The Last Ditch by Tom Paine

55 responses to “The Austerity Fairy”

1. 

   Moggsy

   May 14, 2012

   I read a post some time back that had a graph based on (I think they said the Guardian’s own figures) showin that so far all the “cuts” had led to was the government borrowing a little bit less than the year before. But they were still borrowing massive amounts and the debt still kept getting scarily bigger and bigger.
   I wonder what the minimum payments on that credit card bill is?

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2. 

   Tom Paine

   May 14, 2012

   Moggsy, the widget in my sidebar shows the increase in the National Debt. Whatever the minimum payment is, we are not paying enough more than that to decrease the debt.

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3. 

   Mark

   May 14, 2012

   The increase in the national debt might be a result of the private sectors desire to save rather than the public sector wanting to spend

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4. 

   Moggsy

   May 15, 2012

   Mark! Hu? Maybe you ought to say that again, in front of a mirror this time… and try watching your lips while you are doing it?
   Any increase in national debt can only be caused by the state borrowing more than it pays off.
   Like paying for a restaurant meal new choos and PPV TV on the credit card, because you couln’t afford them if you didn’t borrow to do it.
   Not cutting its cloth according to its means, but I figure you must know that and are just saying it to get someone to bite. And here I am doing just that ^_^

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5. 

   Moggsy

   May 15, 2012

   PS. FYI. The UK national debt has been increasing for the last 10 years or so. Most of it was run up by socialist governments of Prime Ministers Tony Blair and Gordon Brown.

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6. 

   Moggsy

   May 15, 2012

   National debt can only be increased or accrued at all by the State borrowing.
   If it pays off more than it borrows and more than the interest on what it owes then any debt will decrease or dissapear.
   If it borrows more than it wants to or can afford to pay off the debt increases.

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7. 

   Mark

   May 16, 2012

   Ok, but there is more than one reason why a budget deficit might exist.
   Also, the government is very different to an individual living within a country… it is impossible for a country as a whole to live beyond its means, unless other countries are prepared to give it something for nothing.
   BTW, that is only partially true… most of the budget deficit was run up after the economic disaster caused a massive increasein public spending.

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8. 

   Tom Paine

   May 16, 2012

   Try running a business and explaining to its proprietors and their creditors that debts are spiralling out of control but it’s ok because there is “more than one reason” for the defecit.
   Even by Keynesian standards Labour misconducted itself to the point of treason. The “stimulus” of which we hear so much was intended by Keynes to be funded from savings made during the boom years for the purpose, not by layering more debts on those irresponsibly (and I would argue corruptly since they were used largely to bribe and increase the Labour payroll vote) run up during the boom.
   That bribery of the payroll vote and the consequent alignment of public sector workers and other state dependents against the economic interests of the nation, is the reason Labour’s vote held up and is now recovering. This, despite the fact that – all other things being equal – Labour Party members should now be scared to appear in public for fear of meeting the fate of the Ceausescus.
   As for the myth that all was well until it was necessary to run up huge public debts to bail out the banks; firstly it was not necessary and libertarians would have let them fail.
   Of course, had they known that they would not be bailed out, they would never have fallen into moral jeopardy and misconducted themselves as they did. Secondly, Labour had been steadily increasing the State’s take from the economy throughout the boom and had increased the public sector payroll by an entirely unnecessary million.
   Finally, where do you get this delusional idea that is impossible for a country to live beyond its means? Countries everywhere have been doing it on an enormous scale. There are plenty of historical examples of sovereign defaults as you will find if you google the topic.
   Creditors are not just other countries but private institutions and individuals – including you if you are in a pension scheme or have life assurance. They may and do miscalculate the risk of buying government bonds. They certainly did in relation to the PIIGS and – in my opinion – continue to do so in relation to Britain.
   Only two countries in the EU (Slovakia and Finland) currently meet the economic criteria set to join the Euro. Even Germany, pompously lecturing the others, does not meet them. Britain comes nowhere near.
   The main weapon governments have to maintain your delusion is their capacity to print fiat currency. That amounts to paying creditors back in bad coin and will – if taken to excess – cause credit to dry up (or become pricier). “Printing” money not backed by real assets also steals money from the prudent by inflating away their savings and rewards the feckless – thus saving up greater problems for the next cycle. The incentives from the current artificially low interest rests (for “stimulus” of course) are perverse in the extreme.

