An End To Austerity?

Tyler Durden's picture

Submitted by Mark Thornton via the Ludwig von Mises Institute,

President Barack Obama has recently released his budget in which he calls for an “end of austerity.” This is an amazing statement from a president whose government has spent the highest percentage of GDP in history and added more to the national debt than all past presidents combined. What must he mean by austerity?

There are demonstrations around the world over austerity on an almost daily basis. It is condemned as an evil poison for tough economic times while others tout it as the elixir for economic depressions.

The president’s rejection of austerity represents the Keynesian view which completely rejects austerity in favor of the “borrow and spend” — increase aggregate demand — approach to recession. What he really is rejecting is the infinitesimal cutbacks in the rate of spending increases and the political roadblocks to new spending programs.

While the 2009-2012 budgets have been relatively flat, they are still more than 15 percent higher than in 2008 and 75 percent higher than in the previous decade. This four year leap in spending was financed with a $5 trillion increase in the national debt. No austerity here!

The type of austerity that gets the most worldwide press attention on a daily basis is that promoted by economists at the International Monetary Fund. This “austerian” approach involves cutbacks in government services and tax increases on the beleaguered public in order to, at all costs, repay the government’s corrupt creditors. This pro-bankster approach is what generates a massive amount of media attention and sometimes violent demonstrations.

Austrian School economists reject both the Keynesian stimulus approach and the IMF-style high-tax, pro-bankster approach as counterproductive. Although “Austrians” are often lumped in with “Austerians,” Austrian School economists support real austerity. Real austerity involves cutting government budgets by reducing salaries, employee benefits, and retirement benefits. It also involves selling government assets and even repudiating government debt. Instead of increasing taxes, the Austrian approach advocates decreasing taxes.

Despite all the hoopla in countries like Greece, there is no real austerity except in the countries of Eastern Europe. For example, Latvia is Europe’s most austere country and also one of the fastest growing economies. Estonia implemented an austerity policy that depended largely on cuts in government salaries. In contrast there simply is no significant austerity in most of Western Europe or the U.S. As Professor Philipp Bagus explains, “the problem of Europe (and the United States) is not too much but too little austerity — or its complete absence.”

Real austerity for individuals means living a highly restricted lifestyle. The best example is the monk who lives on a subsistence-level diet, wears simple clothing, possesses a few basic pieces of furniture, and uses only necessary utensils. His days consist of long hours of work and prayer with no leisure activities and he may not even enjoy indoor heating or plumbing.

Austerity applied to whole countries, is not necessarily so harsh or ascetic. It simply means that the government has to live within its means.

If government were to adopt a thoroughgoing “Libertarian Monk” lifestyle, then the national government would be cut back to only national defense without standing armies and nuclear weapons. The national debt would be wholly repudiated. This would involve certain short-run hardships, although much greater long-run prosperity.

In contrast, the typical austerity policy is not severe. Government employees would be given cuts in wages, benefits, and retirement benefits necessary to balance the budget. The biggest cuts would fall on politicians, appointees, and senior bureaucrats. Given that such cutbacks occur when most everyone is facing cutbacks and hardships and given that government employees are typically very well compensated, it is not unreasonable to expect them to bear most of the burden of an austerity policy.

One particularly promising area for cutbacks is government regulation. Regulation is a burden on taxpayers, discourages entrepreneurship, and makes us less safe. One recent empirical study found that regulation was extremely costly and that “eliminating the job of a single regulator grows the American economy by $6.2 million and nearly 100 private sector jobs annually.”

Real austerity actually works best with tax cuts. To help austerity create growth it needs to be understood that certain taxes are highly discouraging to production. Tax cuts on investment and capital in contrast stimulate economic activity and production.

IMF-inspired tax increases make no sense. In hard times, government policies should be guided by the idea of increasing production, not of making production more burdensome via higher taxes. In much the same way, our ascetic monk does not force his duties and burdens on ordinary citizens.

