No Future? Or Are We On The Brink Of An Economic Revolution?

[JawJaw]

The author lays bare the stupidity of austerity economics and makes a good case for the theory that we are about to undergo the biggest economic revolution since the late '70s - but in reverse!

http://thebaffler.com/salvos/despair-fatigue-david-graeber

[JFKDem62]

1. He is correct. There will be rapid and dramatic change. nt

[Ghost Dog]

2. Well, ¡duh! as the cousins would say...

... The social effects of the spending cuts—all ostensibly aimed at reducing the supposedly catastrophic government debt overhang—have been devastating. British universities, which not so many years ago were (as in most of Europe) entirely free, have become among the most expensive in the world. Social housing has been ransacked, subsidies have been cut, and squatting in residential properties was made illegal at exactly the moment tens of thousands were being “decanted” from their homes. To be poor now means to be endlessly assessed, monitored, and surveyed, and almost invariably found wanting. No one really knows how many thousands of people have died as a result of the freefall in government support, but to get just an inkling: between December 2011 and February 2014, the Department of Work and Pensions reported that 2,380 Britons previously on disability support were found dead no more than six weeks after receiving notice that they were having their benefits cut because they had been determined to be “fit for work.”...

... Almost all British economists understood that the gaping deficits of 2008 and 2009 had been caused by the banking crisis, not the other way around. Likewise, anyone paying attention knew that cutbacks of public services to “save money” reduced economic activity, and hence government tax revenues, and so really had the effect of raising, not lowering deficits. Most also understood that deficits weren’t really much of a problem to begin with. But even the opinion of mainstream economists was, suddenly, excluded from public debate. By 2012, even the IMF was issuing statements urging the Tories to lay off. But you’d never learn any of this from the Times, the Observer, or the BBC.
How could such total, lock-step defiance of reality be maintained in a country with a formally free press and highly educated population? To some degree, you find the familiar bubble effect. Politicians, journalists, lobbyists, CEOs, and corporate bureaucrats rarely talk to anyone except each other. They constitute a distinct intellectual universe. Within this universe, economic policies are designed primarily for political marketability; economic science exists largely to provide impressive diagrams and equations to sell them with. Phrases designed in think tanks and focus groups (“free markets,” “wealth creators,” “personal responsibility,” “shared sacrifice”) are repeated like incantations until it all seems like such unthinking common sense that no one even asks what the resulting picture has to do with social reality. True, the bubble logic can be maintained only by a certain studied ignorance of how the economy really works. One 2014 poll discovered, for instance, that 90 percent of sitting MPs, for all their endless debates on the need to save money, didn’t know where money comes from. (They thought it was created by the Royal Mint.)...

... The divorce between consensus and reality has grown so extreme and unworkable that even the technocrats charged with running the system have started to cry foul. In 2014 the Bank of England—its economists apparently exhausted by having to carry out economic policy in a made-up, topsy-turvy world designed only to benefit the rich—issued a statement on “Money Creation in the Modern Economy” that effectively destroyed the entire theoretical basis for austerity. Money, they noted, is not created by governments, or even central bankers, who must be careful not to make too much of it lest they spark inflation; it’s actually created by private banks making loans. Without debt there would be no money. The post-Keynesian heterodox economists, regularly denounced as a lunatic fringe by those commentators willing to acknowledge their existence, were right.

No major news outlet considered this a story; politicians continued preaching their morality tales of the evils of debt exactly as they had before...

/... http://thebaffler.com/salvos/despair-fatigue-david-graeber


Thanks for the OP JawJaw.

[Denzil_DC]

3. This may be a good time to drop this here:

Maggie Chapman: How a dodgy spreadsheet and a bad joke created the Tory austerity lie

FOR the last five years, an argument has raged. On one side, you had almost all living Nobel Prize winning economists, the evidence of history and organisations representing almost all of the less well off in society. On the other side, you had a few powerful journalists, a cluster of billionaires, a dodgy spreadsheet, and a bad joke, scrawled on a piece of paper by a minister from a defeated government.

