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jackAn analogy I frequently hear argued about is using an analogy of a household budget for a national economy. Usually, someone advocating cost cutting *implies* that analogy, and then someone opposed jumps in to point it out and say it doesn't apply.
The implication is something like, "we only have so much money, so we need to prioritise". Obviously the biases of the person talking are the obvious priorities, so obvious they don't need to explicitly justify them. Usually first in the queue is "whatever the status quo is, we obviously need to keep funding THAT". Obviously vulnerable people and non-voters get shafted. And worrying from a practical standpoint is, "oh, we can't afford long-term investment, we'll patch it quickly and accumulate infrastructure debt, I'm sure a later government will be happy to patch it up properly after it's been underfunded for decades" BZZZZZZT NO THEY WON'T THEY'LL CUT TAXES LIKE AS NOT BECAUSE THEY'RE JUST AS SHORT SIGHTED AS YOU.
And then someone else is like YOU DON'T HAVE A LIMITED AMOUNT OF MONEY YOU DELUDED COCKWOMBLE YOU'RE THE GOVERNMENT YOU CAN LITERALLY PRINT MONEY and then there's an argument about how much the government ever SHOULD print money. Usually Hitler is mentioned. I can understand Germans being twitchy about this, but you can be cautious about the wrong things.
Sometimes they don't actually SAY "deluded cockwomble", they just strongly imply it, or allude to a private eye legal letter which said it[1].
But anyway, there is a legitimate question, SOMETIMES you have to cut back necessary services to keep even more necessary services going. But if you're saving money in ways that are are only going to be more expensive shortly, 'saving' money by skimping on all the maintenance, turfing vulnerable people out of hospitals early, cancelling public transport, etc, but that are going to come back around as things fall down and need to be rebuild, now people need even more care, business steer clear because no-one can get to work, you have to ask, "is this cheaper overall, or only in the short term?" And if it's cheaper in the short term, is it ACTUALLY cheaper? Will you actually have a stronger economy in ten years time if you sabotage it now? Or not? If not, should you borrow money now to cover for this?
What are the counter-arguments to this? Well, with varying degrees of validity in various situations, they include: "government spending is a black hole which is essentially always wasted, so spending as little as possible and hoping people survive somehow is for the best", "the country is bust in the long term, we can't sustain the standard of living we have now, so the sooner we start letting people die of it, the sooner we can start rebuilding" and "I've got mine, lets burn the country to the ground as long as rich people end up on top of the pile". You can probably see which of these I sympathise with and which I don't.
But the thing that bugs me is, most of this is ACTUALLY TRUE OF HOUSEHOLD BUDGETS TOO. Getting deeper into debt is usually bad! But if you can borrow at government-bond rates it's a lot lot more attractive. And to some extent, if you're in a money crunch, you cut everything you CAN cut. But seriously, the car you use to go to work, the children's education, the medical care for the family members who are sick (to the extent that touch wood you have to pay for it yourself), cutting those is not normally "oh good, I'm more fiscally responsible now". It's "doom doom doom doom everything is about to collapse". Cutting YOUR SOURCES OF INCOME is an extreme short-term measure. There may be times when it's necessary. But I hate how people seem to be all smug and "oh, well, obviously" about it. The big things you can cut are (a) letting people die and (b) destroying the very things that make you money. Yes, half the time you DO have to cut those. But for god's sake, don't charge in with a machete chopping away with abandon, be sombre :(
[1] I made all this up. Don't cite me.
The implication is something like, "we only have so much money, so we need to prioritise". Obviously the biases of the person talking are the obvious priorities, so obvious they don't need to explicitly justify them. Usually first in the queue is "whatever the status quo is, we obviously need to keep funding THAT". Obviously vulnerable people and non-voters get shafted. And worrying from a practical standpoint is, "oh, we can't afford long-term investment, we'll patch it quickly and accumulate infrastructure debt, I'm sure a later government will be happy to patch it up properly after it's been underfunded for decades" BZZZZZZT NO THEY WON'T THEY'LL CUT TAXES LIKE AS NOT BECAUSE THEY'RE JUST AS SHORT SIGHTED AS YOU.
And then someone else is like YOU DON'T HAVE A LIMITED AMOUNT OF MONEY YOU DELUDED COCKWOMBLE YOU'RE THE GOVERNMENT YOU CAN LITERALLY PRINT MONEY and then there's an argument about how much the government ever SHOULD print money. Usually Hitler is mentioned. I can understand Germans being twitchy about this, but you can be cautious about the wrong things.
Sometimes they don't actually SAY "deluded cockwomble", they just strongly imply it, or allude to a private eye legal letter which said it[1].
But anyway, there is a legitimate question, SOMETIMES you have to cut back necessary services to keep even more necessary services going. But if you're saving money in ways that are are only going to be more expensive shortly, 'saving' money by skimping on all the maintenance, turfing vulnerable people out of hospitals early, cancelling public transport, etc, but that are going to come back around as things fall down and need to be rebuild, now people need even more care, business steer clear because no-one can get to work, you have to ask, "is this cheaper overall, or only in the short term?" And if it's cheaper in the short term, is it ACTUALLY cheaper? Will you actually have a stronger economy in ten years time if you sabotage it now? Or not? If not, should you borrow money now to cover for this?
