A graph of UK GDP data can be seen here:
http://www.tradingeconomics.com/united-kingdom/gdp-growthGeorge Osborne, the UK chancellor (the British equivalent of the US secretary of the Treasury), is reportedly sticking to his plan of austerity, as you can see in the video below from the BBC announcing the somber news of recession. One can only marvel at those in this report who seem little more than apologists for the austerity, who contend that the overall UK economy is fine, if only it wasn’t for the pesky volatility in the construction industry.
All in all, this demonstrates the uselessness of the hapless Conservative-Liberal Democrat coalition government now ruling Britain.
Without getting too Biblical, one is tempted to say that the wages of the sin of austerity is economic death – a death seen in a disastrous double dip recession which hit Ireland recently as well.
One interesting observation is that the UK is following the path of Japan during the lost decade, a point which was not lost on the perceptive shadow chancellor from Britain’s opposition Labour party (despite his having one of the most unfortunate surnames for a politician I’ve ever seen!).
As I have noted before, Japan was hit by a collapsing asset bubble and debt deflationary crisis in the 1990s. After a stimulus in the early 1990s, in 1996–1997 the Japanese Prime Minister Ryutaro Hashimoto turned to austerity, including personal income and national sales tax increases. This plunged Japan back into recession and sealed its fate in suffering a lost decade that persisted until the early 2000s.
But precious little has been learned from this experience, so it seems.
Some more analysis of the UK and the Eurozone here from Bill Mitchell:
Bill Mitchell, “The UK Government in a Race with the Eurozone to Ruin their Economies,” Billy Blog, April 26, 2012.
There's nothing "austere" about British economic policy and it's telling that you have to mangle the language in order to make your alleged "points". Last I looked, Britain still has a fiat funny-money system and has a huge deficit and debt. Of course that won't work.
ReplyDelete"Since the recession began, the Treasury has borrowed £500bn, the pound has depreciated by 20%, interest rates have been pegged at 0.5% for more than three years, and the Bank of England has plonked £325bn of newly created money into the banking system. The result has been the weakest recovery of the past 100 years"
Given that British GDP is only about £1,500 billion per year, these numbers make Britain one of the most radical countries in terms of both government borrowing (aka "stimulus") and central bank "quantitative easing"
http://stefanmikarlsson.blogspot.com/2012/04/british-policy-has-been-keynesian-not.html
"Last I looked, Britain still has a fiat funny-money system and has a huge deficit and debt."
ReplyDeleteSure it does. But the issue above is the effects of the actual policy of spending cuts and tax increases - contractionary fiscal policy - not to engage with the mad Austrian conceptions of economics, which remain irrelevant to the real world.
"Since the recession began, the Treasury has borrowed £500bn, the pound has depreciated by 20%, interest rates have been pegged at 0.5% for more than three years, and the Bank of England has plonked £325bn of newly created money into the banking system. The result has been the weakest recovery of the past 100 years"
Neither low interest rates nor QE do much to stimulate AD, so their failure is not at all surprising.
As for the fiscal stimulus, it got the UK out of recession and moderately good growth until the Tory/Liberal Democrat coalition engaged in austerity:
http://www.tradingeconomics.com/united-kingdom/gdp-growth
"Given that British GDP is only about £1,500 billion per year, these numbers make Britain one of the most radical countries in terms of both government borrowing (aka "stimulus") and central bank "quantitative easing""
Government borrowing over 4 years since 2008 is not the same thing as the actual stimulus imparted to the economy each year by fiscal policy. The borrowing has been large because of the scale the tax revenue collapse, not because of "radical" stimulus.
E.g., the size of the 2008 British stimulus was 1.5% of UK GDP: below the US, South Korea, Germany, Canada, even South Africa:
http://www.brookings.edu/~/media/Files/rc/articles/2009/03_g20_stimulus_prasad/03_g20_stimulus_prasad_table.pdf
The surprising thing about the relatively small British stimulus is that it came from a Labour administration, which should have been more radical on the matter of a stimulus. It's especially worrying given that Brown himself has a fairly strong Keynesian inclination.
