Quote: (10-07-2015 01:08 PM)The Beast1 Wrote:
Quote: (10-07-2015 12:14 PM)Ryre Wrote:
Quote: (10-07-2015 11:28 AM)The Beast1 Wrote:
Quote: (10-07-2015 10:57 AM)Ryre Wrote:
Austerity measures have been shown to be terrible for economic growth/recovery. The protests may not so much be people demanding free stuff as people who want the government to stop pursuing dumb, self-defeating economic policies that hold down growth and increase unemployment.
It's called the broken window fallacy.
A boy goes and breaks a window with a ball. The homeowner then has to go to a window shop where a gent makes a window. That window came from silica and came elsewhere further down the line employing a small army of people to make that final product.
Is the broken window bad for the economy? No! However, it robs the home owner of money to do something else instead of fixing that window. Argument also works well for prison spending and small towns which are entirely supported by the prison.
Prison spending is the same way and so is welfare. I would rather be spending my money on investments and making a small business which would create more wealth than taking my money and handing it directly to the poor robbing me of the opportunity to spend my money where I please.
So yes, it does cause a downturn but that is the withdrawal effect of removing malinvestment. Give it time and the market will self correct itself.
How is government spending and the national economy as a whole like and unlike one homeowner fixing a broken window? Explain your answer.
Intuitive metaphors like "we must tighten our belts" break down when applied to macroeconomics. If you run into hard times cutting spending and stashing money in your mattress makes sense. But if everyone cuts spending and stashes money in their mattresses the economy comes to a screeching halt.
Besides, who said anything about deliberately destroying things, e.g. breaking windows? If Britain is anything like the U.S. it has a lot of infrastructure needs. The government can spend, building roads and bridges that we need and also making up for the temporary fall in demand, 'priming the pump' and getting the economy moving again. At the end of your example all we have is the same window we started with. At the end of mine we have a bunch of roads and bridges we didn't have before.
The real-life record of austerity in times of recession is terrible. Britain, and Europe in general, have pursued much more austerity than the U.S. since 2008 and have had much slower economic growth.
The real world is complicated and counterintuitive, not always susceptible to explanation by simplified metaphor.
Ok let me change the examples around since you're having trouble.
Country A creates a bunch of laws that make its citizens automatic criminals for petty offenses. This in turn creates prisons which are put into small towns. The prisons employ people from these small towns and also buy goods produced locally such as food. The prison using tax dollars from the penal system pays locally into the economy making jobs.
However, do you or I want to pay extra taxes for jailing people for petty nonviolent offenses like talking back to a cop or smoking marijuana? I pay more in taxes when I'd rather use my money for investment into a small business. I'm still forced by wealth redistribution to pay into something that doesn't help humanity.
Another example:
Replace prisons with military. Oh now you want to spend trillions on a jet plane that can also VTOL all over the place. The trillions of cash came from tax money and get spent at defense contractors hiring engineers who then mass produce the jets with thousands of workers. These workers then spend their money elsewhere fueling the local economy.
Those jets then go on to blow up a ton breaking windows.
Another example:
The government starts taxing for welfare which then necessitates a social worker agency to manage who gets the money. This agency skims off the tax money to pay people to process applications. An unemployed single mother goes in and signs up for benefits. She makes enough money to live in a nice 3 bedroom house, get covered healthcare for her children, food, and spending cash at the end of the month. All for doing nothing. She doesn't work at all because she doesn't have to, but the welfare money that came from taxes goes into the local economy.
What happens when you eliminate the money spent on the prison, jet planes, and welfare? The people making a living from them end up unemployed womp womp causing short term hurt.
However, my tax liability has decreased. Now I am able save and soon enough, I have enough money to open my own business where I employ one former prison guard, an engineer, a ton of assembly line workers, and a secretary formally on government dole to help create glass widgets that people want to buy.
Now, my glass widgets don't kill or imprison people they make beautiful decorations for people's living rooms making them happier and an unemployed single mom has a job and is able to set a good example for her fatherless son by staying gainfully employed.
They key factor here is does it add or detract from the human experience? I'd argue that prisons and fighter jets are way worse than welfare, but when you have generations of people on welfare is it really helping society?
Do you see how it works now?
How about this: instead of imaginary hypotheticals, why don't we talk about the real world?
Suppose a shock to the economy--e.g. a financial crisis--causes a recession. We now have a lot of people out of work, with no money to spend. We have a lot factories and farms producing less than they could because no one is buying. We have people who would like to work in those factories and farms, but of course they aren't hiring. And we have people who would like to have the goods that those factories, farms, and workers would produce, but they have no money to buy and anyway the goods aren't being produced.
(After all, this is what a recession is. Factories, farms, and workers don't disappear. But due to some shock the same factories, farms, and workers are producing less than they were the day before. No one came into the U.S. in 1929 and blew up railroads, factories, and irrigation lines. But somehow the economy produced much less in 1930 than in 1928.)
Back to my example: seeing this stagnation in the economy, the government intervenes--NOT, unlike your example, by taxing productive people and giving people welfare money, but by putting people to work producing goods and services society needs. The government hires some of those unemployed people to build schools and fix roads. The government buys building supplies, etc. for those schools and roads, putting come of those factories back in business. The factories hire more people. The road and school builders and the factory workers now have money to spend; they buy more goods and services, and the whole economy comes out of stagnation. Total production goes UP.
How is this paid for? The government temporarily deficit-spends. Wait, you say: that just means it will have to tax productive people to pay that debt. Maybe John Galt and Howard Rourke aren't being taxed today, but they'll have to be taxed tomorrow.
But here's the thing: when that deficit has be be repaid, the whole economy will be bigger. Remember all those people who weren't working, all those idle factories? They are all working now. The GDP of Great Britain is 2.678 trillion in 2013. Suppose the government borrows 267.8 billion for deficit spending--10% of GDP. As a result the economy is restored to 3% annual growth. After 4 years the economy is producing 112% of what it was. That 10% of GDP can be repaid with less than
one year's additional production--at that growth is happening year after year after year.
No one has to come and take your hard-earned money. Society just becomes richer. It is, quite literally, free money. Because people who weren't working now are. Factories are running extra shifts. There is literally more stuff. It's like magic.
And the only reason Europe isn't doing it is because of the dogma of austerity. Trillions of dollars of possible growth are being left on the table because of bad policy--because people believe fairy tales about broken windows and tightening belts and hippies who don't want to work instead of paying attention to sound economic theory and real-world experience.