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9. 

   Mark

   May 17, 2012

   I’m not clear on the details of Keynes’s theories, but I’d imagine that the purpose of countercyclical policy during boom times is not to “save money” for future use, but to dampen down an overheated and exuberent economy, just as spending during a recession is designed to boost it.
   Why on earth would a government need to save money if exchange rates are not fixed?
   Why should governments save money?
   It may well be that the labour government, to some limited extent, took control of productive capacity form individuals, but that has not much at all to do with the current size of the public debt. Gordon Brown did look funny, though.

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10. 

    Mark

    May 17, 2012

    If you allow the banks to go bust, allow ordinary people to completely lose all of their money and refuse to allow the government to print any more, you are going to cause not just an economic downturn, but quite possibly the end of civilised life in Britain.
    The owners of the banks, ie me and my uncle bob, were taken to the cleaners. Problem is that ulimately the owners have very little control over what goes on in the banking system or with our finances generally. Too big to fail should be renamed too big to own and too big to control.
    Is there an example of a government borrowing in a currency it has the power to print, defaulting?

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11. 

    Mark

    May 17, 2012

    As for government debt being mispriced, or other countries foolishly lending us money, I’d have thought you’d be a fan of “buyer beware”.
    Anyway, you could be right, I’ll have to have a think about that one.

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12. 

    Moggsy

    May 17, 2012

    Mark,No point in me pointing out where you talk nonsense is there? It just goes over your head… whoosh!
    And you go and say stuff that was already pointed out to be rubbish by absolute facts before you even said it. Whateverrr!

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13. 

    Tom Paine

    May 17, 2012

    Please please don’t give up on him! I rather hope he won’t be persuaded by our arguments so that we can continue to have a foil for them. Blogging has not been this much fun for ages.

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14. 

    Tom Paine

    May 17, 2012

    Can you please explain that, Mark? I am sorry, but I just don’t get it. I have waited for others to tease out of you what you mean, but it hasn’t happened yet.

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15. 

    Mark

    May 17, 2012

    Yes, please explain why a government should save money and how reduced production today can pay for consumption tomorrow.
    This should be good.

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16. 

    Tom Paine

    May 17, 2012

    The point (according to Keynes, not me) would be to set funds aside to smooth out boom and bust. Personally, I would rather leave the economy to its own devices and have everyone understand that if there is a bust and they are exposed to it they will take the losses (just as they took the gains in the boom). Government intervention to smooth things out has always historically protected the feckless and punished the prudent. That’s not even the politicians’ fault, because the feckless have more votes.
    Reducing the size of the state does NOT reduce production because it produces precisely nowt. It consumes wealth created in the productive part of the economy in order to provide “services” varying from the useful and necessary (police, courts, army) to the useless (equality co-ordinators). Please be honest enough to acknowledge that there would not be a single such co-ordinator if people had to choose to pay for them.
    Many of the state services people would choose to pay for (healthcare, education) are demonstrably inferior in their socialised form. Compare for example the cancer survival rates in the USA with those in Britain. Consider for example, the constant demand of leftists to close down the superior private schools because they deliver unequal (i.e. better) outcomes than state education.
    Like all leftists you are confusing “the state” with both “society” and “the economy.” Hence the nonsensical idea that reducing public spending is “taking money out of the economy.” Of course it isn’t. The value represented by the money concerned is in the economy (where else would it be?) and has to be taken by force by the state in order to be applied to its goals. Don’t take it by force and it will be used for the goals of the people from whom the state would have stolen it.
    The state can put money into the current economy (just as you could do it in your household budget) by borrowing. That might feel good for while as more cash becomes available, but the piper does eventually have to be paid. Sadly the state has been doing that for decades and debt service costs are now one of its major expenses. We are paying through our taxes to fund the profligacy of the state on behalf of our parents and grandparents.
    Of course that debt service money is finding its way back into the private sector via banks, insurance companies and pension funds holding government debt. So long, that is, as the state doesn’t (a) default or (b) cheat its creditors by devaluing/inflating the currency.