ReplyDeleteI mean, Merkel's Christian Democrats had a far more commitment to a Keynesian policy in Germany. And Merkel is otherwise on the fiscal hawkish side.
One gets the impression that Labour in UK was then a very timid and shy party afraid of looking bad; hence making concessions to a tiny Conservative opposition even when it was right on basic principle.
"It's especially worrying given that Brown himself has a fairly strong Keynesian inclination."
DeleteIn my opinion, he "converted" to Keynesianism when the crisis hit. Yes, the UK was running deficits before 2008 because of some increased social spending, but I'm not sure how "strong" Keynesian inclination was before 2008.
Certainly, Brown faces a lot of responsibility for deregulating the London financial sector:
"Gordon Brown institutionalized the new relationship in 1997 by creating the unified Financial Services Authority, which claimed to operate according to ‘principles’ rather than binding rules: one central principle was that the Wall Street banks could regulate themselves. London thus became for New York ... the place where you could do abroad what you could not do back home; in this instance, a location for regulatory arbitrage. "
http://www.newleftreview.org/?view=2759
"The uk’s role in the crisis deserves emphasis, because contrary to conventional wisdom, the dynamics at its heart started there. The Thatcher government set out to attract financial business from New York by advertising London as a place where us firms could escape onerous domestic regulation. The government of Tony Blair and Chancellor Gordon Brown continued the strategy, leading Brown to boast that the uk had ‘not only light but limited regulation’. In response, political momentum grew in the us over the course of the 1990s to repeal the Depression-era Glass–Steagall act, which separated commercial from investment banking. Its repeal in 1999 produced a de facto financial liberalization, by facilitating an unrestrained growth of the unregulated shadow-banking system of hedge funds, private equity funds, mortgage brokers and the like. This shadow system then undertook financial operations which tied in the banks, and it was these that eventually brought the banks’ downfall."
http://www.newleftreview.org/A2739
LK -> "UK chancellor (the British equivalent of the US secretary of the Treasury), is reportedly sticking to his plan of austerity"
ReplyDeleteAusterity? What austerity?
http://mises.org/daily/5939/Krugman-and-British-Austerity
"Although British spending as a percent of GDP fell mildly from 51.1 percent in 2009 to 49.8 percent in 2011, this level still signifies a massive increase in spending from 2007 levels of 43.9 percent of GDP. Similarly, although the British deficit as a percent of GDP fell from 11 percent in 2009 to 9.4 percent in 2011, this deficit still amounts to a huge surge compared to the 2007 level of only 2.8 percent and, with the exception of this recession, exceeds all other deficits in Britain since World War II. Though certainly Keynesians can look at these minor cuts in the scope of government spending as compatible with their theories of how reducing deficits affects the economy, they should emphasize for the sake of honesty that they believe a government that represents half of all the spending in an economy with an essentially record post–World War II deficit of more than 9 percent of GDP is being “austere” so that people who haven’t looked at the data can make their own judgments on the merits of the claim."
LK -> "This plunged Japan back into recession and sealed its fate in suffering a lost decade that persisted until the early 2000s."
Wrong.
http://mises.org/daily/5170/The-Myth-of-Japans-Lost-Decades
See figure 11.
More on british "austerity" ...
ReplyDeletehttp://news.bbc.co.uk/2/hi/uk_news/8604215.stm
The new rate will affect the 300,000 highest earners in the UK, out of the 29 million people who pay income tax.
It will be levied on taxable incomes greater than £150,000 a year and aims to raise an extra £2.4bn by next year.
The 600,000 people who earn more than £100,000 a year will have their personal tax allowance eroded too, raising £1.5bn for the government.
Together with increased tax on pension contributions, which starts next year, the UK’s top 600,000 earners are expected to be paying an extra £7.5bn a year in tax.
http://www.telegraph.co.uk/finance/budget/7847887/Budget-2010-Capital-gains-tax-rate-increased-to-28pc.html
The rate of capital gains tax was raised from 18pc to 28pc for high earners from midnight last night in one of the most hotly-anticipated Budget tax changes.
http://www.bbc.co.uk/news/business-12099638
The standard rate of VAT has risen from 17.5% to 20% as the government looks to boost tax revenues to cut its deficit. … Although they will end up paying less VAT in total, lower income households spend a bigger share of their incomes on taxed goods, meaning they are proportionately harder hit.
