As Europe’s major economies focus on belt-tightening, they are following the path of Ireland. But the once thriving nation is struggling, with no sign of a rapid turnaround in sight.
Let's think about that opening paragraph for just a moment.
1.) Everyone wants to "tighten their belts."
2.) Ireland tried that two years ago.
3.) Two years later "the once thriving nation is struggling, with no sign of a rapid turnaround in sight."
In other words:
"belt tightening" does not lead to "expansion."
"But maybe if we do it, it will be different."
Well, the Baltics also tried it:
Much like Spain, Ireland and the UK, the Baltic states were badly hit by the bursting of a credit bubble in 2008 that sent their economies into freefall and their budget deficits soaring.I realize there are people out there who are unconcerned with facts; they will continue to say Washington needs to "stop spending". These people are fools.While others cushioned the impact with stimulus spending, the Baltic trio plunged straight into austerity. As a result, they suffered the deepest recessions in the European Union last year, with Latvia’s economy shrinking by 18 per cent.
Again, let's review the GDP equation.
C+I+X+G=GDP
Consumer Spending
plus
Investment
plus
Net Exports
plus
Government Spending
equals
GDP
According to the CBO, government spending accounts for about 20% of the US economy.
Ladies and gentlemen, this really isn't that hard.
7 comments:
Ireland just reported what growth in GDP? Grew 2.7 percent? So maybe the bottom is in?
You can't get C up in a debt deflation, but you can encourage I & X.
Corps have $1.6 trillion sidelined out of uncertainty. When the US Secretary of State is calling for tax increases you feel a bit nervous.
G isn't the only way to get the economy back on track. Obama's policies are made with red colored glasses on.
Stimulus spending works great until others will no longer lend you their money.
It really isn't that hard to understand.
Looking at similar sized economies to Ireland, I would have to say the bottom isnt a sure bet.Argentina and South Africa which followed Keynesian policies posted GDP increases of 3% and 4.6% respectively. Finland and Denmark which have attempted to generate budget surpluses through austerity have seen changes of -0.4% and +0.6% respectively for the 1q. A mixed bag.
US yields are near record lows. US Treasury auctions are well subscribed. The US dollar is still considered a safe haven. In other words, the the world still considers the US a good credit risk.
It's really not that hard to understand.
Unfortunately, I must say, "You lie!"
For my political ideology must not die.
Democrat spending makes me cry.
Austerity is the way, and the jobs bill must die.
Don't forget the multiplier effect - people that benefit from stimulus jobs will spend part of that income on C and I, further growing GDP. Even better!
Unfortunately, we have to contend with people that think government spending isn't "real" economic growth. Basically, it's often not just a problem about convincing people that stimulus not helps the economy. They think it's just "loaned" to us and spent on "waste", and that it all will have to be taxed back later (just deferring the contraction). I think that neglects that there's plenty of things of value to the nation as a whole, but aren't profitable - investments like infrastructure and education and research (think green energy, etc.), plus keeping people fed and healthy and not in the streets, and so on. It's stuff that's valuable on its own, can be investments that pay for itself. But how do we convince these people that it's really worth it? They seem to think it'll somehow hurt a lot when things start getting paid back - what's the plan there?
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