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17. 

    Tom Paine

    May 17, 2012

    I am a big fan of buyer beware. If the state debtors default, you don’t hear me advocating that the private lenders should be bailed out. I am merely demonstrating that you are wrong in thinking default impossible.

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18. 

    Tom Paine

    May 17, 2012

    In which bank do you and your uncle bob have shares? If you mean you are depositors, that makes you a creditor, not an owner. Depositors are protected (up to a maximum per account) by a national scheme paid for by the banks. You would have got your money back if the bank where you deposited it had been allowed to go down. The bailouts didn’t protect you they protected the shareholders (and their incompetent employees).
    You will find a long list of sovereign debt defaults by countries in control of their own currencies here http://en.wikipedia.org/wiki/Sovereign_default.

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19. 

    Mark

    May 18, 2012

    Tom,
    In order for the government to run a deficit, it is neccesary for the private sector to run a surplus (ignoring exports for a moment). You argue that the government has caused the deficit through excessive spending, but what is the mechanism by which they induced a private sector surplus? Isn’t it equally possible that the push for a government deficit came from the private sector?
    You believe that public sector management can never produce anything of value. That is largely irrelevant to a discussion of the deficit. It is entirely possible for a government to increase its deficit by reducing taxes or giving money to companies. When people receive their pensions they don’t generally spend it in state run enterprises.

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20. 

    Mark

    May 18, 2012

    You wish to leave the economy to its own devices. How long can a prudent person last if they lose their job? If everyone wishes to save, in order to be prudent, where will the money come from?
    I think that you are confusing “money” with “productive capacity” and “real wealth”. Reducing public spending and keeping taxes the same will reduce the money available to the private sector. It will then make it impossible for the people in the private sector to achieve their aims, probably lead to an inability to buy things they would otherwise have been able to.
    In practical terms, the government controls the supply of money and so they have a role in the economy. You might be able to think of some other monetary system where is is not the case, I’d be interested to hear of it.

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21. 

    Mark

    May 18, 2012

    PS
    don’t you think it is a little disingenuous to appropriate the name of Thomas Paine to argue against a citizen’s basic income, when he was the person who originally proposed it?

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22. 

    Moggsy

    May 18, 2012

    Mark, You seem all back to front again to me.
    You say to Tom “You argue that the government has caused the deficit through excessive spending, but what is the mechanism by which they induced a private sector surplus? Isn’t it equally possible that the push for a government deficit came from the private sector?”
    The way of Government “Inducing” a private sector surplus is for it to step back a little. Just take less. Interfere less.
    Government, in as much as it can ever be ideal, should be symbiotic.
    When it gets to how it is at now it is more parasitic than symbiotic. When times are good this does less harm than when times are bad. Just taking less is absolutely going to “induce” Increasing GDP everything else being the same.
    The government deficit came from PM Blair’s socialist government borrowing on the markets to finance unsustainable (in the long term) government spending.
    On top of this to raise yet more cash to avoid getting too far in the red too fast they did things like raid pension schemes, and change the rules. That is most of the reason for the so-called pensions balck hole. They also sold off around half of the UK Gold reserves to raise cash, and did other raids called windfall taxes.
    They kept spending more each year than they could raise by winfall, gold sales or taxation in all forms so they kept borrowing on the markets, more each year and this was quicker than they could pay it off so what was owed kept rising and they were having to service the interest.
    So, no it is just not possible the deficit came from the private sector. Unsustainable Government spending is where it came from.

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23. 

