imc indymedia

Los Angeles Indymedia : Activist News

white themeblack themered themetheme help
About Us Contact Us Subscribe Calendar Publish RSS
Tell the NSA: StopWatching.US

Features
latest news
best of news
syndication
commentary


KILLRADIO

VozMob

CopWatch LA

ABCF LA

A-Infos Radio

Indymedia On Air

Dope-X-Resistance-LA List

LAAMN List





IMC Network: www.indymedia.org africa: ambazonia canarias estrecho / madiaq kenya nigeria south africa canada: hamilton london, ontario maritimes montreal ontario ottawa quebec thunder bay vancouver victoria windsor winnipeg east asia: burma jakarta japan korea manila qc europe: abruzzo alacant andorra antwerpen armenia athens austria barcelona belarus belgium belgrade bristol brussels bulgaria calabria croatia cyprus emilia-romagna estrecho / madiaq euskal herria galiza germany grenoble hungary ireland istanbul italy la plana liege liguria lille linksunten lombardia london madrid malta marseille nantes napoli netherlands nice northern england norway oost-vlaanderen paris/Île-de-france patras piemonte poland portugal roma romania russia saint-petersburg scotland sverige switzerland thessaloniki torun toscana toulouse ukraine united kingdom valencia latin america: argentina bolivia chiapas chile chile sur cmi brasil colombia ecuador mexico peru puerto rico qollasuyu rosario santiago tijuana uruguay valparaiso venezuela venezuela oceania: adelaide aotearoa brisbane burma darwin jakarta manila melbourne perth qc sydney south asia: india mumbai united states: arizona arkansas asheville atlanta austin baltimore big muddy binghamton boston buffalo charlottesville chicago cleveland colorado columbus dc hawaii houston hudson mohawk kansas city la madison maine miami michigan milwaukee minneapolis/st. paul new hampshire new jersey new mexico new orleans north carolina north texas nyc oklahoma philadelphia pittsburgh portland richmond rochester rogue valley saint louis san diego san francisco san francisco bay area santa barbara santa cruz, ca sarasota seattle tampa bay tennessee urbana-champaign vermont western mass worcester west asia: armenia beirut israel palestine process: fbi/legal updates mailing lists process & imc docs tech volunteer projects: print radio satellite tv video regions: oceania united states topics: biotech
printable version - js reader version - email this article - view hidden posts - tags and related articles
link:

When Theory and Reality Diverge

by Jens Berger Tuesday, Mar. 12, 2013 at 3:27 AM
marc1seed@yahoo.com

Politics forces crises and prevents their ending every day by holding to its ideological blinders. The state is not a private household and spending cuts always strike back on other actors of the economy. When theory and reality diverge, the theory is wrong, not the reality.

WHEN THEORY AND REALITY DIVERGE


Logical Flaws or Mistakes in Reasoning in the Economic Debate


by Jens Berger


[This article published on October 2, 2012 is translated from the German on the Internet, http://www.nachdenkseiten.de.]


Europe groans under the yoke of austerity policy. In the last days, both Spain and Portugal announced they missed their deficit goal “despite the greatest efforts at saving.” The initiative propagated above all by the German side that a country is fit for the future through budget cuts and neoliberal reform to revitalize state finances may correspond to market-radical theory. However this approach does not function in praxis although this is repressed. Politics forces crises and prevents ending crises every day by holding to its ideological blinders.


In the German mass media, austerity policy is wrongly described as a savings policy. The term “savings” has a positive sound and suggests that one who saves will later have more money. Whoever is sparing on the spending side suffers fewer losses and thus reduces his or her deficit. That is a theory which from a national-economic perspective ranks intellectually on a level with Angela Merkel's model of the Schwabian housewife. The state is not a private household and spending cuts always strike back on other actors of the national economy. Austerity policy is more than “only” cuts of spending in public budgets. Neoliberal reforms are also part of a genuine austerity policy. The state withdraws from different areas and leaves these areas to “the market.” For example, the deregulation of the labor market and the privatization of formerly public fields belong to austerity policy.


Advocates of the austerity policy often say the Red-Green agenda policy was only one form of austerity policy and should have protected, not damaged, Agenda Germany. However this statement is not tenable. On one side, the expenditures of public budgets were not cut during the agenda policy – contrary to what is often communicated. On the other side, the worldwide economy was very strong in the time of the agenda policy so the stagnating demand of private households was compensated by an increasing demand from abroad. When the agenda policy is judged a success – against all logic -, one should at least admit that Germany as a strong export economy reacts differently to political-economic reforms than national economies with a strong domestic economy. The damages inflicted by austerity policy depend on many factors of which the global economy is the most important.


AUSTERITY IN THEORY


In theory, austerity policy is an answer to the missing trust of the markets. A deficit in the market conformity of democracy is balanced with austerity policy. When investors find a market-conforming democracy, ac cording to the theory, they are more convinced this country can repay its debts and that investments in this country are worthwhile. Enforcement of an austerity policy should regain the trust of the markets and bring investors into the country.


The investments ventured thanks to increasing trust should then lead to an economic upswing and bring more people wages and bread. The spending of the state should then fall while the tax revenues increase simultaneously through the surging economy. At the end this should lead to budget surpluses and reduction of state indebtedness which aids the markets with falling interest-rates for the state bonds of this country.