"Similarly, although the British deficit as a percent of GDP fell from 11 percent in 2009 to 9.4 percent in 2011, this deficit still amounts to a huge surge compared to the 2007 level of only 2.8 percent and, with the exception of this recession, exceeds all other deficits in Britain since World War II. "
ReplyDelete(1) the size of the deficit reflects the severity of the recession and the collapse in tax revenue: as I have said above, government borrowing over 4 years since 2008 is not the same thing as the actual stimulus imparted to the economy each year by fiscal policy. The borrowing has been large because of the scale the tax revenue collapse, not because of "radical" stimulus.
(2) The UK's austerity consists in contractionary fiscal policy: raising taxes and cutting spending plans.
The result of even that type of austerity are plain to see: double dip recession.
(3) Countries that imposed more severe types of austerity are in and even more terrible state than the UK:
Ireland
http://socialdemocracy21stcentury.blogspot.com/2012/03/ireland-returns-to-recession-failure-of.html
Latvia
http://socialdemocracy21stcentury.blogspot.com/2012/03/latvias-recovery-sick-neoliberal-joke.html
Lithuania
http://socialdemocracy21stcentury.blogspot.com.au/2012/03/lithuania-another-baltic-disaster.html
The empirical evidence is plain for all to see: radical spending cuts lead to depression.
And regarding your links to tax raises: raising taxes IS contractionary fiscal policy while you cut spending, a form of austerity.
ReplyDeleteYou do nothing but confirm my words.
You have no idea how much trouble explaining this has caused me.
DeleteEverytime I point out that a government has followed a stimulus plan that was successful, I am told by someone that it wasn't really a stimulus.
The German stimulus plan, they will say, was 73% tax cuts, so therefore it was austerity, not stimulus.
I think, "What?!" It seems that the other side has really come to believe that we believe the opposite of everything they believe.
They think we are against tax cuts during recession, because they are for it. The truth is that both sides are in favour of tax cuts as part of stimulus.
"The German stimulus plan, they will say, was 73% tax cuts, so therefore it was austerity, not stimulus."
DeleteAs you say, that shows the most extraordinary ignorance: tax cuts have been, for example, a regular feature of post-WWII American Keynesianism :
http://socialdemocracy21stcentury.blogspot.com/2011/01/keynesianism-in-america-in-1940s-and.html
MMTers propose some radical tax cuts as well: basically, slashing that evil pay roll tax!
"raising taxes IS contractionary fiscal policy while you cut spending"
DeleteStraw man ? Austrians do not advocate raising taxes.
It is not a straw man, because nowhere do I assert or imply that Austrians advocate raising taxes in a recession or other situations.
DeleteThe point is that under Keynesian macroeconomic theory raising taxes is contractionary fiscal policy while you cut spending.
As for your link:
ReplyDeletehttp://mises.org/daily/5170/The-Myth-of-Japans-Lost-Decades
See figure 11.
it does nothing to refute my statement:
"This plunged Japan back into recession and sealed its fate in suffering a lost decade that persisted until the early 2000s."
(1) I assert that Ryutaro Hashimoto's austerity in 1997 plunged the country back into a bad recession that lasted from June quarter 1997 until the September quarter 1999. That is correct.
(2) By lost decade, I and other people do not mean that Japan had 10 years of recession. Any idiot knows that Japan went through cycles of both growth and contraction from 1992-2003. The lost decade refers to the
(1) impact of the asset bubble collapse,
(2) the economic and deleveraging problems throughout the 1990s,
(3) the banking problems,
(4) bad recession from 1997-1999
(5) and comparatively lower growth in the 1990s.
In fact early on, after the early 1990s recession, the Japanese government passed a decent stimulus program in 1996 and got good growth, until Hashimoto's fiscal contraction that took its effect by 1997.
