- js reader version
- email this article
- view hidden posts
- tags and related articles
View article without comments
by Atila Kilic
Monday, May. 22, 2017 at 6:14 AM
A high state share in the economy, developed social states and readiness to intervene actively and anti-cyclically prevent falling into a depression. Trump's demonizing regulation, Medicaid, public schools, Head Start, Meals on Wheels, taxation and democracy must be resisted
NEOLIBERAL AUSTERITY DOCTRINE LEADS TO DEEPER CRISIS
By Atila Kilic
[This article published on 11/8/2013 is translated from the German on the Internet, http://blog.arbeit-wirtschaft.at.]
This is the fifth year after the outbreak of the financial crisis. With the collapse of the mammoth US bank Lehman Brothers in September 2008, the underrated weaknesses and dangers of unregulated financial markets came to light. Financial institutes worldwide were in dire straits. The crisis consequences for the real economy were misjudged. Loud voices warned a Great Depression like that of the 1930s threatened.
The banking crisis soon spilled over on the real economy. Businesses were alarmed and banks limited their awarding of credits. However, the horror scenarios of mass unemployment, social unrest and a destructive recession as in the 1930s did not occur in wide parts of the western world. This favorable course of the crisis can be referred back to the stabilizing function of the state that was hardly developed in the 1930s. Unlike that time, a broad consensus exists today on the positive effects of state interventions to stabilize the economic cycle â based on the discoveries from John Maynard Keynes' work "General Theory" (1936) and can finally be read in many economics textbooks like Bofinger (2011) or Zimmermann, Henke and Broer (2009).
A high state share in the economy, developed social states, and readiness to intervene actively and anti-cyclically  could prevent falling into a depression. The Institute for Economic Research (WIFO) (2011) emphasized unemployment-, health- and pension-insurance and other social transfers make essential contributions to the success of the so-called automatic stabilizers. The range of state revenue or expenditures opposite to the economic course is varied. In this way, they increase private income in crisis times and effectively stabilize the economic course through the demand-side.
Scandinavian social states like Sweden and Denmark are marked out in crisis conditions compared to southern European and Anglo-Saxon states. Social state benefits go far beyond protecting the socially weak. A high-quality array of public services like kindergartens, all-day schools, nursing homes and home help and services on the communal plane create optimal conditions for economic actors in both crisis- and non-crisis times.
BRIEF CHANGE OF HEART
Finally, the political-economic rethinking that strong demand interventions by the social state have positive effects on the whole economy in crisis times did not last long. Opponents of the social state model seized the chance of the rapidly growing state indebtedness â that was actually caused by enormous capital injections for banks â and accused the expensive social state for the predicament of many European countries. These warnings were accompanied by Reinhart and Rogoff (2010) who saw the reason for the trifling economic growth in high public indebtedness. The threats by rating agencies to downgrade the credit-ratings for government bonds (where gaining money through the financial markets became more expensive) are used to convert a multitude to austerity packages in the eurozone. The implicit assumption that the savings efforts in the public sector would stimulate the private sector to spend more so economic growth would increase was premature.
Several economists admitted the momentous errors of their analysis after the data applied by Reinhart and Rohoff (2010) was made available to the public.  The core statement of the two authors Reinhart and Rohoff (2010) â "a high state indebtedness was responsible for the trifling economic growth" â was declared null and void. According to Andrew Watt (2013), the real causality goes in the opposite direction. A trifling economic growth causes a high public indebtedness. In addition, Romer (2011) identified a negative GDP effect of public savings efforts. Higher taxes and lower state spending have a negative effect on total economic production.
Conversely, state spending in crisis times amounting to 1% of the GDP of a country have a positive effect in the short- and medium-terms on economic output far above 1% of the GDP, according to the International Monetary Fund (IMF) (2013), Blanchard and Leigh (2013) and Nakamura and Steinsson (2011). This positive multiplier effect of state spending outweighs the negative multiplier effects of tax increases stressed by conventional wisdom in the economic discussion. In this way, additional state spending in crisis times can be covered by tax hikes without straining the public debt situation and improves the economic outlook. Eggertsson and Krugman (2012) show that anti-cyclical economic policy in crisis times in financing through credits (and a simultaneous growth of state debts) is necessary to avert recessions and stabilize the economic situation.
Enemies of the social state like Agenda Austria insist the state must save more and withdraw from the economy despite the vast number of academic articles on the positive and stabilizing effects of state interventions in crisis times and the negative consequences of an early public austerity policy for market actors.
GREECE IS A GRAPHIC EXAMPLE
The crisis course in Greece (as in Spain, Portugal, Ireland and others) is an illustrative example of the possible consequences of premature savings in the public sector. Austerity in the public sector did not stimulate the economy as assumed but aggravated the already unstable economic reality. The unemployment rate rose within three years from 10% in 2010 to over 25% (and over 55% for persons under 25) (cf. Eurostat). Extensive savings in the social state and in public services like higher mass taxes reduce the available income of private households. Therefore consumer spending, production, and employment fall. At the same time, this leads to a decline in state revenues. Uncertainties spread in the whole population while social unrest in the form of demonstrations and riots has become the daily reality in Greece.
