Mimsy Were the Borogoves

Editorials: Where I rant to the wall about politics. And sometimes the wall rants back.

Beware the Austerity of the Politician

Jerry Stratton, December 28, 2011

When you think of austerity, what comes to mind? A tightening of the belt, cutting back on household expenses, maybe reorganizing your budget to live with less?

If so, you’re not a politician. A politician would add “force my boss to raise my salary”.

Italy’s retailers are seeing lower sales, according to Chiara Vasarri, due to the Italian government’s “austerity and growth measures”.

Italian retailers had the worst Christmas in 10 years, consumer group Codacons said, as austerity measures to combat the sovereign debt crisis prompted households to cut spending.

How can government austerity reduce household spending? Government austerity would only reduce household spending if households were on the public dole, or if government spending makes up such a large portion of their economy that they’re already on an unsustainable treadmill. Unsustainable because taxes on government spending to pay for government spending can’t work—the math is all wrong.

However, the reason austerity means a cutback in consumer spending in Italy may be a lot simpler than that. This is what Italy’s government means by austerity measures—and by growth measures. They are the only austerity measures listed in the article:

  • raising taxes on luxury goods;
  • raising taxes on primary residences;
  • raising taxes on gasoline.

Austerity in Italy doesn’t appear to mean cutting back. It means taking more. Conservatives like to say, “we don’t have a revenue problem, we have a spending problem.” In Italy, they don’t just have a spending problem, they have a dictionary problem.

Mitt Romney’s Worst Christmas Ever

Vote Mitt Romney: The Worst Christmas Ever!

And now that austerity means the worst Christmas ever, let’s tie Mitt Romney and austerity together. As much as I dislike him, Romney is unlikely to act on either the correct or Italian definition of austerity; Republican Romney isn’t likely to raise taxes, and establishment Romney isn’t likely to cut government. He’s pretty much the anti-austerity candidate.

October 5, 2016: Economic misterminology: recessions that never end

I’ve been reading a lot about how the Great Recession is over in the United States, and that, therefore, Americans should not feel as economically pessimistic as we do. The most recent was an article by James Pethokoukis in the October Commentary.

The problem with this line of reasoning—the recession is over, thus everyone should be happy about it—is that it misuses economic terminology. The meaning of recession for economists is very different from the colloquial use of the term. This is not necessarily the fault of the journalists misusing the terms. Economic terms seem to be designed to cause confusion. If you read this blog regularly, you’ve read my complaints about how politicians use the term “austerity”. Countries raise taxes and sometimes even increase spending, their economies fail to recover and often get worse, and therefore, austerity has failed. Which is only true because austerity has been defined to include raising taxes and spending more. Raising taxes and spending more is not what most people mean when they use the word “austerity”.

The same is true of recessions. And it’s not completely the fault of economists. Determining when a recession begins and when a recession ends should mean having a long and probably rancorous discussion about what caused the recession and how long it took that cause to have an effect. This would inevitably lead to passing blame, because whatever those causes were, someone had a hand in creating them. For whatever reason, economists avoid this by using a purely mathematical definition of when a recession started and when it ended.

When was the economy doing the best? That’s when the recession started. When was the economy doing the worst? That’s when the recession ended. I’m not exaggerating that. Once the determination has been made that we are in a recession, economists look back to when we were doing best, and that’s when they define the recession as having started—even if that point comes before the event that triggered the recession. Once the determination has been made that the recession is over—which, itself, is a purely mathematical determination that does not have to have any connection with what people think a recession means—economists look back to when we were doing the worst, and that’s when the recession ended.

That’s literally it: around September of 2010, the National Bureau of Economic Research decided that the recession had ended. They then looked backward for the “low point”, which they found in July 2009:

The bureau took care to note that the recession, by definition, meant only the period until the economy reached its low point—not a return to its previous vigor.

May 15, 2013: Austerity really means raising taxes

The neat thing about Paul Krugman’s Humpty-Dumpty austerity (“a word means just what I choose it to mean—neither more nor less”) is that he can choose countries whose austerity is raising taxes, and then claim that since austerity means cutting spending, those countries’ failures mean we should raise taxes rather than cut spending.

The true solution, says Krugman, is to raise spending. That’s how to get out of a bad economy. Michael Tanner describes the conundrum at RealClearPolitics:

Which brings us to the question of European “austerity.” Krugman continues to insist that European countries’ austerity has been devastating, and that spending cuts must therefore be resisted. The “case for keeping [the U.K] on the path of harsh austerity isn’t just empirically implausible, it appears to be a complete conceptual muddle,” he wrote this week, and “austerity policies have greatly deepened economic slumps almost everywhere they have been tried.”

