I have been repeatedly pointing out that what statists call as “austerity” has actually been a canard or terminological or semantical sleight of hand.
Many have been saying the same thing too…
The austerity spin in Britain from the Telegraph
Tullett Prebon, a bond trader, said that “public expenditures have hardly been reduced at all” and that claims of a “big cut in public spending is bare-faced deception”.
Figures highlighted by the firm show that public spending actually rose during 2010-11 and fell by just 1.5 percent last year.
Government spending is more than £22 billion higher than it was in 2008 when the financial crisis erupted.
The majority of extra money required by ministers to fill the black hole in the finances caused by the recession is being raised from extra taxes rather than cuts in Government spending.
Dr Tim Morgan, the global head of research at Tullett Prebon, said: “It’s high time that this mendacity was exposed for what it is. Government has done very little about its spending, has appropriated three-quarters of all gains in economic output for its own use, has carried on piling up debt – and has tried to pass all this off as 'responsible austerity’.
“The motivation for government spin is obvious enough. On the one hand, rises in market interest rates could be a disaster, given the extent to which British households are leveraged. On the other, implementing the real cuts required to back up a genuine austerity package have proved politically unpalatable.”
Dr Morgan warned that it seemed “improbable” that the bond markets would “continue to fall for this spin-job” and would “sooner rather than later” call the Government to account.
The austerity blarney in Europe as exposed by Cato’s Juan Carlos Hidalgo (emphasis added)
Source: Source: European Commission, Economic and Financial Affairs.
Spending has declined to approximately its 2007 level in nominal terms, while in real terms it actually continues to go up. (I look at spending in real terms because that’s what Ryan Avent at The Economist said we should look at in a reply to Veronique de Rugy’s initial graph on austerity in Europe. Note that, as in my previous posts on Britain and France, I’m using the GDP deflator to calculate spending in real terms). If we look at spending in real terms, there haven’t been any spending cuts in Greece. On the other hand, Tyler Cowen observes that “in the short run it is supposedly nominal which matters (that said, gdp and population [and inflation] are not skyrocketing in these countries for the most part).” Let’s look at nominal then. Since 2000, public spending rose in Greece at an annual rate of 7.8% until 2009. Then it declined by 8.3% in 2010 and a further 4.1% in 2011. This is certainly a cut in spending, but far from brutal.
Some argue that we shouldn’t look at spending levels when talking about austerity, but rather at spending as a share of the economy. In that sense, government spending in Greece went up from 47.1% of GDP in 2000 to 53.8% in 2009 and it has come down to 50.3% in 2011—approximately its 2008 level. However, I don’t buy the argument. Does it mean that the government has to spend an ever increasing share of the GDP in order to keep the economy afloat? Is half of the economy not enough when it comes to government spending?
What about Zakaria’s argument of the crippling effect of firing government workers on growth? Last January, The Economist looked at the situation in Greece and noted that “Of the 470,000 who have lost their jobs since 2008, not one came from the public sector. The civil service has had a 13.5% pay cut and some reductions in benefits, but no net job losses.” As for what “austerity” means for most Greeks, the magazine added, “Since Greece’s first bail-out in May 2010, the government has imposed austerity, increasing taxes so much that people can barely manage.”
The Economist is not alone in pointing out the extent to which taxes have gone up. Even the IMF has done so. Back in November, Poul Thomsen, the IMF mission chief in Greece, said that the country “has relied too much on taxes and I think one of the things we have seen in 2011 is that we have reached the limit of what can be achieved through increasing taxes.” Since then Greece agreed to eliminate 15,000 government jobs (2% of its public sector workforce) in exchange for a second bailout. Once again, that figure pales when compared to the number of people who have lost their jobs in the private sector.
The evidence shows that in Greece austerity has meant significant tax increases and timid spending cuts.
The real, but discreetly conveyed message, or the intended prescription of so-called pro-growth camp is for these economies to embrace even more socialism. They just can't be forthright about it.
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