# The Austerity Con

#### Axulus

##### Veteran Member
One option I never really understood why it doesn't seem to get much support: why not just poof an extra $250/month (or whatever) into the accounts of every citizen until the economic recovery has gained a foothold? This will generate additional tax$ with the resulting spending and therefore help with budget deficits. The policy itself doesn't add to government debt.

Yes, it will result in a little extra inflation, but that doesn't seem to be much of an issue considering that deflation or extremely low inflation is already present. If inflation gets too high, then the central bank can start tightening policy.

#### ksen

##### Contributor
I don't know why they don't do that either axulus. Maybe because that would actually help strapped people out instead of banks. QE is basically that but for banks.

#### bilby

##### Fair dinkum thinkum
The problem seems to be purely ideological; The GFC provided a convenient excuse, but the media and the right-wing of politics in Australia are banging the same 'deficit must be eliminated' drum - despite our having been left practically unscathed by the GFC, and despite our Debt to GDP ratios being incredibly small by world standards. (Australian Government debt was 29.9% of GDP in 2012, according to the CIA World Factbook; cf 72.5% for the USA, and 90% for the UK, from the same source).

It seems that the voting public find it easy to understand 'debt is bad, mmkay'; and that they are easily frightened by large numbers (anything expressed in millions is an unthinkably large sum; and millions, billions or trillions are interchangeable psychologically, because it all just screams "HUGE DEBT!!!"). On the other hand accepting that 'shitloadsillions' of dollars of debt might not be all bad is hard; and understanding why debt is good at times, and bad at other times is even harder; so selling the opposite message is really difficult.

It is irrelevant whether a policy is in the best interests of the voters; what matters is whether they can be readily scared by headlines into thinking that it is.

I wish I had a dollar for every Australian on Facebook, or in news article and blog comments who has parroted the 'Labor left us with a huge debt' meme. The facts show that this is rubbish; the facts also show that under right-wing governments in Australia, deficits have actually been far higher than under Labor; but like 'The earth is flat, and at the centre of the universe', everybody knows that 'Labor governments created a mountain of debt, and only the LNP can fix this problem'. That not one word is true is, sadly, irrelevant - it is what people 'know' when they cast their votes.

Labor did not create most of the current debt; even now, there isn't what any sane person would call a 'mountain' of debt; the LNP can't 'fix' this, their policies make things worse, not better; and there isn't an actual problem - which is a key reason why trying to fix it makes things worse. Apart from 'a', 'of' and 'the', pretty much every word of this thing that 'everybody knows' is wrong. But everybody 'knows' it.

How much easier it must be to sell the line that 'our debt is killing us', when you actually have a noticeable debt. If right-wing politicians can sell this lie when Debt to GDP is less then 30%, it is hardly impressive that they manage to sell it in a country which has a Debt to GDP in the 90% range.

#### Togo

##### Veteran Member
I don't know why they don't do that either axulus. Maybe because that would actually help strapped people out instead of banks. QE is basically that but for banks.

Too hard to access everyone's account, and not progressive. Much easier to treat it as government spending, reducing taxes or increasing spending as appropriate.

Now, why giving it to the banks was a good idea is another matter. In early stages in the UK, some banks were, in effect, nationalised, having to surrender shareholdings in return for assets, but this scared the markets too much, so we went back to giving them free money.

#### laughing dog

##### Contributor
I don't know why they don't do that either axulus. Maybe because that would actually help strapped people out instead of banks. QE is basically that but for banks.

Too hard to access everyone's account, and not progressive.
It cannot be that hard to access accounts. I can see the problem that people with multiple accounts (especially among different financial institutions) would get more money. But giving everyone a fixed amount regardless of income is progress because that set amount is a higher proportion of lower incomes.

#### Jarhyn

##### Wizard
Too hard to access everyone's account, and not progressive.
It cannot be that hard to access accounts. I can see the problem that people with multiple accounts (especially among different financial institutions) would get more money. But giving everyone a fixed amount regardless of income is progress because that set amount is a higher proportion of lower incomes.
I think it's a failing of the term 'progressive'. It isn't geometric, logarithmic, or any such accelerating model inverse to the income of the person, but it is definitely progressive in that it is, egalitarian, perfectly fair, and trivially easy. I would like to also see some kind of leakyness introduced in assets as well, to provide a sink and reduce the inflation this would create, but maybe we can just use this as the method for deploying all new money and have what is essentially the same effect, coupled with a mildly negative bond rate.

The fact of the matter is, it should be exponentially more difficult to keep wealth concentrated as wealth gets concentrated.

#### Axulus

##### Veteran Member
I don't know why they don't do that either axulus. Maybe because that would actually help strapped people out instead of banks. QE is basically that but for banks.

