| Topic: | History lesson - Ireland/Spain/Argentina. Skip if facts worry you. | |
| Posted by: | Thomas Barry | |
| Date/Time: | 27/04/12 11:35:00 |
| "Sorry Thomas - surely also obvious what happens when you try to spend your way to prosperity when you are already deeply in debt e.g. Greece, Spain, Italy, Portugal, Ireland, Argentina etc." But we're not Greece, Spain, Italy, Portugal, Ireland or Argentina - the first five are in the Euro, for one thing. We aren't coupled to anyone else's currency, in fact I believe this is Conservative Party policy. As for Argentina, which of their numerous financial crises do you refer to - the 2001-2 one? I note that they tried the austerity route then, which was followed by deteriorating public finances, restrictions on bank withdrawals and violent public demonstrations resulting in 22 deaths and the fall of the government. Good advert for the growth-hating austerity fans, then. http://www.guardian.co.uk/world/2001/dec/20/argentina1 The run-up to the collapse appears to be the usual neoliberal rubbish: privatisation, economic liberalisation, yoking yourself to the USA, massive amounts of cheap foreign money flowing in...amazing how that goes hand in hand with catastrophic economic destabilisation and austerity measures that hit the poorest hardest, isn't? No wonder they hate Thatcher down there. http://www.washingtonpost.com/wp-srv/business/articles/argentinatimeline.html So, in what way is the Argentine experience relevant to the UK other than to confirm that the economic neoliberalism practiced by every UK government since 1979 is very bad for you and disregarding the rigid economic orthodoxy of the West is better for you? That's my argument you're making for me there, Sam. I note that Paul Krugman got there first, mind. http://krugman.blogs.nytimes.com/2011/06/23/dont-cry-for-argentina/ [Argentina seem to have got themselves out by defaulting on their national debt, devaluing the peso, pursuing an aggressive tax collection policy, extending credit to business, investing in social welfare programmes and using the devaluation to promote a large trade surplus based on agriculture and tourism. The result was around a 8-9% GDP rise annually for several years, with the result that they ended up actually in a position to resume paying off the defaulted debt from 2002, albeit with eye-watering inflation levels. They've recently nationalised a foreign-owned oil company and their Gini coefficient (measure of income inequality) started falling in 2005. Clearly a triumph for austerity with socialism in full retreat there.] However, it's Ireland and Spain that strikes me as a bizarre choice of examples - you must know that Ireland was being held up in 2006 as a shining example of what the UK should be doing by George Osborne? Low corporate tax rates, highly educated workforce, ultra-business friendly, low regulation? How did that work out? There's no way you can claim Ireland's problems are the result of inefficient socialist public spending if you know anything of recent Irish history - their current problems are as the result of lax regulation, corruption and the bursting of a private credit-fuelled bubble followed by forced austerity, with the added vice-like grip of the Euro round their necks which means that, unlike us, they can partially blame someone else. That's the real clincher - our austerity madness is entirely our own choice and we could stop it tomorrow if our leaders weren't morons. As for Spain, it was running a big budget *surplus* as recently as 2008, so by your standards they'd have been running a good economy then. They weren't, as it turned out. http://news.bbc.co.uk/1/hi/business/7257999.stm In fact Spain, like Ireland, was brought down by a massive housing bubble, in other words *private* sector debt, not public spending. The subsequent imposition of austerity has, of course, made things immeasurably worse for Spain. I've no idea if you were aware of these facts, Sam, but could I ask you to take them on board in future? Big deficit doesn't equal big problem any more than big surplus equals well run economy, they're just two data points in a much more complicated picture. "The problem is a structual budget deficit or to put it in plain language, even in the good times the government was spending more than it could afford by sucking resources out of the private sector and borrowing on a truly heroic scale. Now that we are in "bad times" current Government spending is completely unsustainable." Spain wasn't, as I point out above. As for the UK, the deficits were tiny in comparison to the damage inflicted by the 2008 collapse, which was, as I'm sure you agree, a private sector debt problem, not a public spending one (for confirmation of this, go and look at the relative debts owed by a) the government b) private households c) businesses and d) the financial sector http://www.economicshelp.org/blog/wp-content/uploads/2011/11/private-debt.png You'll note it's quite hard to find the government debt in there, not because it's small, but because everyone else has borrowed even more. The only way we're going to pay back this mound of private debt and considerably smaller mound of public debt is to earn it first by getting people into work and growing the economy. We should be therefore recovering strongly by now, not pursuing policies that have pushed us back into recession. Why aren't we, Sam? What has the Conservative Party got against business growth? What happens if the recession pushes back the date at which the debt/GDP ratio is stabilised (note that reducing GDP makes this considerably harder owing to basic maths even before you factor in lower tax receipts and higher welfare payments). |