Lk,
ReplyDelete"The UK's austerity consists in contractionary fiscal policy: raising taxes and cutting spending plans."
Refuted. Again and again.
http://menghusblog.files.wordpress.com/2012/04/general-government-total-outlays-united-kingdom-oecd.png
http://menghusblog.files.wordpress.com/2012/04/general-government-financial-balances-united-kingdom-oecd.png
"it does nothing to refute my statement"
You did not even bother to read the article :
"If it were true that Japan has seen dramatically slower growth over the last 20 years than have other developed countries, Japan could not still have the same relative position in GDP per capita 20 years later. Judging by the size of the light blue 1987 bars, Japan had about the same relative proportions then as now (or as in 2007 in this case, just before the world financial crisis arrived). So, if Japan has been in a recession the last two decades, then so have Germany and France and other developed countries. In fact, Japan, after all its supposed lack of growth, still ranks above the OECD average. (see figure 11, once again)"
Valérie Ramey recently published a new paper :
http://www.nber.org/chapters/c12632.pdf
"This paper asks whether increases in government spending stimulate private activity. The first part of the paper studies private spending. Using a variety of identification methods and samples, I find that in most cases private spending falls significantly in response to an increase in government spending. These results imply that the average GDP multiplier lies below unity. In order to determine whether concurrent increases in tax rates dampen the spending multiplier, I use two different methods to adjust for tax effects. Neither method suggests significant effects of current tax rate changes on the spending multiplier. In the second part of the paper, I explore the effects of government spending on labor markets. I find that increases in government spending lower unemployment. Most specifications and samples imply, however, that virtually all of the effect is through an increase in government employment, not private employment. I thus conclude that on balance government spending does not appear to stimulate private activity."
Evidence for fiscal consolidations here :
http://www.aei.org/papers/economics/fiscal-policy/a-guide-for-deficit-reduction-in-the-united-states-based-on-historical-consolidations-that-worked/
"Alesina and Perotti (1996) report that successful consolidations were 64 percent expenditure cuts and 37 percent revenue increases. Unsuccessful consolidations were 34 percent expenditure cuts and 66 percent revenue increases. Alesina and Ardagna (1998) report that successful consolidations were 62 percent expenditure cuts and 38 percent revenue increases. Unsuccessful consolidations were - 79 percent expenditure cuts and 178 percent revenue increases. Alesina and Ardagna (2009) report that successful consolidations were 135 percent expenditure cuts and -35 percent revenue increases. Unsuccessful consolidations were 34 percent expenditure cuts and 66 percent revenue increases. Von Hagen and Strauch (2001) report that successful consolidations were 52 percent expenditure cuts and 48 percent revenue increases. Unsuccessful consolidations were 12 percent expenditure cuts and 88 percent revenue increases. Zaghini (1999) reports that successful consolidations were 77 percent expenditure cuts and 23 percent revenue increases. Unsuccessful consolidations were 2 percent expenditure cuts and 98 percent revenue increases. McDermott and Wescott (1996) found that expenditure based consolidations have a 41 percent chance of success; whereas revenue based consolidations have a 16 percent chance of success."
"If it were true that Japan has seen dramatically slower growth over the last 20 years than have other developed countries,"
DeleteI don't say it was "dramatically": I said "comparatively lower growth in the 1990s."
And notice how your parroting of the Mises article doesn't refute understanding the Lost Decade as economic problems involving:
Delete(1) impact of the asset bubble collapse,
(2) the economic and deleveraging problems throughout the 1990s,
(3) the banking problems,
(4) bad recession from 1997-1999
(5) and comparatively lower growth in the 1990s.
On (4) especially you don't even bother to refute what was a serious recession, which contributed to the economic malaise in Japan in the 1990s.
"the Mises article doesn't refute understanding the Lost Decade as economic problems involving (...)"