What are the counter-arguments to this? Well, with varying degrees of validity in various situations, they include: "government spending is a black hole which is essentially always wasted, so spending as little as possible and hoping people survive somehow is for the best", "the country is bust in the long term, we can't sustain the standard of living we have now, so the sooner we start letting people die of it, the sooner we can start rebuilding" and "I've got mine, lets burn the country to the ground as long as rich people end up on top of the pile". You can probably see which of these I sympathise with and which I don't.
But the thing that bugs me is, most of this is ACTUALLY TRUE OF HOUSEHOLD BUDGETS TOO. Getting deeper into debt is usually bad! But if you can borrow at government-bond rates it's a lot lot more attractive. And to some extent, if you're in a money crunch, you cut everything you CAN cut. But seriously, the car you use to go to work, the children's education, the medical care for the family members who are sick (to the extent that touch wood you have to pay for it yourself), cutting those is not normally "oh good, I'm more fiscally responsible now". It's "doom doom doom doom everything is about to collapse". Cutting YOUR SOURCES OF INCOME is an extreme short-term measure. There may be times when it's necessary. But I hate how people seem to be all smug and "oh, well, obviously" about it. The big things you can cut are (a) letting people die and (b) destroying the very things that make you money. Yes, half the time you DO have to cut those. But for god's sake, don't charge in with a machete chopping away with abandon, be sombre :(
[1] I made all this up. Don't cite me.
no subject
Date: 2018-03-01 02:39 pm (UTC)no subject
Date: 2018-03-01 03:53 pm (UTC)no subject
Date: 2018-03-01 04:06 pm (UTC)no subject
Date: 2018-03-01 03:50 pm (UTC)I think crucially here, limits to government spending are a lot softer than limits to household spending.
Printing money; it's possible for the UK government to print £1B or £1T or £1Q, I don't know whether it's legal but I'm pretty sure that if not it's possible to change the laws (or change the laws that control the laws, or whatever) to allow it. It is not possible for us to print $1Q worth of money; yeah, we could print the notes, but by the time the notes are printed, they're not worth as much as they were just before the order was given. It's probably impossible to work out how much the real-terms value of the money we can print is - or the real-terms income we can extract from it, but it's clearly not infinite.
Borrowing: there's no hard bound on the number of bonds the government can issue, far too many and no-one will buy them, a bit less and people will only buy them at loan-shark rates. I thought it would be instructive to look at what's happening in Argentina that had a debt crisis a decade or so back; on the one hand you don't want your country to go through such a crisis, on the other hand Argentina seems to have recovered quite nicely. Also inequality seems to be going down there, OTOH it's Latin America so it's still a lot higher than the UK (disturbingly enough, our inequality is below the median, which doesn't say good things about the rest of the world).
There's also the way a nation is more of a "whole system" than a household. A nation can borrow money, and thereby create an economic stimulus that improves its income, offsetting some of the cost of the borrowing. A family... their stimulus effect on the rest of the economy is likely to be so small that they're unlikely to see much of a benefit from it. I suspect there are other effects for governments that are very different than for households too.
There's something about how nations recover from crises that I don't understand, I'm not sure how well anyone understands it. My inner cynic says "some social class gets its expectations crushed and then suddenly there's enough to go around after all" but I don't want to commit saying that.
no subject
Date: 2018-03-01 08:33 pm (UTC)no subject
Date: 2018-03-01 06:02 pm (UTC)I refer you to Arkell v Pressdram.
Yours,
All of humanity that's fed up with austerity.
PS I'll also pay *more tax* in order not to shaft people
no subject
Date: 2018-03-02 09:11 am (UTC)But if you can borrow at government-bond rates it's a lot lot more attractive.
Governments also have a greater degree of control over their income than households do; they have the ability to put their tax rates up to cover interest payments, or (when borrowing in their own currency) to let inflation tick up for a bit to erode the capital; most people can't just put their salaries up when they need to cover higher repayments. Both make them safer bets (in the same currency), even without outright monetary financing.
no subject
Date: 2018-03-02 10:15 am (UTC)The argument should be about the multiplier effect. If you have an economy with a strong multiplier effect and you have high unemployment, the government paying people to do completely pointless work like digging holes and filling them in again, could actually improve the government's finances. The idea is that the people employed by the government will buy more stuff, which creates work that gets more people out of unemployment, and those people buy more stuff, which creates work for more people until all the extra people in employment generates enough extra tax revenue to cover the wages of the hole diggers. That's very different to a household because you don't have markets within the household. Unemployment due to lack of aggregate demand is a bit like a household where no one is doing the cooking or cleaning because each person can't afford to pay the other to do one because they're not being paid to do the other. If someone just wrote an IOU to pay for the housework they could pass it back and forth between them and the cooking and cleaning would get done.
How much the multiplier effect applies to an economy is a matter of debate. Most people agree that a very small economy that does a lot of international trade is more like a household because a lot of any extra income gets spent on imports, so it doesn't generate more employment in the country. There may be more of a multiplier in larger economies that rely less on imports. There are other arguments against the multiplier that rely on unemployment being caused by things other than lack of demand, like skills mismatches.
no subject
Date: 2018-03-02 10:21 am (UTC)no subject
Date: 2018-03-04 08:25 pm (UTC)