    Mark

    May 21, 2012

    Presumably, by your reckoning, people wanted to lend the government money – people wanted to save. It’s not as of interest rates were rising either. People didn’t want to spend money.
    It might not be sustainable, but that is a problem of excess expectation of what we will buy with our savings rather than excess consumption.
    You can’t eat tomorrow’s sandwich today and you can’t increase production tomorrow without investment.

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24. 

    Tom Paine

    May 21, 2012

    They wanted to invest and mistakenly saw government as a safe bet. Any borrower who treated his creditors like government does would be gaoled. It’s hard to garner your meaning here but you seem again to be confusing investment (which people are not doing because government is suppressing returns to protect feckless voters) and mere spending.

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25. 

    Damo

    May 21, 2012

    Mark, savings are vital for a health economy. When people save their money in a bank, that bank will lend some of that money (savings) out to companies to expand and increase productivity, wealth etc

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26. 

    Mark

    May 22, 2012

    Well, actually, I think saving might be rather more important as a means of motivating people who want to save, to work.
    If the private sector wants to save, the public sector must spend.
    Why is it preferable for privately owned banks to make money?

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27. 

    Mark

    May 22, 2012

    If the private sector has money to purchase government bonds, then why can’t it use that money to invest?
    there are a lack of investment opportunities due to a lack of demand.
    Even if government can do no good when managing projects, don’t they have a duty to run deficits to allow private sector saving?

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28. 

    Mark

    May 22, 2012

    There is an orchard which produces 100 apples a year. I can only afford one apple and decide to borrow one more from you and repay you with half an apple each year. I have paid for current consumption by reducing my future consumption.
    You are worried that the same thing will happen with government debt. We must all reduce our future consumption to pay for current spending, but ithis idea makes no sense. Why? Because the orchard will still be producing 100 apples.
    The total consumption of the country cannot be reduced by debt, unless the productive capacity is also reduced.
    The productive capacity can only be reduced if current consumption means a lack of resources for investment.
    It is possible that the people saving their money are mistaken and that they will not be able to buy what they expect in the future, very likely in fact… but what do you suggest here?
    Why aren’t you equally concerned about the gacebook IPO investors?

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29. 

    Tom Paine

    May 22, 2012

    FFS I can't believe you wrote that seriously. You are winding us up now, right? For it to be true, the public sector would be the only source of demand. In truth it destroys more demand than it creates because of fiscal churn (the admin cost of taking someone's money by force and spending it on things he doesn't want). It's preferable for anyone (businessman or employee) to make money by voluntary trades of goods, services or labour than it is for someone (government or gangster) to take it by force! 

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30. 

    Tom Paine

    May 22, 2012

    Deficits don't "allow" (there's that Freudian indication of your posture to the state again) saving, they divert it from productive use by deploying the credit of taxpayers as yet unborn. 

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31. 

    Tom Paine

    May 22, 2012

    To continue your analogy, you have been increasing the extra apples borrowed for sixty years, using borrowed ones to repay your older debts and never trying to get your apple habit under control. Now your entire productive capacity is consumed in buying apples to pay me back with. I conclude you are a degenerate apple junkie and decide to make cider instead. But you round up all the neighbours with guns to steal apples from me with which to pay me back. Guess what? I hate your thieving guts. 

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32. 

    Mark

    May 22, 2012

    Come on, this is life 101 here… one mans surplus is another mans deficit. If the private sector as a whole wants to net save, the only way it is possible is through a government deficit.
    Why are people choosing to buy government debt instead of other productive investments? Is it the high interest payments?

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33. 

    Mark

    May 22, 2012

    Let’s say you have a mad habit of keeping ten apples each year, even though you only eat one and allowing the others to rot.
    Wouldn’t a system in which each of those apples was eaten each year by somebody be better than one in which they were wasted needlessly?
    I think you have persuaded my that savers might lose money – but if they are allowed to leave their apples to rot, won’t they lose them anyway?
    The only thing you are loseing here are your own unrealistic expectations.
    How do you propose to make hem realistic?

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34. 