President Obama has also suggested higher taxes (again) this time such as the removal of “tax breaks” for the retired rich. This would be the first step toward robbing our IRAs. Some have even suggested that “austerity” should involve extending existing taxes onto charities and nonprofits. Others have suggested taking away the tax-exempted status of charities and non-profits, which is nothing but a backdoor tax increase. These are some of the dumbest suggestions, especially in economic crises and are not real austerity.

Austerity does not mean, for example, budget cuts that would eliminate garbage collection or shutting down the fire department while leaving the military, education, and the spy state untouched. This is just a form of extortion that does not solve the problem. It only reveals the true nature and intent of those who work in government.

The Keynesian stimulus approach does not work. The IMF-inspired austerian approach also does not work. Only real austerity works. This means cutting government employee incomes, benefits, and retirement benefits. This alone would encourage them to run a tighter ship in the future. Eliminating regulators and regulations, cutting taxes, and selling government assets would all aid in the recovery process.

President Obama and Congress should get busy doing what is best for the economy and the American public instead of enriching themselves and those who feed at the public trough.

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sgt_doom's picture

Feed at the public trough?

Oh, you mean JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America, Citigroup, Wells Fargo, GE, Blackrock, Blackstone Group, Carlyle Group, AT&T, ExxonMobil . . . .

Yup, too many bottom feeders.

TruthInSunshine's picture

End to Austerity =

A continued attempt to paint a fictional narrative of "recovery," told by monkeys printing massive reams of fiat paper, in order to reflate asset bubbles & get the serfs to assume/consume MOAR debt - and if the individual is reluctant to awesome more debt, the financial entities that own "sovereign governments" will force their government puppets to assume more debt (and pay outlandish prices on things that are not needed) & try to shift the burden to said individual (via taxation, present & future).

It's all nothing but a simple illusion, created by the oldest method in the fractional fiat reserve bankster's playbook, and it will inevitably lead to the next, bigger "popping" sound.

It's on continuous loop, now.

"Debt is the money of slaves."

There are more & more debt slaves with each & every passing day.

Anusocracy's picture

How about austerity where government is paid for voluntarily?

Real austerity created by real freedom.

economics9698's picture

Obama has spent 25.2%, 24.1%, 24.1%, 22.8%, 22.7%, and a projected 22.2% of the GDP.  Historically any spending over 18% will be a deficit, period.

 

Government waste about 55 cents on the dollar, the private sector must make $1 plus inflation, plus a profit or go out of business.

In other words Obama wants the recession to last for as long as he is in office.

The secret to the high growth rate of the Eisenhower years (despite a 91% top tax rate) was the guy almost never spent more than 18% of the GDP on the federal government.

Dick Buttkiss's picture

"How about austerity where government is paid for voluntarily?"

B-b-but that would mean that government would be so small it couldn't do all the good it does for the few by taking so much from the many, then bribing the many with goodies paid for out of money printed ex nihilo that is then lent to the many in order to turn them into endlessly-consuming debt slaves that do further good for the few!

Wait what?

Beam Me Up Scotty's picture

"(despite a 91% top tax rate)"

No one paid 91%.  Period.  There were a raft of loopholes etc, and no one actually paid that rate.  Tax and spenders love to use that as proof high taxation provides a strong economy.  Its BUNK.  WHO would pay that kind of rate?  You seriously think anyone is going to work when .gov takes 9 out of 10 days of your labor?  Its bad enough now, its probably 7 out of 10 days of your labor when you add your Fed, state, and local income taxes, property taxes, sales taxes, fees and licenses in.  Hell, maybe it is already 90% of a persons income.  Thats why no one wants to work anymore.

economics9698's picture

I know that.  That was in there for the Robert Reich zombies who think the reason for the high growth rates was the "sharing of wealth” kumbya during the Eisenhower years.

Although there could be a case made that Elvis and Marylyn paid the 91%. /sarc

Keyser's picture

This administration wouldn't know austerity if it jumped up and slapped them silly. The fact that they used austerity as  talking point in an Oblamo speech not only shows their hubris, but their determination to spend the US into oblivion. Stack on. 

 

moneybots's picture

"The secret to the high growth rate of the Eisenhower years (despite a 91% top tax rate) was the guy almost never spent more than 18% of the GDP on the federal government."