DeleteThese economic problems stem from expansionary credit.
http://menghusblog.wordpress.com/2012/03/11/empirical-evidence-for-the-austrian-business-cycle-theory/
http://mises.org/journals/qjae/pdf/qjae5_2_3.pdf
LOL.. so you now don't dispute that the Lost Decade was a period of economic problems involving:
Delete(1) impact of the asset bubble collapse,
(2) the economic and deleveraging problems throughout the 1990s,
(3) the banking problems,
(4) bad recession from 1997-1999
(5) and comparatively lower growth in the 1990s.
If so, our debate on this issue is over.
I agree with the bubble collapse, not with the so-called lost decade.
Delete"If it were true that Japan has seen dramatically slower growth over the last 20 years than have other developed countries, Japan could not still have the same relative position in GDP per capita 20 years later. Judging by the size of the light blue 1987 bars, Japan had about the same relative proportions then as now (or as in 2007 in this case, just before the world financial crisis arrived). So, if Japan has been in a recession the last two decades, then so have Germany and France and other developed countries. In fact, Japan, after all its supposed lack of growth, still ranks above the OECD average."
This is laughable.
Delete(1) I do not claim that the lost decade lasted 20 years.
(2) in my view it ended about 2002/2003.
(3) this is, as the name suggests, about 10 years.
(4) in particular, it was the serious recession from 1997-1999 which was a primary characteristic of the lost decade as
(1) asset bubble collapse,
(2) private sector deleveraging problems throughout the 1990s,
(3) the banking problems,
(5) and comparatively lower growth in the 1990s.
As for GDP:
DeleteJapanese Average GDP
Year | GDP
1980 2.82%
1981 2.93%
1982 2.76%
1983 1.61%
1984 3.12%
1985 5.08%
1986 2.96%
1987 3.79%
1988 6.76%
1989 5.29%
1990 5.20%
1991 3.32%
1992 0.82%
1993 0.17%
1994 0.86%
1995 1.88%
1996 2.64%
1997 1.56%
1998 -2.05%
1999 -0.14%
2000 2.86%
Average GDP growth rate, 1981–1990: 3.95%
Average GDP growth rate, 1991–2000: 1.19%
http://wikiposit.org/am?WB.JPN.NY.GDP.MKTP.KD.ZG=101
Japan's average GDP growth rate in the 1990s fell to 1.19% from 3.95% in the 1980s: that is a considerable fall.
"Japanese Average GDP"
DeleteI talk about "gdp per capita" not "dgp".
http://seekingalpha.com/article/288071-the-myth-of-japan-s-lost-decade
"Despite outpacing the US between 1980 and 1990, Japanese GDP has nearly flat-lined since. Most people know that a large part of the problem is demographic. The Japanese working-age population has similarly flat-lined over the same period, and the total population has actually begun to shrink."
"From 1980-2009 (as far as this data set goes, unfortunately) Japanese GDP/capita has kept pace with the US. In fact, growth has actually exceeded that of the US over the whole period (US GDP per capita is still higher on an absolute basis though). This indicates that productivity has kept pace with the US even if aggregate GDP has not. Importantly, rising per capita GDP means that standards of living have risen, not fallen, which is the primary reason for economic activity: higher standards of living."
http://menghusblog.wordpress.com/2012/05/07/on-the-mythology-of-japans-lost-decades/
Another document.
ReplyDelete"Fiscal Stimulus to the Rescue? Short-Run Benefits and Potential Long-Run Costs of Fiscal Deficits"
http://menghusblog.files.wordpress.com/2012/04/fiscal-stimulus-to-the-rescue-short-run-benefits-and-potential-long-run-costs-of-fiscal-deficits.pdf
Freedman and others of the International Monetary Fund (IMF) use the IMF’s Global Integrated Monetary and Fiscal Model to compute short-run multipliers of fiscal stimulus measures and long-run crowding-out effects of higher debt.
Their work is noteworthy in that their findings relate to the world economy and include estimates for short-run stimulus effects as well as long-run effects when the stimulus leads to an increase in debt that must be financed. The model addresses both fiscal and monetary policy actions and includes a financial accelerator mechanism that accounts for difficulties business firms encounter when seeking additional credit to finance investments. The authors also assume that consumer budget constraints limit flexibility during a downturn.