Too hard to access everyone's account, and not progressive. Much easier to treat it as government spending, reducing taxes or increasing spending as appropriate.

Now, why giving it to the banks was a good idea is another matter. In early stages in the UK, some banks were, in effect, nationalised, having to surrender shareholdings in return for assets, but this scared the markets too much, so we went back to giving them free money.

It's not given to the banks but rather loaned to them (or traded to them in exchange for assets they own).

- - - Updated - - -

I don't know why they don't do that either axulus. Maybe because that would actually help strapped people out instead of banks. QE is basically that but for banks.

The banks have to give the federal reserve assets in exchange for the cash. What I'm proposing is a no strings attached payment.

#### Axulus

##### Veteran Member
Too hard to access everyone's account, and not progressive.
It cannot be that hard to access accounts. I can see the problem that people with multiple accounts (especially among different financial institutions) would get more money. But giving everyone a fixed amount regardless of income is progress because that set amount is a higher proportion of lower incomes.

Yeah, I don't really see the problem. We already have a large scale cash distribution system in place in the form of social security. Shouldn't be too much more difficult to have a universal system in place, with the same verification procedures and payment methods used for social security. People with multiple accounts shouldn't get extra, just like they don't with social security.

In your point of view, why is such a stimulus option rarely discussed or advocated for by economists? It seems to fix the dual problems of lack of demand and danger of deflation occurring in a recession like the one we had.

#### Jayjay

##### Contributor
Too hard to access everyone's account, and not progressive.
It cannot be that hard to access accounts. I can see the problem that people with multiple accounts (especially among different financial institutions) would get more money. But giving everyone a fixed amount regardless of income is progress because that set amount is a higher proportion of lower incomes.
Poorest people don't have bank accounts at all. Also, you'd have those who would set up multiple accounts just for the purpose of receiving the money.

#### arkirk

##### Veteran Member
The point is that Austerity is a con. Austerity is never the right approach to shortfalls in human welfare. Austerity is something the government does to poor people...and only poor people. People who have limited resources practice frugality. Our government and the fed have not been frugal with their resources when it comes to pumping money into the purses of the rich. Instead, it has decided to become "austere" when it comes to the poor. How could it be any other way, when politicians in our country (and most countries) are nothing more than mouthpieces completely owned by rich sponsors standing in line to pick up their own very special kind of government dole.

Politicians on both sides of the line have no problem bailing out bankers and buying new super expensive fighter planes. They do however have problems doing anything for the poor because the poor have no connection with their lives. They do not sponsor their campaigns. That is because they are too busy being frugal and stretching whatever resources they have to and past the breaking point. Just one shot of so called QE would go a long way toward improving the average American's lot. It would have generated demand for one thing. For another thing, if that QE were paid for by recognizing there would be an opportunity cost on the top end of the dole spectrum, it would reduce (probably only slightly) the wealth disparity that is at the heart of our economic problems.

Let us look at the recent bank bailout....$700 B., if not given to only a few banks would have been$2.3 million per person in the whole country. It is true the banks paid it back from profits from their underhanded swindling of the world, getting them off the hook, and leaving us with a huge public debt. I am not saying we should give the PUBLIC $700B. I am saying that bailing out the average man appropriately would produce more results in terms of economic activity of the type that represents human well being...building needed housing, getting needed medical care, keeping oneself fed, buying education, etc. You know, things that count. Not like the F-35. Not like building new H bombs. Not like fusion centers for spying on our citizenry. Not like AUSTERITY. Money is the lubrication of economic activity and should not be used for any purpose that is abusive of human rights. #### laughing dog ##### Contributor It cannot be that hard to access accounts. I can see the problem that people with multiple accounts (especially among different financial institutions) would get more money. But giving everyone a fixed amount regardless of income is progress because that set amount is a higher proportion of lower incomes. Yeah, I don't really see the problem. We already have a large scale cash distribution system in place in the form of social security. Shouldn't be too much more difficult to have a universal system in place, with the same verification procedures and payment methods used for social security. People with multiple accounts shouldn't get extra, just like they don't with social security. In your point of view, why is such a stimulus option rarely discussed or advocated for by economists? It seems to fix the dual problems of lack of demand and danger of deflation occurring in a recession like the one we had. I suspect it is the belief that direct cash handouts are non-starters in the political arena. #### Axulus ##### Veteran Member Yeah, I don't really see the problem. We already have a large scale cash distribution system in place in the form of social security. Shouldn't be too much more difficult to have a universal system in place, with the same verification procedures and payment methods used for social security. People with multiple accounts shouldn't get extra, just like they don't with social security. In your point of view, why is such a stimulus option rarely discussed or advocated for by economists? It seems to fix the dual problems of lack of demand and danger of deflation occurring in a recession like the one we had. I suspect it is the belief that direct cash handouts are non-starters in the political arena. But such handouts have precedent - remember the Bush stimulus payment? #### laughing dog ##### Contributor I suspect it is the belief that direct cash handouts are non-starters in the political arena. But such handouts have precedent - remember the Bush stimulus payment? Those handouts when to tax filers. Which excludes all those who do not file taxes. But, I suspect in the last bailout, there appeared to be much more concern about the stability and viability of the financial system and little to none about the stability and/or viability of households. For some odd reason,directly bailing out lenders who knowingly made bad loans (or bought bad loans) seemed more morally upright than directly bailing out borrowers, even though the latter would have solved more than one problem. #### arkirk ##### Veteran Member But such handouts have precedent - remember the Bush stimulus payment? Those handouts when to tax filers. Which excludes all those who do not file taxes. But, I suspect in the last bailout, there appeared to be much more concern about the stability and viability of the financial system and little to none about the stability and/or viability of households. For some odd reason,directly bailing out lenders who knowingly made bad loans (or bought bad loans) seemed more morally upright than directly bailing out borrowers, even though the latter would have solved more than one problem. I received one of those checks from Bush. It didn't pay the light bill for that month........that was a gesture, not any real help at all. #### Jayjay ##### Contributor Let us look at the recent bank bailout....$700 B., if not given to only a few banks would have been $2.3 million per person in the whole country. Actually, that'd be$2300, not $2.3 million. #### Axulus ##### Veteran Member Let us look at the recent bank bailout....$700 B., if not given to only a few banks would have been $2.3 million per person in the whole country. Actually, that'd be$2300, not $2.3 million. Not to mention that most of that$700B was given in exchange for assets of the financial institution or sometimes equity. The government actually made a profit on it.