 

The U.S. was producer to the world when Eisnhower was President.  Those days are long gone.

A Nanny Moose's picture

No force? Then it wouldn't be government

macholatte's picture

 

....cutbacks in the rate of spending increases...

meaningless drivel to the sheeple

RafterManFMJ's picture

Austerity is for the middle class; those above and below FUCKIN PARTY ON!!

RaceToTheBottom's picture

Article doesn't mention MIC and WS?  Or are those included when they mean Government must reduce. 

Makes sense MIC and WS act as government without the General Services (GS- ranking) payment constraints....

agent default's picture

What a load of crap. "Real austerity for individuals means living a highly restricted lifestyle."  Bullshit.  Real austerity means the government cuts spending, and lowers dramatically taxes.  It is government spending and stifling of the private sector through over regulation and over taxation that lead to the problems we see today.

TruthInSunshine's picture

Governments are owned by monopolistic entities, and they will tax their citizens to buy whatever and how much "stuff" - mostly unecessary & worthless - that these monopolistic Money Masters instruct their government puppets to purchase.

Governments then accrue larger national debts, in the form of higher present and future levels of taxation upon the real builders of wealth, increasingly sucking these real businesses & people dry (until the incentive to produce anything of value is outweighed by government bloodletting).

That's how CronyCapitalism works.

ebworthen's picture

They're only stifling small businesses owned by individuals.

Don't you know that the Supine Kangaroo Court decreed corporations "individuals"?

This means that individuals (We the People) are now Serfs, serving the kleptoligarchy.

Welcome to the machine.

Milestones's picture

Interesting legalites this "corporations are individuals" decree from the high court. If you and I can buy stock in the xyz corporation does it not fallow that the 13th Amendment to the U.S. Constitution which prohibits anyone from owning  people be somewhat awkward to explain to your kids. I mean owning a part of a people (person) and all !! 

Gee Wiz, silly me.               Milestones

WMM II's picture

" It is government spending and stifling of the private sector through over regulation and over taxation that lead to the problems we see today."

 

disagree.

it was specifically the deregulation of the banks that accomplished the distortions and sufferings that stole the savings of everyday people and forced them to pay artificially high prices for commodities to boot.

 

:)

wmm

Dick Buttkiss's picture

Sorry, WMM II, but you can't dergulate that which is above regulation by design and is in fact corrupt to its very core:

https://www.youtube.com/watch?v=lu_VqX6J93k

WMM II's picture

thanks for your thoughts.

 

until 2000, the rules seperated banking from 'shadow' banking. therewithin lies the root, as i see it. aka tossing out glass-steagall.

 

 

:)

wmm

Dick Buttkiss's picture

What Glass-Steagall separated was two sides of the same rapacious system, about which Henry Ford had this to say way back when:

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

In other words, not only did Henry Ford know how corrupt the system already was — i.e., back when it was innocent by comparison — he, being the oligarch that he was, approved of the fact that the "people of the nation" didn't understand it.

And on it has gone ever since.

Until it doesn't.

djsmps's picture

The good times are comin'!

LooseLee's picture

Yup; Dow 4000, S&P 400, and NAS 1000 will allow good times to once again be possible...

ebworthen's picture

It's a nice idea, and morally and ethically sound, but 101 years too late.

There is no reaason I or any other citizen should suffer austerity or a monk's lifestyle while banks and corporations are bailed out, $1 Billion taxpayer obilgations is sent to a putsch in Ukraine, and The Constitution is being raped.

The whole thing needs to be torn down and rebuilt and I'm not going to live like a monk so it takes longer to collapse or so Washington D.C. and Wall Street can live high on the hog.

Bleed the beast.

Kill the beast.

RaceToTheBottom's picture

"... with liberty and QE for all"

Milestones's picture

Joan of Arc always pop into my head in this coicumstance.                        Milestones

Milestones's picture

CIRCUMSTANCE--you heathen.             Milestones

Greg's picture

Just reduce what you earn and starve the beast of revenue.

Duc888's picture

 

 

 

....common core math.  That's gotta be it.  No other explanation.