Freedman and others summarize their findings this way:
“We find that the multipliers of a two-year fiscal stimulus package range from 1.3 for government investment to 0.2 for general transfers, with targeted transfers closer to the upper end of that range and tax cuts closer to the lower end. In the presence of monetary accommodation and a financial accelerator mechanism multipliers are up to twice as large, as accommodation lowers real interest rates, which in turn has a positive effect on corporate balance sheets and therefore on the external finance premium. As for crowding-out, a permanent 0.5 percentage points increase in the U.S. deficit to GDP ratio leads to a 10 percentage points increase in the U.S. debt to GDP ratio in the long run. Servicing this higher debt raises the U.S. tax burden and world real interest rates in the long run, thereby eventually reducing U.S. output by between 0.3 and 0.6 percent, with the size of the output loss again depending on the distortionary effects of the fiscal instrument.
These output losses are larger than the corresponding short-run stimulus effects for the same instruments. But much more importantly, they are also permanent. The real interest rate effect (but not the tax burden effect) affects the rest of the world equally and accounts for output losses of around 0.2 percent.”
"The U.S. Experience with Fiscal Stimulus : A Historical and Statistical Analysis of U.S. Fiscal Stimulus Activity, 1953–2011"
http://mercatus.org/sites/default/files/publication/US-Experience-Fiscal-Stimulus.pdf
Comparing changes in federal spending to economic growth two years later reveals a slightly positive relationship, but again the relationship is statistically indistinguishable from a flat trend line (figure 13). Extending the time horizon out as far as 10 years reveals relationships between government spending and economic growth that are sometimes slightly positive (for 2-, 3-, and 9-year horizons) and sometimes slightly negative (for 1-, 4-, 5-, 6-, 7-, 8-, and 10-year horizons), but always statistically zero.
...
A counterargument is that what really matters is the relationship between stimulus spending and economic growth during recessions.
If we restrict our vision to recessions only (the red dots in figures 11–13), the same story emerges. There is no significant relationship between changes in government spending during recessions and economic growth at any point from one to 10 years later.
...
One could argue that because of a persistent baseline growth in per capita GDP, changes in federal spending should be compared to changes in per capita GDP growth. That comparison yields the same absence of results as do the previous comparisons. Figures 14 and 15 show the contemporaneous and one-year lagged relationships.
John Maynard Keynes, toward the end of his life, wrote :
ReplyDeletehttp://thinkmarkets.wordpress.com/2009/01/25/keynes-as-public-works-skeptic/
Organized public works, at home and abroad, may be the right cure for a chronic tendency to a deficiency of effective demand. But they are not capable of sufficiently rapid organisation (and above all cannot be reversed or undone at a later date), to be the most serviceable instrument for the prevention of the trade cycle.
This statement sounds like a confession to me.
Confession of what? LOL...
DeleteKeynes's statement requires:
(1) that in fact during depressions and severe recessions public works are most likely to be the right solution to "chronic tendency to a deficiency of effective demand". Hayek believed the same thing:
http://socialdemocracy21stcentury.blogspot.com/2011/09/did-hayek-advocate-public-works-in.html
(2) Public works "are not capable of sufficiently rapid organisation ... to be the most serviceable instrument for the prevention of the trade cycle". That is why Keynes advocated the socialization of investment: long term public investment even during booms to maintain aggregate demand.
http://socialdemocracy21stcentury.blogspot.com.au/2011/08/keynes-and-pyramid-building-what-he.html
There is no contradiction with Keynes's other beliefs here or confession or problem with Keynes's comment.
Another paper worth reading.
ReplyDelete"What Do We Know and What Are We Doing?", By Alberto Alesina
http://mercatus.org/sites/default/files/publication/Fiscal%20Adjustments.%20What%20Do..Corrected%20Table.Alesina.pdf
Most recent research finds spending multipliers much lower than 1 even when financed with bond issues (i.e. when deficits increase). These results are consistent with the fact that the recent U.S. spending stimulus does not seem to have worked particularly well.
