “austerity” looks much harsher under that light, than when looking at nominal spending (as John Redwood does when he’s periodically bemoaning what a cissy George Osborne is being) or the size of the deficit (Tim’s not alone in doing this, Scott Sumner does too, e.g. http://www.themoneyillusion.com/?p=12891c ).

  7. @MyBurningEars: “really “austerity” vs “stimulus” is about spending, not borrowing”: Given that in order to spend what we are spending we are having to borrow, its the opposite sides of the same coin.

    “Less departmental spending than before is cuts ergo austerity”: Yes some departments have cuts in spending. But not all departments are being cut, and overall the government is spending more in the economy this year than last, and the year before that too, in real terms as well. Thus how can an increasing amount of real government spending be termed ‘austerity’? The cuts in departmental spending are being more than offset by increased spending on the stabilisers – benefits etc. The overall fiscal stimulus to the economy is the same, or larger.

    As for the idea that if you Spend £Xbn in year 1, and project to spend £Xbn +10 and £Xbn +20 in years 2 and 3, but then reduce that to £Xbn +5 and £Xbn + 10, then that is somehow austerity, well, the mind boggles.

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