RaceToTheBottom's picture

In the Keynesian view of the world, austerity only comes after the recovery and growth has been achieved....

I would have thought the recovery would feel better.....

Or does that mean that since the austerity is ending, we are having Keynes II?  Or is that QE4?

The numbers are so confusing.  Maybe QE 4ever is the best

 

LOL

Beam Me Up Scotty's picture

And they are all full of shit too.  Austerity for government NEVER comes.  When the "recovery" comes, they will spend even MORE.  Their is an infinite amount of wants and a finite supply of labor to finance it all.  Someone needs to tell these big spending idiots NO MORE SPENDING.  Just like a spoiled child in the grocery store who cries when he can't get a candy bar.  Spoiled rotten babies is all they are.

zebrasquid's picture

Fresh Prince of Bill Ayers.

Walt D.'s picture

"President Obama and Congress should get busy doing what is best for the economy and the American public instead of enriching themselves and those who feed at the public trough."

More Marxist drivel. President Obama and the Congress could not run an ice cream van in a heat wave at a ball game. The best thing they can do is to get out of the f**ing way. Central planning does not work.

RafterManFMJ's picture

"President Obama and Congress should get busy doing what is best for the economy and the American public instead of enriching themselves and those who feed at the public trough."

This quote signifies the author is a genuine fucking retard; I'd gladly donate to his sterilization fund.

Now I ask you, I call upon the ZeroHedges of new and old, to re-read the above quote.

I hereby posit for the first time on the internets that there is a level BEYOND full retard, and I name it thus:

Full Plaid Retard

Atomizer's picture

I’ll leave you two links, you decide on how they interconnect world government in United States of America.

http://investmentwatchblog.com/billionaire-george-soros-doubles-his-bet-that-the-market-is-heading-for-a-crash/

http://www.georgesoros.com/

 

Do you understand why countries are leaving the Federal Reserve petrodollar farce?

http://www.newyorkfed.org/research/current_issues/ci12-9/ci12-9.html

 

The Jew fucks need to create terrorism to keep the moneychangers in business. The Islam world sees this. This can’t get any easier in figuring out the one world system. Unfortunately, everyone will pull money out of the new JEW banking control. The banking collapse will occur before they become the next Israeli universal currency banking institute.

 

I digress.. LOL

Oquities's picture

Austerity is when they don't let you buy legal weed wif your bridge card.

stormsailor's picture

the "KENYAN" view.  there fixed it for ya

realWhiteNight123129's picture

Well the central bank of China has found a way around.

China has a trade surplus, normally treasuries balance increase, but the CHinese gov is encouraging and DE-taxing gold. (anything that is detaxed results in a boom, same thing for stocks in Japan).

 

So China receives TSYs on the balance sheet, ok. Next some base money is created against this "monetary asset", which is the reserve of commercial banks which in turn has bank currency deposit.

Here we have the smart Chinese Gov encouraging the people of CHina to buy Gold.

1. The currency deposit is withdrawn to buy physical gold. So the currency deposit is shrunk, some Gold is imported and some Treasuries are returned back to the US and exchange for Gold.

Results:

1; CHina stops increasing its TSYs and USD holdings.

2; Chinese people are protected from currency turmoils down the road.

3; The TSY come back home to the US, forcing the Fed to buy them.

So end of USD appetite is happening right now.

 

Rising Sun's picture

the bond market will TELL obama when and what to spend

 

fucking Barry - bloody asshole

Professorlocknload's picture

I used to think that, but they musta locked all the Bond Market Vigilante's up, 'er somthin'.

Seasmoke's picture

i aint doing jack shit, to help out fucking thug cops, thug bankers and thug politicians.....

DaveA's picture

If forced to make cuts, always cut the popular stuff first. Government is a huge organism turned inside out, wearing its blood and bone on the outside to protect its fat.

I Write Code's picture

Austerity is one golf ball per month.

Atomizer's picture

In unfriendly times. Currency wars, will hit MSM, until then, don’t tell then the truth!

Schmuck Raker's picture

Repudiate the Government's debt.

This is the surest solution, and eventuality.

Bear's picture

WTF ... just repudiate the Government