...

These were the people who argued that you needed to rapidly cut government spending to reduce the deficit caused by the 2008 financial crisis. In the world of universities, serious research, and evidence, their case rested on a study by two economics professors called Carmen Reinhart and Kenneth Rogoff.

These two American academics had produced a famous spreadsheet of economic data from across the world. They said it proved that if a government borrowed more than 90 per cent of the value of their country's Gross Domestic Product, then that slowed the country's economy down, making it harder to pay back the debt.

...

In 2013, though, something happened which would have altered the course of history, if government policy was decided by reasoned argument. A young economist went back to the original spreadsheet and spent some time looking at their basic sums.

It turned out that Reinhart and Rogoff had made a simple copy and paste error. Correct their mistakes, and their Excel spreadsheet added up very differently. The justification for austerity literally disappeared in the click and swoop of a mouse.

https://www.commonspace.scot/articles/2821/maggie-chapman-how-a-dodgy-spreadsheet-and-a-bad-joke-created-the-tory-austerity-lie

Maggie Chapman's the Scottish Green Party Co-convener, so obviously her ravings are easy for the likes of Osborne to dismiss. And he's done such a sterling job of shrinking the deficit that he must be taken seriously. (He's also reportedly about to unleash a little tax lovebomb for the better-off funded off the backs of those suffering from disability welfare cuts etc., but that's by the by.) She also doesn't link to the debunking by this "young economist."

But Bloomberg Businessweek gives more details:

FAQ: Reinhart, Rogoff, and the Excel Error That Changed History

Harvard University economists Carmen Reinhart and Kenneth Rogoff have acknowledged making a spreadsheet calculation mistake in a 2010 research paper, “Growth in a Time of Debt” (PDF), which has been widely cited to justify budget-cutting. But the authors stand by their conclusion that higher government debt is associated with slower economic growth. Here’s what you need to know:

How big is this mistake?
Reinhart and Rogoff wrote in their 2010 paper that average annual growth was negative 0.1 percent in countries with episodes of gross government debt equal to 90 percent or more of GDP between 1945 and 2009. Liberal economists have been critical of their work for years (just economists being their usual cranky selves), but now three economists at UMass say Reinhart and Rogoff made several mistakes and omissions. According to the UMass scholars, the “corrected” number is positive 2.2 percent—which means GDP still grows, even when debt levels are very high.

Do Reinhart and Rogoff admit they got it wrong?
They admit they accidentally excluded five rows from an average in their Microsoft Excel spreadsheet, but not the other charges. Fixing the spreadsheet error would lift growth in those high-debt countries to about 0.2 percent annually (still not that good). Adding country data that wasn’t available when they did the 2010 paper would boost growth further, to perhaps 0.5 percent (ditto). The UMass economists get all the way up to 2.2 percent by using a counting method that gives more weight to a few countries that experienced long periods of high debt. Reinhart and Rogoff insist that their method is better.

Wonky.
Yes, and Reinhart and Rogoff argue that it’s beside the point anyway. They put more weight on other data covering longer time periods, which finds that growth is about 1 percentage point lower in episodes of high debt compared to when debt is below 90 percent of GDP. (U.S. government debt is over 100 percent of GDP when you include debt owed by one part of government to another, such as the Social Security trust fund.) They say that even the UMass researchers found that high debt and low growth go hand in hand.

You mean that high debt causes low growth?
Not necessarily. Reinhart and Rogoff are careful in their academic work not to claim causation. It’s possible that slow growth leads to high debt rather than high debt causing slow growth. (Or maybe the causality runs in both directions.) One complaint of their critics is that in Op-Eds, interviews, and other non-academic work, Reinhart and Rogoff have sometimes flatly asserted that high debt leads to slow growth when other explanations are possible.

http://www.bloomberg.com/news/articles/2013-04-18/faq-reinhart-rogoff-and-the-excel-error-that-changed-history