AUSTERITY IN REALITY


Supporters of austerity policy cannot prove the first step of this causal chain – particularly when austerity policy occurs during a global crisis. Investments are made on the basis of a hard-as-nails cost-benefit analysis, not for ideological reasons. Every form of austerity policy always leads to declining aggregate demand. Since the income of private households declines, these households have less money for consumer spending. The state cannot balance this deficit since it cuts its spending and consequently also demands less. In a recession, businesses usually invest less since the declining demand and the uncertain future negatively influence a cost-benefit analysis. In times of a strong world economy, the demand from abroad can balance these factors. In crisis times, the opposite is true. Businesses do not invest in a time when foreign demand declines alongside domestic demand. Spending- and wage-cuts intensify the decline of demand taking place everywhere during a global crisis. Economists speak of a “pro-cyclical” effect; economic swings are intensified, not balanced.


As a first consequence, all this leads to increased unemployment and a decline of demand. The country is on the way into recession if this decline cannot be cushioned by “anti-cyclical” economic policy or a rising foreign demand. The higher unemployment leads to rising state expenditures in the social realm. Parallel to this, state revenues decline. Falling wages and rising unemployment lead to falling income tax revenues; revenues from excise duties (consumption taxes) diminish on account of falling demand. Since corporate profits also fall in a recession, the revenues from the corporation tax also decline.


Increasing spending and falling revenues do not lead to a revitalization of the state budget but to missing the envisioned “savings goals” and to another ascent of the budget deficit and the state debt rate. At the end of the causal chain, there will be higher interests, not lower interests, for the state bonds and in the worst case even state bankruptcy.


WHEN EMPIRICAL REALITY CONTRADICTS THEORY


The most recent developments in Spain and Portugal are another empirical evidence that the theory behind austerity policy is not tenable. Both Spain and Portugal have submitted to the German austerity dogma up to self-castration and the crisis has intensified. In Portugal, the unemployment rate doubled in the course of the crisis from 7.3% to 15% today. In Spain, the unemployment rate has more than tripled from around 8% to 25% today. In both states, the state revenues shrivel faster than expenditures can be cut without compensating economic effects. Every additional spending cut leads to a higher deficit in state revenues. Both the absolute state indebtedness and – even more strongly – the state debt rate rise.


The harsh austerity policy in southern Europe is like a cruel field experiment whose authors don't want to admit their failure. When theory and reality diverge, the theory is wrong, not the reality. Admitting this would be the first step to clearing up the crisis. But we are still far removed from that.
Report this post as:
Share on: Twitter, Facebook, Google+

add your comments


Local News

Families Protest Abusive Foreclosure Practices of Wells Fargo Bank A26 10:37AM

How is CCSA's Ref Rodriguez hiding his billionaire and ideologue contributors? A21 12:08PM

What drives charter profiteer Ref Rodriguez? A21 12:04PM

Los Angeles Artist Threatens 40 Million Dollar Law Suit for Public Storage Illegal Auction A20 4:08PM

RAC-LA Community Center Grand Opening A20 1:44PM

KPFK and Pacifica- woes unrelenting... A19 4:20PM

RAC-LA Community Center Badly Needs Your Support A14 10:09PM

Meet Green elected school board members, Sunday, March 29 in LA - 4pm M26 2:36AM

Californians Shame Regulators For Teaching Big Oil How To Skirt Law and Pollute Our Water M25 5:28PM

Next "Star Wars" to score in Los Angeles for First Time in Franchise History M25 10:43AM

More Local News...

Other/Breaking News

Trapps de la domination, trapps de l'aliénation M25 11:05PM

USA, fbi, et al Crimes Against Humanity M25 9:19PM

Netanyahu Appoints Right-Wing Extremist to Head Israel's Diplomatic Corps M25 11:33AM

Venezuelan/Palestinian Relations: Based on Brotherhood, Solidarity and Mutual Support M25 9:27AM

Propaganda Accompanies Kiev's Buildup for Escalated Aggression M25 7:35AM

Washington Created the Islamic State (ISIS) M25 4:45AM

Paraphysique de la naissance M24 11:15PM

fbi/Gestapo M24 12:34PM

Netanyahu: Hate-Mongering Racist, Mass Murderer, Serial Liar M24 11:27AM

US-Supported Islamic State Terrorists Seize Palmyra M24 9:31AM

Grand Theft Poroshenko M24 7:35AM

Hillary Clinton Endorses GMOs M24 4:54AM

Margaret Sommers - Public Storage's "CUNT OF THE YEAR" M23 5:09PM

Memorial Day Dishonor and Disgrace M23 12:13PM

Russians Traveling Abroad Risk Lawless US Abduction M23 9:51AM

Obama Supports Nuclear Proliferation, Opposes Disarmament M23 7:25AM

Global March Against Monsanto Day M23 2:44AM

Endless Nakba M22 11:37AM

Jail torture trick M22 8:56AM

Obama's War on Yemen Rages M22 7:02AM

Heading Toward Financial Maidan in Ukraine? M22 4:01AM

The Shortwave Report 05/22/15 Listen Globally! M21 5:25PM

Mad men of government driving good men to distraction M21 3:13PM

Ukraine Provoking Confrontation with Russia M21 11:17AM

Saudi Arabia: Headed Toward Becoming Nuclear Armed and Dangerous? M21 7:27AM

Foreclosure Victims Occupy Senate Stump Speech of Kamala Harris M21 4:58AM

Israeli Defense Minister Threatens to Nuke Iran M21 2:31AM

Transinhumanisme ( transe inhumanisme ) M20 11:17PM

More Breaking News...
© 2000-2003 Los Angeles Independent Media Center. Unless otherwise stated by the author, all content is free for non-commercial reuse, reprint, and rebroadcast, on the net and elsewhere. Opinions are those of the contributors and are not necessarily endorsed by the Los Angeles Independent Media Center. Running sf-active v0.9.4 Disclaimer | Privacy