Saturday, June 4, 2016

a video

so I just watched this

Anyway, long story short, there are a few problems with this video

1 - This video is from 2013 and focuses on the recession which started in 2008. The speaker says the US debt to GDP ratio went down. This is untrue and that is easily verifiable with a quick search. While it's dropped since 2013, it's dropped, in part, due to austerity measures.

2 - The speaker also repeatedly confuses government budgets (and deficits) with export and important balances (and deficits). These are not one in the same. He says, flat out, that all countries can not be in (budgetary) surplus. This is untrue.

3 - The speaker also mis-represents what austerity is, though, that term itself is not well defined, so I'll let that go.

4 - The speaker is also misleading on the impact of cutting spending. In particular, the IMF has said that a cut of 1% of GDP could reduce the total economy by as much as 1.7% GDP. The GDP does not have such a direct impact on the government budget, and as such, a 1% GDP cut in spending does not mean a 1% GDP cut in revenue.

5 - The speaker ignores the reason countries want to keep budgets under control. Flexibility. Having a massive debt means that you are unable to gain much more, and you lose flexibility. If your debt is too big you simply can't spend spend spend without defaulting, and throwing banks into chaos. The whole reason you want to keep government debts under control is to allow you to spend when you need to. This is totally ignored.

6 - The entire video ignores that what kind of spending and cutting is done is very important. People will spend up to an amount, and save after that, and invest after that. If you gave every person who had an income of under $20,000 a thousand dollars, you'll notice the economy will grow much more than if you give the same money to people who an income of about $80,000

7 - In general, this video can be dangerous. It presumes that people have not a basic understanding of government budgets, economics, and trade, but an advanced understanding. People who lack this understanding can be lead to believe that government spending is magic. Nothing is absolute. Cutting $1 from the national budget as part of austerity will not cause the economy to crash. Everything works within certain limits, and it's only when those limits are exceeded that things fall apart.

 8 - The only thing the speaker is correct on is that the current limits on the Euro (like deficits) hurt the economy and should be removed.

The video also contains terminology problems.

"Deficit" is generally understood to be an imbalance in government spending and government revenue, in particular, from general funds. Deficit usually excludes spending and revenue from government owned corporations, and always excludes any trade balance, as well as monetary policy. Austerity is focused on reducing deficits. The implication made is that it is focused on reducing other imbalances, which it is simply not.

A much MUCH better video - featuring the same speaker - talking to a TV host from TVO (Ontario government funded TV)

A few things however

1 - The point of austerity is not to reduce debt, it is to reduce the deficit. It is to reduce the growth of debt. not debt itself. To suggest that this is the case is just disingenuous, ignorant, or purposefully misleading. Austerity is either done to reduce deficits, or to keep the debt under control. Austerity can still see a rising level of debt so long as that level in manageable.

2 - Focusing on the poor is important as the poor are important in growing the economy, something that is often forgotten. Italy is a perfect example, take a gander at what's happened in polling in that country over the past few years to see what the people actually think of this kind of economics:

3 - The speaker is also correct that at current levels of debt, there is no confidence problem, however, he tries to connect it to a silly strategy; he also says "it doesn't work if everybody does it at the same time" which is simply not true - depending on what "it" is - it seems his opinion is austerity is that austerity is horrific level of cutting that hurts only the poor. In that case, yes, "it" does not work.

At about 5 minutes in the host starts asking important questions, but he again confuses government spending with private spending. These are not one in the same.

After 7 minutes he stops mixing up terminology. He makes a great point that austerity has different levels, he calls Canada's cutting "fake austerity". I call it "the only kind of austerity that works". The real "fake austerity" is the stuff that is being done over in europe.

He also points out some great problems with a currency union should that currency be unresponsible.


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