    Mark

    May 22, 2012

    I think I agree with you – it is preferable for people to make voluntary trades. I was thinking of the current banking system, which I’m sure you don’t defend.
    I don’t think that the government is the only source of demand, but I do think that at times it might be an important source.
    I really don’t think your “let it all burn down” philosophy will do any good for anyone – because hunger and a need for shelter are a knife to our throat.

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35. 

    Tom Paine

    May 22, 2012

    Straw man, again. I don’t say “let it all burn down”. I say let the market (i.e. the economic will of the people as expressed through practical choices made with their own money – not that extorted from others) determine the outcomes. When government interferes, it either does to to facilitate its own theft (government is ultimately only legitimised gangsterism) or to buy the votes of the feckless.

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36. 

    Tom Paine

    May 22, 2012

    The original and best Tom Paine had lots of interesting ideas but was very clear that government was a necessary evil to be constrained.
    Had he seen the effects of the 20th Century’s wicked experiments in infantilisation who knows what he might say?
    I don’t claim to speak for him. My use of his name is a tribute to him, not a claim about me. I had no other thought than that he had earned the title “The most dangerous man alive” by writing mere pamphlets and that if he lived today he would blog.

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37. 

    Tom Paine

    May 22, 2012

    There we have the heart of your muddle; the ‘fixed pie fallacy’, scorned not merely by economics professors, but even by Lenin (in “Left-wing Communism, an infantile disorder”).
    One man’s deficit is NOT another man’s surplus. Every free trade is (or is perceived at the time by the participants) of value to both sides. Otherwise, it would not happen.
    Only transactions instigated by force or fraud (e.g. by a government with a monopoly of violence) deliberately destroy value.

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38. 

    Tom Paine

    May 22, 2012

    That would be mad. Which is why I say (again) straw man. Of course they are my apples to waste as I wish and I scorn the idea that others will come up with better uses than the person whose investment and labour produced them. In practice, if I can find no use for the surplus nine (e.g. cider, charitably feeding the poor, pelting economic illiterates) I will scale back my horticulture and invest money and time in something else. This is a silly argument and described no free market in history. If you want to see actual examples of such waste on any meaningful scale, try the Soviet Union or the current EU CAP.

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39. 

    Mark

    May 22, 2012

    Tom,
    You are confusing money with real goods again.
    Just think about the money for the next 30 seconds.
    If I spend money, somebody else recieves it. Can we agree on that?
    If there are only two people, you and me, and I want to save money, the ammount of money available to you is reduced. Can we agree on that?
    If there are two sectors to the economy, public and private, for the private sector to recieve money,

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40. 

    Mark

    May 22, 2012

    Not a straw man, I’m afraid…
    In the UK, we currently have unemployment of 3 million… how much unemployment does Greece have with its lovely austerity?
    Think about it.
    You think that using saving to fund other people’s consumption is a waste of time, How about saving to do absolutely nothng at all?
    Could you give me the examples of where you consider free markets to have existed, in history?

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41. 

    Mark

    May 22, 2012

    If the markets produce such perfect outcomes, why don’t elections?

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42. 

    Tom Paine

    May 23, 2012

    That’s an easy one. Because political votes cost the voter nothing directly. They are decisions (ultimately) on how to spend other people’s money. Give me the right to decide how to spend yours and watch out! Your wealth will be in the tank of my car (or yacht, if you have more) before you can blink – and you can starve. Economic votes in the market have to be earned. Getting them wrong (buying the wrong good or services, or overspending) have direct consequences for the “voters”.

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43. 

    Tom Paine

    May 23, 2012

    Presumably you gave up on this thought as a bad job. There is no fixed quantity of money. It represents the overall value of the accumulated wealth in the area of its circulation, or it represents nothing and is rapidly degraded. It’s a token. It’s not wealth in itself. The idea that it is is another well-known economic fallacy. Why don’t you Google “economic fallacies” and read around the subject a little before you post again?

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44. 

