imc indymedia

Los Angeles Indymedia : Activist News

white themeblack themered themetheme help
About Us Contact Us Subscribe Calendar Publish RSS
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

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

KPFK's Indy Media on Air Now on Wednesdays J25 9:13AM

Lessons From Portland’s Clashes With Fascists J13 7:36PM

Dr. Maryse Narcisse of Haiti Visits Southern California M20 5:55PM

May Day March in Riverside M02 10:35PM

Nuclear Shutdown News: April 2017 M02 4:38PM

Jewish “Defense” League: Nazis in Skull-caps A07 11:13AM

Nuke Shutdown News 3/17 A01 4:13PM

RELATIONS STILL STRAINED BETWEEN SOUTH LOS ANGELES RESIDENTS AND THE POLICE M22 3:22PM

Elect a Green to Congress in Los Angeles M15 2:18AM

Prop. H Activists March on Hollywood to House and Help the Homeless M01 1:46PM

Prop. H Activists March on Hollywood to House and Help the Homeless M01 1:09PM

Prop. H Activists March on Hollywood to House and Help the Homeless M01 12:19PM

24TH ANNUAL LOS ANGELES WOMEN’S THEATRE FESTIVAL HONORS COMPOSER MEGAN CAVALLARI ON MARCH F24 2:40PM

Activists Mark 150 Years Since Chimney Rock Massacre F21 7:00PM

Indivisible local events F16 4:07PM

Help Wanted: How You Can Act Locally To Stymie Trump’s Agenda F16 11:24AM

RACE RELAY - race relations dialogue F16 7:01AM

More Local News...

Other/Breaking News

Example of fbi hacking my reports J20 10:07PM

The Shortwave Report 07/21/17 Listen Globally! J20 4:29PM

Alternative Media Fraud Secrets - Part 1 J20 2:04PM

Alternative Media Fraud Secrets - Part 1 J20 2:04PM

PHILIPPINES: Call for a National Conference Against Dictatorship J20 12:51AM

Stéréotypie des idéologies dominantes J20 12:16AM

Few Care About fbi Atrocities J19 8:16PM

Strategy from a US perspective J19 2:01PM

Fbi crime spree supported by all high officials J19 11:24AM

Reem's bakery: Entrepreneurialism takes an ugly turn in Oakland, California. J19 11:06AM

Vicente Ramirez Sandoval J19 9:23AM

Limits to Growth Published Forty Years Ago J18 5:15AM

L'anarchie contre l'idéologie J16 10:51PM

GERAL's Interests Include... J16 9:55PM

Video: After Words with Naomi Klein, 57 min J16 6:32PM

GERAL SOSBEE Opens Pandora's Box of fbi Atrocities J16 4:47PM

Free our people, jail the fbi & cops J16 8:31AM

Saharia compliant haircuts J15 5:11PM

Crimes & Cover Up By Government Officials J15 4:54PM

Biomorphisme anéchoïque J15 10:59AM

Biomorphisme anéchoïque J15 1:59AM

June 2017 Honduras Coup update J15 1:29AM

Fbi nervous J14 9:08PM

My success measured by big response J14 1:11PM

Now Hear This J13 10:00PM

The Shortwave Report 07/14/17 Listen Globally! J13 4:53PM

PBS POV "The Uprising of 1934" Textile workers in the SE challenge unjust order J13 1:50PM

Impostures d'impostures J12 10:54PM

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