This seems to be a prevalent misconception about the bailouts; that the money was just handed to them with essentially no strings attached.

OUTFLOWS: $614 billion This includes money that has actually been spent, invested, or loaned. INFLOWS:$667 billion Money returned and paid to Treasury as interest, dividends, fees or to repurchase their stock warrants.

http://projects.propublica.org/bailout/

##### Contributor
I have actually heard that idea floated by a few economists, either in the form of helicopter money or debt jubilee. Bernanke seemed to be okay with helicopter money on paper, but QE prevailed, and here we are.

#### arkirk

##### Veteran Member
Let us look at the recent bank bailout....$700 B., if not given to only a few banks would have been$2.3 million per person in the whole country.
Actually, that'd be $2300, not$2.3 million.

I've screwed up on my math here before. Sorry about that. My eyes appear to have missed a few zeroes! It actually doesn't affect the issue. It still is a lot of money...not the $125 folks got with the Bush thing. Maybe I would recommend that amount then....$700B.

That was supposed to be based on 300 million people....men women and children. It you take a small household...say three people that would be a major help. Even that would not help with things like these college loans.

#### Trodon

##### Member
The problem seems to be purely ideological; The GFC provided a convenient excuse, but the media and the right-wing of politics in Australia are banging the same 'deficit must be eliminated' drum - despite our having been left practically unscathed by the GFC, and despite our Debt to GDP ratios being incredibly small by world standards. (Australian Government debt was 29.9% of GDP in 2012, according to the CIA World Factbook; cf 72.5% for the USA, and 90% for the UK, from the same source).

It seems that the voting public find it easy to understand 'debt is bad, mmkay'; and that they are easily frightened by large numbers (anything expressed in millions is an unthinkably large sum; and millions, billions or trillions are interchangeable psychologically, because it all just screams "HUGE DEBT!!!"). On the other hand accepting that 'shitloadsillions' of dollars of debt might not be all bad is hard; and understanding why debt is good at times, and bad at other times is even harder; so selling the opposite message is really difficult.

It is irrelevant whether a policy is in the best interests of the voters; what matters is whether they can be readily scared by headlines into thinking that it is.

I wish I had a dollar for every Australian on Facebook, or in news article and blog comments who has parroted the 'Labor left us with a huge debt' meme. The facts show that this is rubbish; the facts also show that under right-wing governments in Australia, deficits have actually been far higher than under Labor; but like 'The earth is flat, and at the centre of the universe', everybody knows that 'Labor governments created a mountain of debt, and only the LNP can fix this problem'. That not one word is true is, sadly, irrelevant - it is what people 'know' when they cast their votes.

Labor did not create most of the current debt; even now, there isn't what any sane person would call a 'mountain' of debt; the LNP can't 'fix' this, their policies make things worse, not better; and there isn't an actual problem - which is a key reason why trying to fix it makes things worse. Apart from 'a', 'of' and 'the', pretty much every word of this thing that 'everybody knows' is wrong. But everybody 'knows' it.