    Tom Paine

    May 23, 2012

    OFFS. Firstly Greece is still overspending. It is failing to match national income to national expenditure (a profoundly difficult thing to do, when debt service has become an unbearably high cost). Secondly, if you have been spending yourself into oblivion for decades, would you seriously expect the consequences to disappear after a few months of attempted prudence?
    No perfect free markets have ever existed, because the cancer of government has always been (and always will be) a problem. For most of its history however, the best way to get on in the USA has been to make a buck, rather than to become a politician. That’s a pretty good test of a free society. If you have talent and find yourself drawn to politics, you probably don’t live in one.
    In recent times, Hong Kong from 1961 to 1971 is probably the best example.

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45. 

    Moggsy

    May 23, 2012

    OK I will bite… again. I don’t know why becsuae I guess Mark is either having fun playing at devil’s advocate, or is utterly closed to any actual evidence or persuasion.. but here goes.
    Greece is in so much trouble not because of austerity. No the austerity is a consiquence of Greeece fiddling the books and borrowing more money than it ever had any hope in hell of repaying a tenth of.
    They still owe more than they can ever pay back and they have already welched (haircut, as part of the rescuepackage) on a big chunk of it.
    The austerity is a symptom, tho in Greece’s case it is pointless because they can never service the debt. They should just declare bancrupsy.
    Austerity is not lovely it is a pain in the ass.
    But you don’t listen and you seem to ignore hard evidence so .. whatever.

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46. 

    Mark

    May 23, 2012

    I’m rather worried about you tom. The market requires morality to work, no matter what you have been told about butchers.
    Why should only money matter to us. Isn’t this an insanity?

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47. 

    Mark

    May 23, 2012

    No.
    You’re overthinking this.
    I asked you whether you accepted that one mans spending is anothers income.
    Money is created either by banks, creating money and an equal ammount of debt at the same time (so no net saving for public sector) or by the government running unfunded deficits.
    You better have a pretty good reason for disagreeing with this, considering it’s commonly accepted fact. Vague hand waving and explaining the nature of money won’t cut it.
    btw, my next point is going to be that in our society we cannot conduct barter and cannot make our own money. So we need the gov to run deficit if we must private sector must net save…
    Money is a token, but state money is a necessity for business in our current system

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48. 

    Mark

    May 23, 2012

    I’m not closed to evidence or persuasion, Moggsy, I’m just not convinced by what you are telling me.
    It seems to me that Tom has conceived such a hatred of the word “government”, that its mere mention is enough to send him into a mental gymnastic routine, where he attempts to avoid any possibility that government might have a legitimate function in society. He has continued this to the point where he is almost denying basic accounting identities, common sense and logic. One man’s income doesn’t equal another man’s spending… allright then Tom…
    As for you, I’m not convinced you understand what I am saying. When people don’t understand what is being said to them, they often just pick on one word which has a particular appeal to them and go off on an irrelevent tangent.
    The original austerity plan was that cutting back on government spending would see the Greek economy recover. It hasn’t happened. If people will spend their money wisely, why aren’t they doing it in Greece. Is it because the government taxes them too much? Tax is austerity!

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49. 

    Mark

    May 23, 2012

    If it is impossible for the greek government to pay back their debt, why bother with austerity? Is it a collective ounishment for the sins of a few decision makers?
    That strikes me as unneccesary and if I might say, rather illiberal.

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50. 

    Cascadian

    May 23, 2012

    Mark, we have established that you are a follower of Graebners economic views. Can I suggest you try to widen those views-I am not suggesting you accept the Austrian school or the Chicago school theorists. Lets get more basic, if you go here:
    http://www.khanacademy.org/finance-economics/macroeconomics
    you will find a wealth of information, amongst it an explanation of the Greek economic problem, it is described in easy language for the benefit of most people.
    I also note that Tom, Moggsy and I have tried to engage you in conversation, eventually the conversation seems to resolve in you pleading that we do not understand what you are saying. May I respectfully submit that maybe that is because you use terminology incorrectly and interchangably and a little more study and less class-war rhetoric might resolve our current impass.

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