In summary, there are two conclusions that can be drawn from this research. One is that fiscal adjustments can be associated with growth rather than causing or prolonging recessions. The second is that fiscal adjustments on the spending side are more likely to be expansionary than tax increases.
A recent paper by Alesina and Ardagna (2010) investigated the empirical evidence of “large” fiscal consolidations on a sample of virtually all OECD countries from roughly 1980 onward.6 They define a period of fiscal adjustment as a year in which the cyclically adjusted primary balance improves by at least 1.5 percent of GDP. A cyclically adjusted definition for the deficit accounts for the fact that deficits go up during recessions and down during booms in response to the so-called automatic fiscal stabilizers. The cyclical adjustment tries to capture changes in the deficit that go above and beyond “business as usual” fluctuations.7 This definition selects 107 fiscal adjustment periods. Of these, 65 last only for one year while the rest are multi-period adjustments. Conversely, the same authors define a fiscal expansion as a year in which the cyclically adjusted deficit over GDP ratio increases by at least 1.5 percent of GDP.
In the case of successful fiscal adjustments, about 70 percent of it came from spending cuts, and in the case of expansionary adjustments, almost 60 percent of them came from spending cuts. In the case of unsuccessful and contractionary adjustments, more than 60 percent of the adjustments were on the tax side.
(I recommend you read the rest of this article)
I am well aware of A. Alesina and S. Ardagna 2010. “Large Changes in Fiscal Policy: Taxes versus Spending”, Tax Policy and the Economy, ed. R. Brown (vol. 24. NBER), thanks.
ReplyDeleteRefutation of Alesina and Ardagna:
(1) Bill Mitchell:
http://bilbo.economicoutlook.net/blog/?p=10920
2) Pablo Hernández de Cos and Enrique Moral-Benito, Endogenous fiscal consolidations:
http://www.bde.es/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/11/Fich/dt1102e.pdf
(3) Romer, C., "What do we know about the effects of fiscal policy: Separating evidence from ideology?", Hamilton College Speech, November 7, 2011.
http://emlab.berkeley.edu/%7Ecromer/Written%20Version%20of%20Effects%20of%20Fiscal%20Policy.pdf
The work of Alberto Alesina, one of the most dangerous European economist, together with Hans Werner Sinn, has been refuted among others by Roberto Perotti, who by the way WROTE together with Alesina some of his most horrifying papers in the 90s about that stupidity called "expansionary fiscal contraction" (I applaud Perotti's recantation); by the IMF; by Guido Tabellini, another one of that Italian cult of Bocconi, just as Alesina, and many many others. Remember, I'm not quoting a single Keynesian, all these that I mention are all deeply orthodox people. Just not as stupid as Alesina, and as the stupids who quote him.
ReplyDeletePablo.
"expansionary fiscal contraction"? Whilst I thought I had heard all of the possibly stupid things in economics, this proves there is always a greater fool out there.
DeleteWhat is ironic in many ways is that the UK stayed out of the Euro specifically to keep control of its own currency, yet is now not taking advantage of that decision at all.
ReplyDeleteFirst off, this blog is just fantastic. I have been reading it for several months now, and it's one of the best I've seen.
ReplyDeleteMeng's link gave me a good insight into the nature of Japan's economic crisis in terms of the ABCT.
I can't help but think though of the fact that China, India, Poland, Turkey, and Saudi Arabia are among the strongest economies out there now with faster growing money supplies than the US since the recession, and they're doing fine.
Besides, interest rates affect how much you can invest, not what you invest in. Speculation is more of a function of market forces than interest rates.
A better explanation is income inequality; the rate of inequality expanded dramatically in Japan during the 1980s.
LK, have you heard of Robert Reich? He was former Labor Secretary under President Bill Clinton. THAT man gets it.
Thanks for your comments.
Delete(1) yes, the ABCT explanation of Japan's economic malaise in the 1990s is unconvincing.
(2) yes, I have heard of Reich: I've seen a few interviews with him. Not much of his writing, though.
Regards