How much easier it must be to sell the line that 'our debt is killing us', when you actually have a noticeable debt. If right-wing politicians can sell this lie when Debt to GDP is less then 30%, it is hardly impressive that they manage to sell it in a country which has a Debt to GDP in the 90% range.

I do not know a lot about the political situation in Australia. I am surprised that the electorate there seems, from what you have said, to give the plutocracy the benefit of the doubt. I thought that was an American aliment.

#### arkirk

##### Veteran Member
The problem seems to be purely ideological; The GFC provided a convenient excuse, but the media and the right-wing of politics in Australia are banging the same 'deficit must be eliminated' drum - despite our having been left practically unscathed by the GFC, and despite our Debt to GDP ratios being incredibly small by world standards. (Australian Government debt was 29.9% of GDP in 2012, according to the CIA World Factbook; cf 72.5% for the USA, and 90% for the UK, from the same source).

It seems that the voting public find it easy to understand 'debt is bad, mmkay'; and that they are easily frightened by large numbers (anything expressed in millions is an unthinkably large sum; and millions, billions or trillions are interchangeable psychologically, because it all just screams "HUGE DEBT!!!"). On the other hand accepting that 'shitloadsillions' of dollars of debt might not be all bad is hard; and understanding why debt is good at times, and bad at other times is even harder; so selling the opposite message is really difficult.

It is irrelevant whether a policy is in the best interests of the voters; what matters is whether they can be readily scared by headlines into thinking that it is.

I wish I had a dollar for every Australian on Facebook, or in news article and blog comments who has parroted the 'Labor left us with a huge debt' meme. The facts show that this is rubbish; the facts also show that under right-wing governments in Australia, deficits have actually been far higher than under Labor; but like 'The earth is flat, and at the centre of the universe', everybody knows that 'Labor governments created a mountain of debt, and only the LNP can fix this problem'. That not one word is true is, sadly, irrelevant - it is what people 'know' when they cast their votes.

Labor did not create most of the current debt; even now, there isn't what any sane person would call a 'mountain' of debt; the LNP can't 'fix' this, their policies make things worse, not better; and there isn't an actual problem - which is a key reason why trying to fix it makes things worse. Apart from 'a', 'of' and 'the', pretty much every word of this thing that 'everybody knows' is wrong. But everybody 'knows' it.

How much easier it must be to sell the line that 'our debt is killing us', when you actually have a noticeable debt. If right-wing politicians can sell this lie when Debt to GDP is less then 30%, it is hardly impressive that they manage to sell it in a country which has a Debt to GDP in the 90% range.

I do not know a lot about the political situation in Australia. I am surprised that the electorate there seems, from what you have said, to give the plutocracy the benefit of the doubt. I thought that was an American aliment.

It's CONTAGIOUS!

#### Axulus

##### Veteran Member
Those handouts when to tax filers. Which excludes all those who do not file taxes. But, I suspect in the last bailout, there appeared to be much more concern about the stability and viability of the financial system and little to none about the stability and/or viability of households. For some odd reason,directly bailing out lenders who knowingly made bad loans (or bought bad loans) seemed more morally upright than directly bailing out borrowers, even though the latter would have solved more than one problem.

I received one of those checks from Bush. It didn't pay the light bill for that month........that was a gesture, not any real help at all.

Most people received $300/person, and it was up to$600/adult, and an additional $300/kid. For a married family of 4, that would be up to$1,800. That is a reasonable chunk. However, I agree that it could've been a little larger (maybe a 2nd payment would've been in order to spread it out a bit).

What I don't fully understand is the automatic assumption that such payments must automatically come from the US treasury instead of printed by the federal reserve. As long as the federal reserve maintains its mandate for stable prices, and such transaction by the federal reserve is consistent with the mandate, it seems like an alternative that should be considered more often.

#### Loren Pechtel

##### Super Moderator
Staff member
The point is that Austerity is a con. Austerity is never the right approach to shortfalls in human welfare. Austerity is something the government does to poor people...and only poor people.

It depends on the situation.

Government spending should rise in bad economic times to reduce the harmful effects. In that case austerity makes no sense.

However, we also have situations like Greece where they are living beyond their means on a sustained basis. Painful as it is they must either cut spending or raise taxes in such a situation.

#### bilby

##### Fair dinkum thinkum
I do not know a lot about the political situation in Australia. I am surprised that the electorate there seems, from what you have said, to give the plutocracy the benefit of the doubt. I thought that was an American aliment.

It's CONTAGIOUS!

It certainly seems to be; but recent state election results, and the implosion of support for federally for the PM and his right-wing coalition, suggest that Australians only had a relatively mild case, and have recovered fairly quickly.