paul.andrews.1

Paul AndrewsApril 17, 2013 at 10:23 PM
It seems like you are defining fiscal austerity as "no increase in nominal government spending, not counting transfer payments".

I'll call this Evan-austerity. Let me know what your definition is if I have it wrong.

If that's the definition, then Evan-austerity only kicked in in the last few months according to the chart. So prior to that the "whining" was actually justified criticism up until just recently.

Now let me define a different term: Paul-austerity. Paul-austerity means spending less than you collect in taxes because you need to pay down debt you previously ran up. Including transfer payments. Paul-austerity is nowhere near taking place, not in the ballpark.

Obviously you don't agree that now is the time for Evan-austerity, let alone Paul-austerity.

Would you agree that Paul-austerity will be necessary at some point in the future?

Reply
Replies

Evan SoltasApril 18, 2013 at 1:12 AM
Paul, Let's not be juvenile here. The reason I looked at it this way is because this reflects the aggregate economic impact of austerity -- transfer payments are pass through. And I've written extensively on this blog about why I am sympathetic to significant fiscal austerity so long as monetary policy is used to stabilize aggregate demand. Your conclusion about what I think is not correct. I even make that point in this post on (2). Current austerity might not be what you would want to see, but this is a historic level of fiscal contraction for governments already. Paul-austerity, by the way, never happens -- extended periods of Evan-austerity are almost always the way that governments rectify their fiscal position, when you look at the history of this, and the cost-benefit considerations recommend it.


Paul AndrewsApril 18, 2013 at 2:56 AM
Evan,

I certainly don't mean to come across as juvenile. If you are referring to the use of newly coined terms, I think they aid discussion and thought, even if the use of first names seems a little unusual.

You said:

"Your conclusion about what I think is not correct. I even make that point in this post on (2)."

I'm not clear on exactly which conclusion you mean here, can you elaborate?

You said:

"this is a historic level of fiscal contraction for governments already."

What exactly do you mean by this? Are you saying that the rate of expenditure growth year-over-year has never been around zero before?

"Paul-austerity, by the way, never happens -- extended periods of Evan-austerity are almost always the way that governments rectify their fiscal position, when you look at the history of this, and the cost-benefit considerations recommend it."

I agree that Paul-austerity is rarely if ever undertaken. However, I also believe extended periods of Evan-austerity are not as common as defaults / currency crises - i.e. the latter is usually how fiscal positions are resolved.

Neverthless, that's just a belief, and I don't think your position on this question is unreasonable. I don't agree, but it's a reasonable position to take.

Even so, it seems you would agree that Evan-austerity only began in late 2012, and is currently at negligible levels.

If that's right, how do you reconcile it with the tone of your post, which characterizes those who noted the lack of austerity until recently, as "whiners"?





Evan SoltasApril 18, 2013 at 9:33 AM
Paul, I'll take these one-by-one. I support significant fiscal consolidation that would bring the size of government, in terms of its fiscal burden of taxes, economic burden of resource consumption -- also, regulatory burden, but that's another issue. But I think the best way to do it is incrementally over the long term and in a context of nominal-income stability provided by the central bank. I'm saying that historical growth of expenditure hasn't been negative since the Korean demobilization, and that the current environment does not seem like the best for such an experiment. Here's a graph of real government expenditure, if you want a broader measure: http://research.stlouisfed.org/fred2/graph/?g=hDM. Re currency crises: Yeah, I just don't agree. I don't think that's a plausible scenario for the U.S. -- how many developed countries can you think of as having default or currency crises since WWII? How many Evan-type fiscal consolidations? I'm struggling to get above zero on the first and am well above 10 on second. If you look at the graph, it's clear that a major move to fiscal consolidation begins in early 2010.


Paul AndrewsApril 18, 2013 at 6:35 PM
Nevertheless, do you agree that Evan-austerity only began in late 2012, and is currently at negligible levels? If so, how do you reconcile that with the tone of the post?


Paul AndrewsApril 18, 2013 at 7:16 PM
"default or currency crises since WWII...I'm struggling to get above zero"

Mexico 1982, 1994
Thailand 1997
Russia 1998
Argentina 1999
Greece 2011
Cyprus 2013
Chile 1983
Bulgaria 1990
Croatia 1993
Poland 1981
Turkey 1982

There are many more. I guess you would say these aren't "developed" nations. I would say that the reason they weren't "developed" is because of poor fiscal and monetary policies. The US and Europe risk the same fate.

Could you please list the 10+ examples of persistent Evan-austerity that coincided with persistent reduction in Debt/GDP?



Evan SoltasApril 20, 2013 at 10:27 AM
Paul, a few points: I thought the definition of Evan-austerity was an extended period of government spending growth well below the prior trend. So unless we're shifting the definition from earlier in our conversation, I don't think it's negligible. I would say that the reason I don't see your list as applicable to the US is rather if they borrow in their own currency, if they have well developed forex markets for their currency, if they are a large, mature, and diversified economy. Put it another way: If I saw the UK, Canada, a Western European country, Japan, or Australia on that list, you would have convinced me. But comparing the US to Bulgaria or Turkey to me seems like unconvincing at best, and a bad joke at worst.

I'm not sure how I was counting them when I said 10 -- maybe I meant years? I don't remember -- but here are several major Evan-type fiscal consolidations:

US, 1950-1970
US, 1995-2000
UK, 1950-1990
Canada, 1995-2005
Australia, 1950-1970


Paul AndrewsApril 20, 2013 at 7:48 PM
"I thought the definition of Evan-austerity was an extended period of government spending growth well below the prior trend"

No, it's "no increase in nominal government spending, not counting transfer payments", which you can see above.

"So unless we're shifting the definition from earlier in our conversation"

Clearly I'm not, which you can see simply by reading back.

In any case, it seems then that you call "extended period of government spending growth well below the prior trend (not counting transfer payments)" austerity - is that correct?

So whenever people read you and you mention "austerity" they should interpret that to mean an extended period of government spending growth well below the prior trend, not counting transfer payments. Is that right?