The social state impressively proves its important role in the continuing crisis. Alongside the automatic stabilizers, the welfare state ensures stable conditions in crisis times with economic packages that are effective for demand. During crises, the positive effects of anti-cyclical social- and economic policy predominate even when the public indebtedness is high. Nevertheless, the financial crisis has also shown there is still much to do in Austria. The total economic demand must be permanently strengthened particularly in crisis times. Household incomes and the total economic consumption will constantly increase through investments in public housing and development in the range of public services like all-day schools or nursing homes.
Reorganizing the tax structure would bring positive effects for long-term economic growth. Unlike property taxes, taxes on earned income have a much greater negative effect on economic development. Reorganizing the Austrian tax structure is essential since earned income in Austria is taxed more than the European average and property is hardly encumbered, according to the findings of the IMF (in the US, Warren Buffet's secretary pays more taxes than the billionaire!). The high taxation of earned income should be lessened to safeguard long-term economic growth. On the other hand, lowering expenditures does not seem necessary. Whoever wants a well-constructed social state with its stabilizing social and economic effects should be ready to finance this through taxes and fees.
1. In this context, anti-cyclical means setting financial- and political-economic measures to counteract the economic course. So the state can stabilize the economy in downturns and curb the economy in times of economic boom. In this way, the economic fluctuations can be smoothed and severe crisis consequences like high unemployment can be prevented.
2. Jeremie Cohen-Setton (2013) offers a clear summary of the economic discussion on the errors in the analysis of Reinhart and Rogoff (2010) in the European blog Bruegel.
Report this post as:
by Loic Wacquant
Wednesday, May. 24, 2017 at 6:43 AM
âPunishing the Poor. The Neoliberal Government of Social Insecurityâ by Loic Wacquant, 2009,
211 pages, a John Hope Franklin book
Public goods and social capital are missing in some American ghettos so âpublic institutions act as negative social capital and ensure that ghetto-persons cannot escape their dependent and marginalized situation.â
Public goods and services are necessary so everyone feels included in the modern project and the poor do not only see the public authority as negative, violent and oppressive.
Head Start, Meals on Wheels, WIC food assistance, the National Institute for Health, Legal Aid and PBS should be strengthened and not cut to the bone. Public spirit does not come from nowhere.
Report this post as:
by Bernie Sanders
Wednesday, May. 24, 2017 at 5:41 PM
Report this post as:
Step Up As LAPD Chief Charlie Beck Steps Down
Our House Grief Support Center Hosts 9th Annual Run For Hope, April 29
Don’t let this LA County Probation Department overhaul proposal sit on the shelf
Echo Park Residents Sue LA Over Controversial Development
Former Signal Hill police officer pleads guilty in road-rage incident in Irvine
Calif. Police Accused of 'Collusion' With Neo-Nazis After Release of Court Documents
Center for the Study of Political Graphics exhibit on Police Abuse posters
City Agrees to Settle Lawsuit Claiming Pasadena Police Officer Had His Sister Falsely Arre
Professor's Study Highlights Health Risks of Urban Oil Drilling
Claims paid involving Pasadena Police Department 2014 to present
Pasadenans - get your license plate reader records from police
LA Times Homicide Report
Last of California's nuclear power plants is on its way out
Patrisse Khan-Cullors explains why Black Lives Matter
Women's March L.A., 2018
The case for US government sanctions on Israel
Women of LA Rise Again to Denounce Trump Photoset 4
Women of LA Rise Again to Denounce Trump Photoset 3
Women of LA Rise Again to Denounce Trump PhotoSet 2
Women of LA Rise Again to Denounce Trump PhotoSet 1
Women's Political Representation & Electoral Reform
Trial Starts for Woman with Erb’s Palsy Punched in Face Repeatedly by LAPD Officers
Dear District Attorney Jackie Lacey, Prosecute Killer Cops, Signed: Your Constituents
Great solidarity action today
Chris Ballew beat up by Pasadena police
Retired LAPD Sgt. Cheryl Dorsey explains how the LAPD's Board of Rights hearings work
An Ex-Cop Talks About Police Shootings
Do Nukes Kill?
More Local News...
NYPD Case Calls Attention to 'Consent Defense' That Can Be Used by Officers Accused of Rap
Hero Hunters Hack - Get Unlimited Bucks and Gold
Our Beneficial River Jordan
State Investments and the Public Sector
Sauve-qui-peut du gâchis
Talon de fer
The Shortwave Report 02/16/18 Listen Globally!
The judiciary could force America to solve the homeless crisis
The torrefied pellet plant will not be built on the Limousin mountain!
Endf Russophobia! Time for a New Detente Policy
Paraphysique du catastrophisme
Baltimore police union balks at policy requiring officers to pay some legal damages themse
Researching Islamic Terrorism in Europe.
Asian American Stereotypes in Media
La diversité clonée
Forever Fierce Day
A l'époque du spectaculaire concentré et diffus ( Hommage à feu Michel Noury )
Paraphysique de l'argent
gerrymandering by republicans
New Law Provides Disaster Relief and Medicaid Funds for Puerto Rico and US Virgin Islands
The Shortwave Report 02/09/18 Listen Globally!
Baltimore Cops Kept Toy Guns to Plant Just in Case They Shot an Unarmed Person
Part 5: Honduras Coup Repeat Update: 16-31 January 201
Puerto Rico and US Virgin Islands Disaster Relief Hangs on Senate Negotiations
More Breaking News...