But there have actually been few spending cuts in Europe, so it makes little sense to blame them for poor performance. A new study by Constantin Gurdgiev of Trinity College in Dublin compared government spending as a percentage of GDP in 2012 with the average level of pre-recession spending (2003–2007). Only three EU countries had actually seen a reduction: Germany, Malta, and Sweden. Not surprisingly, two of those three, Germany and Sweden, are among those countries that have best weathered the economic crisis. Those countries that have suffered most, Greece, Italy, Spain, and Portugal, have all seen spending increases.

And what about Great Britain, which has been Krugman’s No. 1 exhibit for the dangers of austerity? Compared with pre-recession levels, British government spending is up by 2.5 percent of GDP, a 29 percent increase in nominal spending.

Krugman belittles those who cite countries such as the Baltic nations or Switzerland, whose governments really have cut spending and seen robust economic recoveries. But how does he account for Iceland, considering he himself once called it “a post-crisis miracle?”

Iceland actually slashed spending from 57.6 percent of GDP in 2008 to 46.5 percent in 2012, a nearly 20 percent reduction. Yet, while Iceland was one of the countries hardest hit by the international banking crisis of 2008 and the recession that followed, the economy started growing rapidly again in 2010.

What most of Europe has seen in abundance is tax increases—exactly the sort of thing Krugman has advocated in the United States. In fact, overall, European countries have raised taxes by $9 for every $1 in spending cuts.

One might conclude that it was these tax hikes, rather than nonexistent spending cuts, that are responsible for Europe’s economic slowdown. Something to keep in mind the next time Paul Krugman—or President Obama, for that matter—calls for yet another tax hike on the rich.

May 2, 2013: Austerity is not the only answer

Austerity in Europe is a lot like electricity privatization in California. If you redefine privatization to mean “a lot more government control”, it turns out privatization fails. And if you redefine austerity to mean “raise taxes and continue government bloat” it turns out austerity fails as well.

After seeing so much about “austerity failing” and then reading in to find out that by “austerity” they meant “raise lots of taxes”, I was moderately interested to see what the Financial Times considered to be alternatives to austerity. Maybe cut taxes and cut government bloat?

But I didn’t read it, because austerity, to me, means being thrifty with where I put my contact info, and the Financial Times is behind a paywall.

Interestingly, the “Annual” button shows a weekly price; and the monthly price is more expensive than the weekly price even times five. Which is nothing against the Financial Times, but since this is the first time I’ve seen this paywall screen I’m guessing I have no need for the Financial Times. Certainly not a $325 per year need. So, austerity has already saved me $325 this year alone! If I visit more of these paywalls, I can really rack up the savings. I should go buy something for a few grand with that money. Maybe a nice new car.

See, when you define success without regard to reality, you can fail in amazingly spectacular ways.

Meanwhile, those places that use the alternative to austerity of reducing taxes and spending see growth.

You can see part of the problem with the “raise taxes” form of “austerity” in the other tab I had open: there’s a meme running around the net right now that 401(k)s are bad, that most people are too stupid for them, and that government should step in. Why are 401(k)s bad? Because they’re honest. A 401(k) is a defined contribution plan; you have in it what you contribute to it. The contrast to 401(k)s in these articles is always social security: a defined benefit plan that’s going bust because it’s a lie. It doesn’t have in it what we contributed to it. The same with other government pensions: they lie about benefits, but the lies are all coming due.

Those fully-funded 401(k)s must look awfully tempting to politicians who can’t understand austerity to mean anything except raising taxes.

May 9, 2012: The austerity of the drunkard
Paul Krugman: Beige

Since drinking more didn’t cure my alcoholism, I’m going to go back to drinking more.

Looks like Italy’s “austerity problem” is shared by France and other European countries:

In France, for example, the so-called austerity largely consisted of raising taxes. There was a 3 percent surtax on incomes above €500,000, an increase of one percentage point in the top marginal tax rate (from 40 to 41 percent), and an end to the automatic indexation of tax brackets for inheritance, wealth, and income taxes. There was also a 5 percent hike in the corporate income tax on businesses with revenue of more than €250 million, as well as a hike in the capital-gains tax, and closure of several corporate tax breaks. And even though most of these tax hikes were aimed at the wealthy, the middle class did not get off free. There was an increase in the Value Added Tax (VAT) and the excise taxes on tobacco and alcohol.

True, there were some entitlement reforms and spending reductions. But they haven’t actually occurred yet. For example, France will raise its retirement age from 60 to 62, but not until 2017! A cap would also be put on government health-care spending, starting next year.

If you’re an alcoholic and you redefine “abstinence” to mean “drink more”, then sure, you’ll be able to follow that abstinence plan easily. But it’s hypocritical to then claim that since abstinence doesn’t work, you’re going to go back to drinking.

Paul Krugman is a hypocritical drunkard. If you redefine austerity as raising taxes, then sure, you’ll find it isn’t going to work.

  1. <- Troy refuses fed grant
  2. Health care orphan ->