Reply #2: Yes, and funny how the media and administration here are avoiding using the word austerity [View All]

[suffragette]

even as the proposals being floated are akin to austerity measures being implemented in Europe.

Note also the dates.

From the article above:
"Italy’s three-year austerity package designed to eliminate the budget deficit by 2014 ..."



From Obama at the Toronto G20 summit:

http://www.whitehouse.gov/the-press-office/remarks-president-obama-g-20-press-conference-toronto-canada

So I think this has really been an issue in which there is violent agreement between the parties. We have to make sure we’re not rushing to the exits too quickly and all at the same time. But we also have to be mindful that the debt and deficit levels that many advanced countries have right now are unsustainable and have to be dealt with in a serious way.

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With respect to the first question, we helped to draft this communiqué, which reflects our policies. I know leading up to the conference, leading up to the summit, there was some sense of a divide. In fact, the policies that we’ve been promoting are reflected in the communiqué and entirely consistent with what the G20 leaders came up with.

Keep in mind that we had already proposed a long time ago that we were going to cut our deficits in half by 2013. And so the time frame and the measures that have been adopted are consistent with our view that it is important for us to make sure that in the medium and long term, we are paying attention the big deficits and debts that we have out there.

What we did say coming to this conference is we can’t all rush to the exits at the same time. So countries that have surpluses should think about how can they spur growth and how can they spur demand. Not all of those involve stimulus. Some of them might involve structural changes in their economy. Some of them might involve passing financial regulatory reforms so that their banks are lending again.


G20’s “Violent Agreement” on Austerity Will Smash Global Economy
http://www.rooseveltinstitute.org/new-roosevelt/g20-s-violent-agreement-austerity-will-smash-global-economy

At the G20 meeting in Toronto at the end of June 2010, we witnessed a complete reversal of the policy discourse. With a bit of pressure on the representatives of the developing world, the Western leaders of the G20 pact left agreeing on the goals that had been proposed by the host prime minister, Stephen Harper, and other deficit hawks, such as David Cameron and Angela Merkel. According to the G20 declaration, these government leaders had committed themselves to fiscal plans that would surgically cut their deficits by at least 50 percent by 2013 as well as stabilize and begin to reduce government debt-to-GDP ratios by 2016, all in the name of stabilizing the macroeconomy. Although there was some debate over the precise timetable of their “exit strategy,” Barack Obama emphasized that on the issue of fiscal austerity “there is violent agreement between the parties.”

It is hard to imagine how “violently” the world political elite can “agree” to deflate the world economy in light of the mostly peaceful protests against austerity in the streets of Toronto. However, when asked how the economy is supposed to be stabilized and brought back to a desirable high growth path, these world leaders referred to the positive effects on growth of a reduced burden of overhanging public debt. They pointed to the necessity for public debt stabilization and fiscal sustainability. And they highlighted the need to make way for the private sector in the growth strategy.

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We need policies that sustain growth on a permanent basis, not abort it. As Keynes said, “the boom, not the slump, is the right time for austerity at the Treasury.” This kind of policy framework, associated with Keynesian ideas, is known as “functional finance“. It was quite successfully implemented during the early postwar years to achieve full employment before these policies succumbed to the monetarist onslaught. Since the 1970s, several generations of young economists have had little or no exposure to these Keynesian ideas and have been trained to think that there is no alternative to the neoclassical doctrine of “sound finance,” which had been discredited during the 1930s.

There are, however, economists out there who do think otherwise. A good example is the recent letter signed by over 200 Italian economists who affirm that yes we can imagine positive alternatives to austerity and economic retrenchment. They reject the misguided neoclassical ideology that has gripped the European members of the G20. A similar letter was signed by a number of British economists earlier this spring. While the deficit hawks seemed to have won the battle in the Western countries, it is less clear to what extent the G20 leaders from Asia and Latin America are actually swallowing this ideological-driven rhetoric from the likes of Cameron, Harper and Merkel, whose policies that they advocate could drive the world economy into a vicious downward deflationary spiral.